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Are You “Mortgage-Ready”?

With home prices still hovering near record lows, realtors and mortgage brokers everywhere are urging consumers into homeownership. But are you really ready for the responsibilities that come with homes and mortgages? Consider some of the following factors before making the plunge.

How Stable is Your Income?

It should go without saying that you should be able to comfortably afford your monthly mortgage payment – and that you should expect to be able to do so in the future! In the early 2000s, too many people were burned by mortgage lenders who encouraged them to buy more home than they could afford. If your income varies wildly from year to year, or if you have reason to believe that you may be let go or downsized in the near future, it probably isn’t the right time for you to buy.

How Stable is Your Lifestyle?

Of course, when you buy a home, your mortgage won’t be the only expense involved in the process. In addition, you’ll be expected to pay closing costs to cover the various fees involved in writing the new deed title and legally transferring the property to you. These could add thousands of dollars to your home-buying costs, so it’s not something you’ll want to pay for if you plan to move within the next year or so. In fact, most experts recommend that you wait to buy until you’re sure you’ll be in the same place for 3-5 years, in order to allow the equity you build up in your home to negate these costs.

How Handy are You?

If there’s one universal truth when it comes to homeownership, it’s that something is going to break at some point. This doesn’t just apply to old farmhouses or “fixer-uppers” – even new homes can be plagued by the kind of shoddy workmanship that’ll have you ringing up the plumber, electrician or other repair specialist. And when it comes to these home repairs, you’ve either got to pay someone to do it or do it yourself. If you don’t have the handyman skills necessary to perform basic maintenance, you’d better have deep pockets to cover the expenses involved with home repair!

Despite how dismal this may all sound, be aware that there are plenty of advantages to being a homeowner as well. For example, when you pay your mortgage on time every month, you’re building equity in a physical asset – instead of just padding the pockets of your landlord. You’re also helping to build a solid credit history that will help you to qualify for additional loans and programs in the future. And, of course, there’s the satisfaction and security that comes from knowing you own your own home.

It is, however, important to be aware of the challenges that holding a mortgage can present. Owning a home is very rewarding, but it can be very stressful as well – especially if you’re unprepared for the challenges you’ll face. For this reason, it’s important to think through each of these considerations before taking the leap into homeownership.

If you would like more information on FHA Interest Rates, please go back to the home page.

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What Type of Mortgage Lender Should You Work With?

Mortgage loans are available from a wide variety of sources – from mega-banks like Wells Fargo that are large enough to work directly with Fannie Mae and Freddie Mac, all the way down to local banks and credit unions that make loans from their own funds. But how should you determine which of these lenders will best meet your needs? Let’s look at a few of the things you should consider:

Mortgage Comparison Shopping

When it comes right down to it, your main goal when shopping around for a mortgage loan should be to find the provider or lender that offers you the lowest rates and the fewest fees possible. Over the life of a 30 year mortgage, even a difference of a quarter percentage point in interest can mean a major savings in terms of the overall amount you’ll pay. For this reason, you’ll want to look into several different options and compare them before making your final decision.

One of the easiest ways to compare potential mortgage loan rates is to use sites like BankRate.com or LendingTree.com. These sites compare rates across a variety of different lenders, minimizing the amount of legwork you need to do. Be aware, however, that the search features on these sites often bring back “teaser rates” that only the buyers with the best possible credit ratings will be eligible for. If your credit is anything less than perfect, be sure you get more information before making any final decisions.

Getting to Know Your Lenders

Of course, mortgage loan rates don’t tell the whole story about a company’s lending practices. Applying for a mortgage is a stressful process, so you’ll want to be sure you’re working with a lender that’s friendly, accessible and helpful. Mortgage loans are often very time-sensitive, so it’s important that you have the support of your lender in case any confusion arises throughout the process.

The best way to find a lender that you feel comfortable with is to gather recommendations from your friends and family members. To do this, ask around to see if anyone you know has recently purchased a home and whether or not they’d recommend the mortgage broker they worked with. Once you have a list of a few possibilities, request an interview with each so that you have the chance to meet each person one-on-one before deciding on the right broker for you.

Don’t be afraid to listen to your gut at this point. The most important thing is that you feel comfortable with your mortgage lender; if you feel at all uncomfortable, consider another candidate. The number of accolades or industry recognitions a broker has received doesn’t necessarily mean that he or she is the right fit for you, so don’t be afraid to say no if you encounter someone who’s overly pushy or too laid back for your taste.

By putting the time into finding the right mortgage lender for you, you’ll be rewarded with a strong ally who will help you to navigate your way through the home buying process.

If you would like to learn more about the FHA Interest Rate, please go to the home page.

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How Large of a Mortgage Will You Qualify For?

If you’re thinking about buying a home, one of the first questions that will likely be on your mind is how large of a mortgage you’ll be able to qualify for. In truth, this number will have a major impact on your home search, as certain neighborhoods or certain types of homes might fall outside of your price range if you aren’t able to qualify for a large enough mortgage.

But what goes into determining how much mortgage you’ll qualify for? Let’s look at a few:

Income

It’s true that income is one of the largest factors involved in determining how large of a mortgage you’ll qualify for, as most mortgage lenders use strict budget ratios when figuring how much you’ll be able to pay each month. Although different lenders have different requirements, the generally accepted rule is that housing expenses should constitute no more than 30-35% of your monthly after-tax income.

Existing Debt

Another factor that’s included in these budget ratios is the amount of debt you already carry. After the recent economic downturn, lenders are increasingly wary of any borrowers they feel may not be able to make good on their mortgage obligation. If you already hold large car loans and have maxed out several credit cards, lenders will be – understandably – concerned that you have more debt than you’ll be able to pay for each month. If, for example, you were to lose your job, the lenders would be worried that you’d pay off these other debts before their loan.

For this reason, it’s a good idea to pay down any existing debt as much as possible before you ever speak with a mortgage broker about buying your own home. If you’re having trouble making payments or feel overwhelmed by the debt you carry, a non-profit credit counseling agency may be able to help. As an added advantage, once you pay of these cards, you’ll have a new cash reserve in case you run into any serious issues as a new homeowner.

Credit Score

Mortgage lenders also use your credit rating in order to determine how large of a mortgage to offer you. Your credit score – along with the credit history it’s based off of – demonstrates to potential lenders how well you’ve managed credit in the past. Typically, they like to see a long history of satisfactory accounts, a variety of different types of credit (ie – installment loans, revolving accounts and more), and a report free from bankruptcies or delinquencies.

In the current economic climate, you’ll generally need a score of at least 620 just to qualify for a mortgage. A higher score – when paired with the other variables described in this article – will help to qualify you for a larger loan or for a loan with better terms. If your credit score is below this magic number, be sure to check your report for any previously unnoticed errors (as many as 25% of reports have them!), as these could be negatively affecting your score.

If you would like to learn more about the FHA Interest Rate, please go to the home page.

Mortgage Basics – What’s Included in Your Payment?

If you’re thinking about buying a home, you’ve probably run a number of properties through a sample mortgage calculator, which estimates your monthly payment based on a number of different factors. Depending on the complexity of the calculator, you might even be surprised to see how much home you can afford – especially if you compare these numbers to the average rents in most major metropolitan areas.

However, buying a home and taking on a mortgage isn’t simply a matter of trading your monthly rent check for a mortgage payment. There are a number of other figures involved that you’ll need to take into consideration.

Principle & Interest – If you’ve ever held a commercial loan before, you’re likely already familiar with these terms, but let’s take a second to review them. The principle of your mortgage loan represents the purchase price of the home you buy – if you buy a home for $200,000, the principle on your loan is $200,000. The interest, on the other hand, represents the charges your bank assesses in order to lend you money. This is expressed as a rate, just like you’ll see with credit cards or other loans.

Taxes – As a property owner, you’ll have to pay taxes each year, based on the assessed value of your home. Depending on the state where you live and the bank you get your mortgage from, an estimated monthly tax payment may be incorporated into your mortgage payment. If this is the case for you, the tax payments will be held in an escrow account through your mortgage lender, who will take care of paying the tax bill when it comes due. If you aren’t eligible for this service, it’s still smart to set a little money aside each month – this way, you won’t get surprised with a big tax bill at the end of the year.

Insurance – Homeowner’s insurance is a must have. This policy will be responsible for replacing your home and belongings in the event of a major disaster, so it’s not something to take lightly! Again, depending on your bank, this monthly payment may be incorporated into your mortgage payment, or it may be something you pay separately on your own. Your mortgage broker can help you to understand how these policies are set up and what requirements you’ll need to meet.

Homeowner Association Fees – If you live in a condo community, you’re likely represented by a Homeowner’s Association that takes care of common area maintenance and provides such amenities as lawn service, pools or community rooms (depending on your condo complex). This isn’t something that’s negotiable – it’s a requirement for every person who buys a unit in the community – so be sure you can afford this extra expense in addition to your mortgage. Condo fees typically range from $100-400/month, depending on the number of services and amenities that are available.

Buying a home is a big step – you aren’t just moving into a new home, you’re making a major financial commitment that you need to be sure you can live up to. By taking the time to estimate your monthly mortgage expenses, you can ensure that you remain on solid financial footing in your new home.

If you would like to learn more about the FHA Interest Rate, please go to the home page.

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Should You Get Pre-Approved for a Mortgage?

In short, the answer to this question is yes – getting pre-approved for a mortgage is a very important step in the home buying process. Let’s take a look at a few of the reasons to go through this important first step:

Getting Pre-Approved Helps to Manage Expectations

Suppose you begin your home search without being pre-approved for a mortgage and fall in love with a perfect “3 bedroom, 2 bath” home in your dream neighborhood. How will you feel if the house is listed at $400,000, but your bank says it will only give you $200,000? Having a pre-approval letter will ensure that you only see houses you can afford – meaning that you avoid the heartbreak of falling in love with properties that are out of your price range.

This benefit also translates to a time savings for you, the home buyer. Not only will you save time by avoiding houses you can’t afford, you’ll also save time once you’ve found a house you like. The entire process of buying a home involves back-and-forth negotiating with the seller, as well as several inspections, so it could be a major waste of time to go through the process for houses you won’t be able to afford in the end. By knowing how much you can afford ahead of time, you’ll be able to focus your energy and attention on the houses you know you’ll be able to buy.

Getting Pre-Approved for a Mortgage Will Give You More Negotiating Power

Being pre-approved for a mortgage also helps to increase the negotiating power that you bring to the home buying process as a buyer. For example, if you’re competing against another buyer who isn’t pre-approved, you can include a copy of your pre-approval letter with your offer. In this instance, the seller will be more inclined to accept your offer over the other buyer’s bid, as you can demonstrate that you have a guaranteed source of funds.

To begin the pre-approval process, contact the mortgage lender you’re planning to work with and request instructions on how to complete their mortgage application. This form can be quite involved, so plan for at least a half hour where you’ll be able to work on it undisturbed. You’ll need to provide personal information about yourself, your income, your current debts and the amount you’d like to be qualified for. You may need to reference current financial account statements in order to answer some of these questions, so be sure you have them on hand.

Once you submit this application – whether online or on printed paper – the mortgage broker will likely contact you to go over the information you’ve included. After the broker has received all of the necessary information, it will be submitted to the lender’s loan underwriting center to be approved. The underwriters will use set formulas to determine, based on your income, how much mortgage you’ll be able to provide. The broker will then provide you with this information, as well as further details relating to closing costs, in a pre-approval letter that you can take with you throughout the home buying process.

If you would like to learn more about the FHA Interest Rate, please go to the home page.