How to Calculate Your True Cost of Living and Determine How Much Mortgage You Can Afford

How to Calculate Your True Cost of Living and Determine How Much Mortgage You Can AffordA monthly mortgage can seem like enough of a financial responsibility on its own, but there are many factors involved in home ownership that affect its fiscal feasibility. If you’re in the market for a house and are wondering how your income will stack up against the rest of your expenses, here’s how to determine a home cost that’s reasonable for you.

Determine Your Down Payment

Before you start with anything else, you’ll want to determine the amount of money you can put down so you can estimate your monthly payments. The traditional amount for a down payment is 20% of the home’s purchase price, so if you don’t have anything close to this amount it might be worth waiting a little longer so you can minimize your payments and the amount of interest or mortgage insurance you’ll be paying in the long run. Each person’s situation is different, and there may be programs available with less than 20% down. This is an excellent question to pose to your trusted mortgage advisor.

Calculate Your Monthly Budget

If your mortgage cost already seems high, it will definitely be worth carefully calculating your monthly expenditures. Instead of a wild guess, take the time to sit down and calculate what your costs are including food, utilities, transportation and any other monthly necessities. Once you do this, it’s also very important to add any debt repayments you’re making to the mix. The total amount of your estimated mortgage costs, debt payments and living expenses should give you a pretty good sense of if your mortgage is viable in the long term.

Don’t Forget About The Extras

When it comes to purchasing a home, many people envision that they will be eating and sleeping their new home so don’t pay attention to all of the additional costs that can arise with living life. A new home is certainly an exciting, worthwhile financial venture, but ensure you’re realistic about what it entails. If you’re planning to go back to school or have children in the future, you’ll want to add a little bit of extra cushion in your budget so that you don’t have to put your other dreams on hold for the sake of your ideal home.

It can be very exciting to find a home you feel good about, but it’s important before making an offer to realize the amount of house you can afford so you don’t find yourself in a hole down the road. If you’re currently on the market for a new home, contact your trusted mortgage professional for a personal consultation.

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Refinancing Your Mortgage: Understanding the Various Types of Refinancing

Refinancing Your Mortgage: Understanding the Various Types of RefinancingWhether you’ve been thinking about ways that you can draw on your home equity to fund a renovation project or you want to take advantage of low interest rates before they rise again, refinancing your mortgage is an excellent option.

In today’s blog post we’ll introduce mortgage refinancing and discuss a few of the ways that you can use this tool to help accomplish your financial goals.

Cash-In and Cash-Out Refinancing

Many homeowners refinance their mortgage in order to take some of the home equity out for other purposes. In a “cash-out” refinancing, you take out a new mortgage loan which is greater in value than your current loan. After paying off the existing mortgage you’ll receive a check for the difference which can then be reinvested in home upgrades or put to use elsewhere in your financial portfolio. You may also be able to get a better interest rate in this type of refinancing, saving additional money over the long term.

Do you owe more on your mortgage than your home is currently worth but still want to take advantage of lower interest rates? If so, “cash-in” refinancing is an option that can help you to avoid the mortgage insurance costs that you may be facing when you refinance. As the name implies, cash-in refinancing will provide you with a loan that is for less than the amount that you currently owe, so you’ll need to add “cash-in” to make up the difference.

Home Affordable Refinance Program or “HARP” Refinancing

If you find that you’re unable to refinance your mortgage as the value of your home has declined, the federal government’s Home Affordable Refinance or “HARP” Program may be an option. If you have been making your mortgage payments on time, have a mortgage guaranteed by Fannie Mae or Freddie Mac and your current “Loan to Value” ratio is greater than 80% it’s likely that you’ll qualify for HARP refinancing.

The above are just a few of the ways that you can refinance a mortgage to better suit your needs and financial goals. Contact your local mortgage professional today to learn more about refinancing and to discuss how you can tap in to the home equity that you’ve built up over time.

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5 Uncommon Mortgage Terms You Need to Know

5 Uncommon Mortgage Terms You Need to KnowWhen it comes to finding a new home, there are lots of complex ratios, terms, and contracts that you’ll encounter – and at times, it’ll feel like you’re trying to navigate a minefield. Here are five mortgage terms you may not encounter regularly that you’ll need to know when buying a home.

Escrow: Money Held In Trust To Pay Taxes

An escrow account is a bank account that your lender maintains on your behalf. When you close your mortgage, you’ll need to deposit a certain percent of your annual property taxes into the escrow account, which your lender will hold in trust and use to pay your property taxes.

PITI: How Your Lender Calculates Your Monthly Payments

Your lender uses a specific formula used to calculate exactly how much money you need to pay your lender each month. Each month, your mortgage payment will include portions that go toward your principal loan amount (P), your interest payment (I), your property taxes (T), and your homeowner’s insurance (I). If you have private mortgage insurance, it’ll be included with this PITI payment.

Rate Buydown: Lowering Your Interest Rate With A Larger Down Payment

A rate buydown, also known as a discount point, is a chunk of your mortgage interest that you pre-pay in order to get a lower monthly interest rate over the life of the loan. Each point you buy reduces your interest rate by a small amount.

Loan Estimate: What Your Lender Must, By Law, Give You

A loan estimate is a form that your lender is required to give you when you apply for a mortgage, as per the Truth in Lending Act. Your loan estimate will include your estimated costs of carrying the loan – including monthly payments, interest rates, and processing fees. Loan estimates allow you to compare terms and rates across different lenders.

Loan-To-Value: Determining How Much House You Can Afford

Your LTV (loan-to-value) ratio is a ratio that is used to calculate the amount of equity you have in your home and to assess your risk as a borrower. Typically expressed as a percentage, your LTV is determined by dividing the total amount of your mortgage loan by the property’s fair market value. Borrowers generally prefer to see lower LTV ratios.

Mortgages contain a variety of legal terms that can be challenging for the uninitiated to understand. But with a qualified mortgage advisor on your side, you’ll have no difficulty navigating mortgage contracts and finding the right mortgage for you. Contact your local mortgage professional to learn more.

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Struggling to Get Approved Because of Your Income? 5 Reasons to Consider a FHA Loan

Struggling to Get Approved Because of Your Income? 5 Reasons to Consider a FHA LoanBuying a home isn’t cheap. But if you’re determined to become a homeowner, the FHA home loan program can help. This loan program, ideal for first-time buyers with low incomes, can help you to build your credit and make home ownership a reality.

So why should you consider an FHA loan? Here are just a few ways you’ll benefit from these government-backed mortgages.

You Can Get Approved With Just 3.5% Down

Traditional mortgage lenders typically require you to pay 20% down on your mortgage, or 5% if you have good credit and agree to pay mortgage insurance premiums. But for a lot of younger people with lots of debt and low incomes, even a 5% down payment is an unrealistic burden. With an FHA loan, you can be approved for a mortgage with a down payment as low as 3.5% – which means a $200,000 home can be yours for as little as $7,000 down.

You Can Get A Loan Even With A High Debt-To-Income Ratio

Standard mortgages are difficult to get if you have a high debt-to-income ratio. Typically, lenders will want to see that your mortgage costs will consume no more than 28% of your income, and your total payments toward debts from all sources will be no more than 36% of your income. But with an FHA loan, the maximum DTI is 57%, although it’s lower in some cases.

You Can Qualify With A Low Credit Score

If you have a credit score under 700, you’ll pay higher interest rates on typical mortgages – and if it’s below 660, you may not get approved at all. But with an FHA mortgage, you can get approved for a 3.5% down payment with a credit score as low as 580 – or lower, if you agree to a 10% down payment.

FHA Closing Cost Regulations Are Better For Low-Income Buyers

FHA loans have different closing cost regulations than traditional mortgages. With an FHA loan, you can bundle closing costs into the mortgage or even use gift funds for 100% of the closing costs. That means home ownership is more accessible for people with lower incomes.

An FHA Loan Can Help You Find A Good Home

With most mortgages, you’re free to buy any home you wish as long as you stay within a set price range. But with an FHA loan, any home you buy must be habitable, sanitary, and safe – otherwise the FHA won’t approve your loan. That means using an FHA loan will ensure you get a good home.

Buying a home with an FHA loan is a great way to become a homeowner if a traditional mortgage isn’t an option for you. Call your local mortgage professional to learn more.

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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.

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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.

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The Do’s and Don’ts of Getting Approved for a Mortgage Quickly

The Do's and Don'ts of Getting Approved for a Mortgage QuicklyIf you’re ready to buy a home, getting approved for a mortgage is a critical step that you can’t skip or rush. And although it may seem like the lenders can be a bit arbitrary in their approvals, there’s actually a detailed set of criteria they look for when approving or denying an application.

So how can you ensure your mortgage gets approved quickly and without any hassles? Here’s what you need to know.

Do: Have All Your Documents In Order Right Away

Processing the paperwork on a mortgage approval is one of the most time-consuming parts of getting a mortgage. And if you forget to include a form or fill something out incorrectly, it may take your lender days or weeks to sort out the problem. So before you go to your lender to get approved, make sure you have all of the necessary documents and that they’re all filled out correctly – it’ll save you a great deal of time later.

Don’t: Accept A New Job Or Start A Business While Closing

Once it comes time to close on your mortgage loan, you’ll want to keep your finances as consistent as possible until after the closing. Any change to your financial situation can throw a wrench into the approval process and delay your loan. If you’re planning to quit your job to start a business, accept a new job, cut back your hours, or go on parental leave, wait until after the home sale closes.

Do: Get Pre-Approved With Your Lender

One simple thing you can do to greatly speed up the approval process is get pre-approved. If you’ve already been pre-approved for a mortgage through a certain lender, then securing a mortgage through that lender will be a very smooth process – and in some cases, a pre-approval can speed up your mortgage approval by a week or even more. With a pre-approval in hand, the only issue that remains to be settled with the lender is providing them with your new home address.

Don’t: Co-Sign A Loan For A Friend Or Relative

Any major purchase or new debt of any kind will read as a serious red flag for your lender, one that will take time to sort out. Your lender will do a second credit check just before closing the mortgage, and any new loan amounts can delay or stop the approval. So if a friend or relative asks you to co-sign their loan, wait until after your mortgage is approved.

Getting approved for a mortgage can seem challenging, but by following a few simple rules, you’ll make it easy for your lender to sign off. For more mortgage approval advice, contact your trusted mortgage professional today.

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Major Mistakes Which Are Sure to Increase Your Closing Costs

Three Major Mortgage Mistakes Which Are Sure to Increase Your Closing Costs When shopping for a mortgage, it is important to take closing costs into account. While some closing costs are the same for all lenders, different programs may add or reduce some of the burden borrowers face when closing on a home loan.

Let’s take a look at some major mistakes that could result in borrowers paying more than they need to in closing costs.

1) Failing to Take Property Taxes Into Account

Property taxes are generally put into an escrow account that is established prior to closing on the home loan. In most cases, a homeowner will have to pay 12 to 14 months’ worth of property taxes prior to close.

This can represent several thousands of dollars or more depending on the property taxes associated with a property. While everyone has to pay property taxes, finding a home in a low tax area can significantly reduce the cost of closing on a loan.

2) Failing to Ask Lenders for Credits Toward Closing Costs

A lender may have a program in place that enables them to give a borrower a credit toward applicable closing costs. While this generally may not count toward the down payment, it can still be a significant help for first-time buyers or anyone else who may not have thousands in a bank account ready to pay for lawyers or titling fees.

Depending on where the property is purchased, there may be programs available that provide funding for those who promise to stay in the property for a certain amount of time.

3) Failing to Ask the Seller for Concessions

The seller of a property may offer up to 6 percent of any closing costs associated with the sale of the property. While a seller does not have to offer any concessions, they could potentially provide hundreds or thousands of dollars that may not need to be repaid.

In addition to closing cost support, a seller could also provide appliances or other items that can further save a buyer money during and after the purchase is finalized.

A home buyer can save a lot of money by taking simple and common sense actions. By doing research into cost saving programs and credits toward closing costs, those who may have felt that home ownership was beyond their reach may be able to achieve their dream. To learn more about closing costs, you may wish to talk to a mortgage professional in your area.

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What Happens at a Mortgage Loan Closing Meeting? Let’s Take a Look

What Happens at a Mortgage Loan Closing Meeting? Let's Take a LookSo you’ve found the perfect home, the seller has accepted your offer, and now you’re just waiting for the mortgage to close before you wrap up the sale and take possession. It’s time for the closing meeting.

But what does this meeting entail? And what do you need to prepare for it? Here’s what you need to know.

The Day Prior: Walking Through The Property

24 hours before the closing meeting, you’ll be given an opportunity to walk through the property and do a final inspection. During this inspection, you’ll be able to look for any damage that may have occurred between contract and closing, which means you can negotiate repairs with the seller.

It can be a good idea to schedule your closing date around the 20th of the month, so that if you do find any problems during the walkthrough, you can address them before you take possession.

The Closing Meeting: Title Insurance, Contracts, And More

Typically, the mortgage closing and the home sale closing happen at the same time. During your closing meeting, you’ll need to sign – and bring – a variety of documents in order to take possession of the home. You’ll want to ensure that you bring your good faith estimate, proof of homeowners insurance, contract, and inspection reports to this meeting.

You’ll also want to bring any and all documents that you sent to your bank as part of the home buying process. At this meeting, you’ll discuss the sale with the seller, the seller’s agent, the representative from the title company, the closing agent, the lender, and any attorneys that may be present. By the end of the meeting, you’ll receive a variety of documents, including a deed of trust or mortgage contract and a settlement statement.

You may also be required to sign a mortgage note, which is a note that states you intend to repay the mortgage loan. This note details the terms of your mortgage, including the amount of the loan and what action the lender is entitled to take if you miss payments.

A mortgage loan closing meeting doesn’t have to be complicated. Although there’s a lot that will happen at this meeting and there are a number of documents you’ll need to bring, a qualified mortgage advisor can guide you through the process. Contact your trusted mortgage professional today for a list of what you’ll need to bring and what you can expect to happen at your closing meeting.

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Have You Been Denied for a Mortgage? Here Are 3 Reasons Why You’ll Want to Keep Trying

Have You Been Denied for a Mortgage? Here Are 3 Reasons Why You'll Want to Keep TryingIf you’re in the market for a new home, you’ll most likely need a mortgage in order to afford it. But for some home buyers, getting a mortgage isn’t easy. Banks and other lenders are often hesitant to lend money to certain consumers, often for good reason.

But sometimes, lenders’ reasons for declining you aren’t entirely valid. That’s why, if you’ve been denied for a mortgage, you’ll want to keep trying to get mortgage funds. Here are three factors that can influence the likelihood of approval on the second try.

A Second Appraisal Might Change Your Circumstances

Sometimes, a mortgage lender will deny a loan because the property value of the home in question isn’t large enough to back the loan. If your mortgage lender declines you because of a poor loan-to-value ratio, getting a second appraisal could help. A lot of appraisal companies will give wildly different appraisals on the same property, with some brokers reporting valuation differences of up to $1.3 million.

Bear in mind that you cannot get two appraisals through the same lender, so if you choose to have the home appraised a second time, you’ll need to find a new lender.

Cleaning Up Your Credit Report Can Work Wonders

What’s on your credit report will have a large role in determining whether or not you get the mortgage you want. If you’ve been denied because of entries on your credit report, you’ll want to take every step possible to correct those report issues. If you’ve been more than 30 days late on a payment in the past, it will show on your credit report and affect your score – but by calling your creditor and asking them to remove the negative, you can bring your credit report back into good standing.

You’ll also want to pay off any and all past due balances as soon as possible. If you can’t pay what you owe in full, you’ll want to negotiate with your creditor to pay part of the amount. This will result in the debt showing on your credit report as “paid as agreed”, which will boost your credit score.

An Extra Down Payment May Be A Good Idea

Sometimes, a lender will decline a borrower if the borrower is asking for too much money. If you’re pursuing a mortgage worth more than 95% of the property value, you’ll probably be declined. But if you make an extra down payment, you can lower your loan amount – which may incline your lender to approve your application.

If you’ve been declined for a mortgage, don’t give up. As you can see there are steps you can take to get approved.

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