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READY TO BUY A HOME?

DEANA M. DEVEREAUX • February 16, 2022
Buying a home can be so incredibly exciting and nerve-wracking at the same time. It is a major commitment, one that you’re likely taking on for 15 to 30 years, depending on the term of your loan, so it’s important to be sure that you’re ready to take on this task. 

Prior to buying your first home, you’re more than likely already paying rent so the payments might not be too much of an adjustment. Shoot, your mortgage payments might even be less than your current rent so if that’s the case, you’re already off to a good start. With that being said, the biggest shock when switching from renting to owning is that you are now responsible for preventative maintenance and fixes to every aspect of the home. If your refrigerator stops working while you’re renting, your landlord is responsible for the fix. If you own the property, it’s now your responsibility, on top of keeping up with mortgage payments.  This is why financial stability is so important when walking into the homeownership. 

There are a few different factors to take into consideration when deciding if you’re ready for homeownership. First, are you mentally prepared to make a 15-to-30-year commitment? This is a massive hurdle but once you’ve decided that it’s time to get the ball rolling, you will need to get in touch with a lender. This is where the real work begins because if the bank is going to lend you enough money to purchase your home, they want to ensure that you’re financially secure enough for that commitment. The bank will dig into your work history, pay stubs, debt-to-income ratio, credit, and funds available to close as these are the major factors that will help them determine the likelihood that you will pay back your loan on time.

 

Do you have a stable job with a steady income? Is there anything that could affect this income? It’s crucial to ensure that you will have financial stability through the life of your loan because if you get behind on payments, you may not be able to catch back up. Your potential lender will be looking for 2 years of W2s so it’s important to have at least two years of work history under your belt. 


If you’re in sales and paid on commission or you’re a small business owner, getting loan approval will likely be more difficult because of your “unsteady income.” For someone in these situations, it’s suggested that you have 8 to 12 months of income to show the bank so they know that you’re prepared to pay back the loan on time. This may seem like an unrealistic figure but it’s important to have liquidity when proving to the bank that they can trust you with their money.


Next, it’s important to have your debt-to-income ratio under control. Your lender will calculate this value by taking the sum of all your monthly debt and dividing it by your gross income. Some lenders will use your net income but using your gross income will provide a better representation of the true debt to income ratio. From a gross income basis, the bank will expect this number is under 36%. 


Next, how is your credit? Credit is a factor that is taken into consideration anytime you’re hoping to borrow money and the better credit score you have, the better interest rate you’re going to end up with. The interest rate you have will control your monthly payments and ultimately determine how much house you can afford. If your credit score is not above 580 before speaking to a lender, it’s time to work on fixing this number because below 580, you don't qualify for a mortgage.


In terms of improving your credit score, it is made up of five different factors which include payment history, the amount owed, length of credit history, types of credit, and new credit. These five factors hold different weights to your overall score and your payment history makes up the largest portion of the calculation at 35%. Next, the amount owed is weighted at 30%. For there, the weight drops for the next three factors. Length of credit history is weighted at 15% while types of credit and new credit are weighted at 10% each. 


Along with paystubs and W2s, the bank will also ask for a record of all assets you have available. They will ask to see current statements for your 401k, investments, and bank accounts to be sure that if you lose your job or fall behind on your loan, there are assets you can utilize to make payments. 


The last factor that will go into your lender approval is how much money you have available for your down payment. When closing on your home, you will be required to pay a down payment which can range from 0 to 20% of the total loan, depending on the loan type. You will also be required to pay closing costs on the home which are usually about 3 to 4% of the loan cost. Unfortunately, closing costs don't go to the loan, they're just the fee associated with transferring the home to you. If you’re applying for a USDA or VA loan, you can put as low as 0% down and just pay closing costs. For FHA loans you will need a minimum of 3.5% to put down with closing costs. And conventional loans require a minimum of 5% down and closing costs. If you don’t have the funds to pay for both the required down payment and closing costs, the bank won’t be willing to lend you the funds for the remainder of the loan. 


Ultimately, when deciding if you’re ready to buy a home, it’s crucial to ensure that you have a down payment, funds for closing costs, other savings available, a steady job with consistent wages, a debt-to-income ratio below 36%, and a credit score above 580.


Remember, be sure to visit a few different banks to determine what their rates and options are. Once you’ve checked with 3-4 different banks to see who provides the best rates, it’s time to get pre-approved. The bank will let you know how much you’re approved for as well as provide a pre-approval letter so that you can start looking at homes and possibly get under contract fast.


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AFFECTING THE MORTGAGE INDUSTRY? NEW LAWS 2022

By DEANA M. DEVEREAUX • June 21, 2022
It’s important to stay up to date on the ever-changing landscape that is the mortgage industry. It’s possible that the newest laws passed by congress, Fannie Mae, and Freddie Mac could affect those looking to get a mortgage, or refinance in the coming months. We’ve put together all the latest on the newest and upcoming mortgage laws affecting the industry. Additional due diligence for condo buyers If you’re looking at buying a condo that is 20 years or older, you may have to jump through a few extra hoops before signing the final loan docs. Conventional loan buyers will have to go through an additional due diligence process that includes obtaining answers on safety, soundness, structural integrity, and habitability of condos from the condo association before the loan can be processed. If you’re looking at a condo this spring, it’s best to get prepared now. While this extra due diligence step is a pain, it’s in your and your lenders best interest. This extra due diligence step was born out of the devastation of recent condo building collapses in the U.S. New fees for vacation home financing and high-balance loans If you thought 2022 was the year for. A second home, vacation home or jumbo upgrade, it may still be but you’re going to be looking at additional fees. Upfront fees for these types of loans are expected to increase between 1.125 percent to 3.875 percent. Fannie Mae and Freddie Mac explain that these increases in the second home market are to keep first-time homeownership rates low and facilitate equitable and affordable housing. You can still buy down these increases with points just like you can buy down an interest rate. This rate increase comes as we saw the housing market skyrocket and borrowers take on additional debt to compete in this hot market. Self-employed borrowers rejoice – loosened regulations Thanks to the pandemic, the number of freelanced workers has increased. The good news keeps on coming because lending criteria has relaxed for self-employed borrowers. The COVID-19 pandemic saw an increase in requirements for self-employed borrowers. If you’re a freelancer, you no longer need to provide year-to-date profit and loss statements and three months of bank statements. We’re back to the good old days of using tax returns to show income! If you’ve been waiting to buy a home because you’re a self-employed borrower, now is the time! In the past, borrowers had to show creditworthiness through any number of on time loan payments including credit cards, first mortgage loans, car loans and more. The strict creditworthiness requirement affected many buyers that did not have credit cards, mortgage loans, or car loans. Now your mortgage loan provider can use a verification tool to check bank deposits for on-time rental payments, and other creditworthiness information. Say goodbye to mounds and mounds of paperwork proving you pay your loans on time!

DO YOU REALLY NEED A REAL ESTATE AGENT?

By Deana M. Devereaux • June 14, 2022
 The real estate agent that you’re working with to buy your home should be your advocate. You want to ensure that they are aware of all risks and benefits associated with the property you’re looking to buy. There is a major benefit in having a good real estate agent because they can ultimately help you make money on the purchase of your home in the long run. If your agent shows you homes where you could add an additional bedroom or bathroom or they show a property where you could finish the basement, they’re helping you gain equity in the property. On the flip side of that, if they don't understand your search area and they show you a home that is overpriced and they suggest that you go in over the true value of that home, you’re losing money on the transaction. It’s important to work with someone that you trust to guide you through the process and help you make decisions that will help your bottom line, not hurt it.

THE INS AND OUTS OF FINANCING A 2ND HOME

By DEANA M. DEVEREAUX • May 23, 2022
Step 1 – Decide How You’re Going to Use the Second Home Your down payment requirements and loan types will differ depending on what you plan to use your second property for. For example, do you plan to use it as a vacation home, secondary residence, or full-time rental property? A vacation home or secondary residence may qualify for a conventional home loan. When qualifying for a second conventional loan, the process is much like your first mortgage except you will be required to put down 10 percent. If you are purchasing the home to use as an investment property or full-time rental, you won’t qualify for certain loan types such as FHA or VA loans. You will also be required to put down a larger down payment than a vacation home or secondary residence. In addition, you may have to meet stricter debt to income ration requirements. All hope is not lost though! You can still qualify for a vacation home or secondary residence if you plan to rent the home out on apps like Airbnb. Typically, you must occupy the home for some portion of the year, and the home must be a one-unit home that can be used year-round. We can help you figure out what loan type you qualify for. Step 2 – Save For Your Down Payment There are multiple ways to complete this step. You can save the traditional way and put away a portion of your paycheck every month. You can also use the equity in your primary home to fund the down payment of your second home. There are multiple programs available such as: · Cash out refinance: A cash out refinance allows borrowers to borrow up to 80% of their home’s current value. The only caveat with this option is that your primary home’s monthly payment will increase. · HELOC: A HELOC, otherwise known as a Home Equity Li ne of Credit. This avenue differs from a cash out refinance because you are not refinancing your primary home’s mortgage. This is a good option if current interest rates are higher than your primary home mortgage interest rate. The last thing you want to do is refinance to a higher interest rate!
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