Buying a Home? Make Sure Your Finances Are in Order First

Below is a guest blog post by Janet Elliot of RE/MAX

Purchasing a new home is part of the American Dream, just as much as graduating high school and college, getting married, and having children. It’s also the hardest part of the dream to achieve; you need patience, resilience, thick skin, and great financial planning.

The latter is the most important aspect of buying a home. With that said, you don’t need loads of money in order to purchase – just decent credit and a solid financial plan. So, before you head out to the local open houses, be sure you’ve first tackled your finances in order to know which homes you can actually afford.

Make Sure You Have the Credit

According to Keith Gumbinger, Vice President of HSH, a mortgage information company, the best mortgage rates are given to potential buyers who have a credit score of 740 or above. However, you can still get a home loan with a credit score of 620; in some cases even a 580 credit score can qualify you for an FHA loan.

Just because you may qualify for a loan at 580, it doesn’t mean that you should apply for one. Lenders use your score to determine whether or not they will lend to you, but also at what rate. Lower credit scores mean higher rates.

The best thing you can do to get your credit score on track before purchasing a home is to get a free credit report from annualcreditreport.com six to twelve months before you go house hunting. This report looks at the three main credit bureaus, giving you insight into your number, and what needs to be taken care of to improve the score.

Doing this up to a year before you start looking allows you plenty of time to increase your score. Mortgage companies aren’t the only ones that look at this number; sellers and real estate agents also look as this number, and it can determine if they will sell to you or take you on as a client. Don’t overlook this step, it’s essential to your success.

Do You Have Too Much Debt?

Your debt is another huge factor when attempting to secure a lender. In fact, it can at times be even more important than your credit score; it’s the first thing they look at when determining your eligibility. The debts they look at include student loans, car loans, credit card payments, and so forth. Ideally, lenders are looking to see if your overall debt plus your potential new mortgage payment is 45% or less than your income.

For example, if your monthly pretax income is $5,000, they want to see that $2,250 or less of it is going toward your mortgage payment and debt. Obviously, the less debt you have, the better. If you can reduce your overall debt by paying off that pesky car loan or student loan, your payment-to-income ratio will decrease and make you a more attractive buyer. In addition, leave older credit lines open, avoid opening new credit lines, stop buying on existing credit, and don’t shuffle your money around; this will leave you in the best position to buy a home.

Set a Budget and Prepare for Your Down Payment

Now that you have your debt and credit score goals where you want them, it’s time to look at your budget and prepare for your down payment. The best way to determine your budget is by using the standard rule when it comes to purchasing a new home. The rule of thumb is to only look at homes that are no more than 2.5 times your gross annual salary. In layman’s terms, if your annual salary is $50,000, look for homes priced no more than $125,000 dollars.

Once you have your max amount, it’s time to speak to lenders to see what your financing options are. You typically will have the choice between two types of mortgages: fixed-rate and adjustable-rate. Fixed-rate mortgages are where your monthly payment and interest rate stay the same the entire time you have the loan, for between 15 to 30 years.

Adjustable-rate mortgages have an introductory interest rate that will change after a specific period of time. Simply put, it could start off at a particular rate for the first two years, but can begin being adjusted annually after that. In general, most real estate agents would suggest that a fixed-rate mortgage payment is the safer financial choice, but every homeowner is different.

Aside from determining your budget and settling on a loan option, you will also need to plan for a down payment. In the best case scenario, you want to have a down payment of 20 percent of the total price of the home, but a minimum of 10 percent down can work for a conventional mortgage loan. Since everyone’s situation is different, some buyers simply cannot come up with that type of down payment.

If you are among those who cannot afford a higher down payment, you can apply for an FHA loan, which can make your down payment as little as 3.5 percent of the cost of the home.

In some cases, if you meet the income limitations of your state, you can even get a five percent down payment loan from traditional loans. Work with your real estate agent and speak with a few lenders to find which style of mortgage and down payment method will be best for your situation.

One Last Thing Before You Make an Offer

Closing costs are another thing to think about before you put in an offer. It used to be you could get some credits for your closing costs and still have your offer accepted, but not so much anymore. To be prepared in the current market, be sure you have at minimum 2.5 percent of the purchase price for closing costs (not including your down payment). This will give you the best chance of putting in a successful offer.

The real estate market is competitive right now, with many sellers taking multiple offers of the asking price and choosing the most solid one. Rise above the competition with closing costs already accounted for. By following these steps, you will be in the perfect position to put in an offer on your dream home. Now it’s time for the fun stuff – heading out to open houses!

janetelliotJanet Elliott has served as a Realtor with REMAX for 28 years in the metro Atlanta area. Janet is also a Certified Residential Specialist or CRS. This is a designation achieved by less than 1% of real estate agents. When not practicing real estate, Janet can be found spending time with family and friends out on the water!

What’s Ahead For Mortgage Rates This Week – October 3, 2016

Last week’s economic releases included reports on new and pending home sales, S&P Case-Shiller Home Price Indices and regularly scheduled weekly reporting on mortgage rates and weekly jobless claims. Readings on consumer sentiment and confidence were also released.

New and Pending Home Sales Lower as Peak Sales Season Winds Down

August readings for new and pending home sales were lower than for July; analysts said that slim supplies of available homes and rising home prices contributed to slower home sales. Peak home sales typically occur during spring and summer. Homebuyers with school-aged children prefer to be settled into a new home when school starts in August and September.

According to the Commerce Department, new home sales achieved their second highest reading since the Great Recession. Although lower than July’s reading, August sales of new homes reached 609,000 on a seasonally-adjusted annual basis. Analysts expected a reading of 600,000 new home sales based on July’s reading of 659.000 new homes sold. August’s reading was 20.60 percent higher year-over-year. High demand for homes appears to be kicking home builders into higher gear as they strive to ease slim inventories of available homes.

The impact of short inventories of available homes was reflected in August’s reading for pending home sales. Home sales awaiting closing fell in August from July’s reading of +1.20 percent in July to 2.40 percent in August. The National Association of Realtors® said that home sales are declining due to very limited inventories of available homes. Rapidly rising home prices and strict mortgage qualification requirements also contributed to slipping sales. After home buyers sign a purchase contract, they are at the mercy of changing mortgage rates their ability to qualify for a mortgage. Pending home sales supply an indication of future closings and mortgage loans.

According to the S&P Case-Shiller 20-City Home Price Index for July, home price growth dipped from June’s seasonally adjusted annual rate of 5.10 percent to 5.00 percent. Slim inventories of homes for sale and high demand were again cited as primary reasons for slower home price growth. While demand is high, slim supplies of available homes can cause would-be buyers to postpone their home search until more homes are on the market.

Mortgage Rates Fall, New Jobless Claims Rise

Mortgage rates fell across the board last week according to Freddie Mac’s weekly survey of rates. The average rate for a 30-year fixed rate mortgage fell six basis points to 3.42 percent; the average rate for a 15-year fixed rate mortgage was four basis points lower at 2.72 percent. 5/1 adjustable rate mortgages had an average rate of 1.81 percent, which was one basis point lower than the previous week’s reading Discount points were also lower and averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

New jobless claims rose last week to 254,000 claims, but new claims were lower than the expected reading of 259,000 new claims which was based on the prior week’s reading of 251,000 new jobless claims. New jobless claims have stayed below 270,000 new claims for three months for the first time since 1973.

In prepared testimony before the Financial Services Committee, Federal Reserve Chair Janet Yellen discussed problems facing two major banks and said the Fed’s goal was managing its regulatory stance to support financial stability.

September’s Consumer Confidence Index reading rose to 104.1, which exceeded analysts’ estimated reading of 99.3 and August’s reading of 101.1.

What’s Next

Next week’s scheduled economic reports include readings on construction spending and several labor-related releases including ADP Payrolls, Non-Farm Payrolls and the National Unemployment Rates. Weekly reports on mortgage rates and new jobless claims are set for release as usual.

Credit Score Got You Concerned? Here’s 3 Ways to Get It Together

Credit Rating ScoreIf you’re worried about your bad credit, you’ll want to do everything in your power to improve your rating as quickly as possible – especially if you are looking to purchase a home in the near future. Improving your credit rating can give you access to better interest rates on mortgages or even help you to get that job you’re after.

IMPORTANT! If you are currently involved in a home loan transaction, speak with your trusted mortgage lender before taking any action regarding your credit!

So how can you boost your FICO score quickly and easily? Here’s what you need to know.

Get Your Credit Report And Dispute Any Errors

Credit reporting agencies don’t always keep 100% perfect records, and there’s a good chance that your credit report contains at least one error. One recent FTC study found that 25% of consumers have an error on their credit report and that in 5% of cases, the errors were actually severe enough to impact the loan terms that borrowers were able to negotiate.

You can get your annual credit report from all three credit reporting agencies for free. Carefully read over it. If you see any errors – if your name is misspelled, if they have the wrong address on file, or if there are late or unpaid charges that you didn’t make you can dispute the items in question.

Try Maintaining A Lower Utilization Ratio

Your debt-to-credit ratio (also known as your utilization ratio) is one of the more important factors that determine your credit score. It measures the outstanding balance on your accounts in relation to the total credit available to you, which helps lenders assess your capacity to take on new debt.

If this number goes beyond 30 percent, you’ll start to see your credit score drop. Ideally, you should aim for a utilization ratio below 10 percent this will prove to your lender that you can responsibly pay for the credit you use.

Have Recurring Bills? Automate Your Payments

Automating your monthly payments can be a great way to boost your credit score. Whether it’s your mortgage, your credit card, or your student loan, a pre-authorized monthly payment will ensure that everything gets paid on time and give you a great credit history.

Your FICO score is a number that will determine your eligibility for mortgages and other loans. These are general tips to help with your credit score and improve the overall reporting of your credit.

Reach out to one of our mortgage professionals at Mason-McDuffie Mortgage to learn about what kind of a mortgage your credit score can afford you.

3 Things That Determine Your Mortgage Interest Rate

Minimum FHA Mortgage Credit Scores Are Falling: Here's What You Need to KnowWhen you initially start shopping for a home mortgage, you may be drawn to advertisements for ultra-low interest rates. These may be rates that seem too good to be true, and you may gladly contact the lender or mortgage company to complete your loan application. However, in many cases, mortgage applicants are unpleasantly surprised and even disheartened to learn that they do not qualify for the advertised interest rate. By learning more about the factors that influence your interest rate, you may be able to structure your loan in a more advantageous way.

Your Credit Rating

One of the most important factors that influence an interest rate is your credit score. Lenders have different credit score requirements, but most have a tiered rating system. Those with excellent credit scores qualify for the best interest rate, and good credit scores may qualify for a slightly higher interest rate. Because of this, you may consider learning more about your credit score and taking the time to correct any errors that may be resulting in a lower score.

The Amount Of Your Down Payment

In addition, the amount of your down payment will also play a role in your interest rate. The desired down payment may vary from lender to lender, but as a rule of thumb, the best home mortgage interest rates are given to those who have at least 20 to 30 percent of funds available to put down on the property, and this does not include subordinate or secondary financing. If you are applying for a higher loan-to-value loan, you may expect a higher interest rate.

The Total Loan Amount Requested

In addition, the total loan amount will also influence the rate. There are different loan programs available, but one of the biggest differences in residential loans is for very large loan amounts. The qualification for a jumbo loan will vary for different markets, but these loans qualify for different rates than conventional loans with a smaller loan amount.

While you may be able to use advertised interest rates to get a fair idea about the rate you may qualify for, the only real way to determine your mortgage rate will be to apply for a loan and to get pre-qualified. Contact us at Mason-McDuffie Mortgage by visiting our Facebook page at facebook.com/masonmcduffiemortgage to request more information about today’s rates and to begin your pre-qualification process.

Thinking of Buying a Second Home? Assess Your Finances First

The decision to buy a second home may be made for a number of reasons. For example, you may have a destination where you and your family love to spend free time in, and you may be ready to settle into your own space in this location. You may be considering the tax benefits associated with a second home, and you may even have plans to live in the home as your primary residence after you retire.

While there may be numerous benefits associated with the purchase of your second home, you may be concerned about how affordable it will be for you to manage the additional expense of a second mortgage payment.

Consider All Of The New Expenses Related To The Purchase

A second mortgage payment may be a rather major expense to take on, but it is not the only expense related to buying the new property. In order to ensure that the mortgage payment is affordable, you need to ensure that all aspects of secondary home ownership are affordable for you.

For example, consider HOA dues, repairs and maintenance expenses, property taxes, insurance and cleaning or lawn care service since you will not be available to handle these chores on a regular basis. If you can comfortably take on all of these expenses, you may make your purchase with confidence.

Increase Your Emergency Savings Account Balance

While your current budget may easily accommodate the new mortgage payment and the related expenses, the unfortunate truth is that your income or expenses may not remain static in the future. You may suffer from unemployment or a serious illness that reduces your income. You may have extra expenses due to a car accident or severe damage to a home.

These are just a few of the many things that can happen, and it is important that you have an adequate cash reserve in your emergency savings account that allows you to pay for all of your expenses for at least several months. Because your expenses will increase substantially with your new mortgage payment, you may need to increase your emergency savings account balance.

While it can seem intimidating to take on a new mortgage payment and other related household expenses for a second home, you may be able to more comfortably take on this additional expense when you follow these tips. For more information, speak with one of our mortgage professionals at Mason-McDuffie Mortgage to get a quote for your new mortgage payment and interest rate.

Why Your ‘Debt-to-Income Ratio’ Number Matters When Obtaining a Mortgage

If you are looking to buy a home, you may want to consider shopping for a loan first. Having your financing squared away ahead of time can make it easier to be taken seriously by buyers and help move along the closing process. For those who are looking to get a mortgage soon, keep in mind that the Debt-to-Income ratio of the borrower plays a huge role in the approval of your mortgage application.

What is a Debt-to-Income Ratio?

A debt-to-income ratio is the percentage of monthly debt payments compared to the amount of gross income that a person earns each month. Your gross monthly income is typically the amount of money you earn before taxes and other deductions are taken out. If a person’s monthly gross income is $2,000 a month and they have monthly debt payments of $1000 each month, that person would have a DTI of 50 percent. The lower the DTI the better. 43 percent is in most cases the highest DTI that potential borrowers can have and still get approved for a mortgage.

What Debt Do Lenders Review?

The good news for borrowers is that lenders will disregard some debt when calculating a borrower’s DTI. For example, utilities, cable, phone and health insurance premium would not be considered as part of your DTI. 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 Income?

Almost any source of income that can be verified will be counted as income on a mortgage application. Wage income is 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. In addition, those who receive alimony, investment income or money from a pension or social security should make sure and include those figures in their monthly income as well when applying for a loan.

How Much Debt Is Too Much Debt?

Many lenders prefer to only offer loans to those who have a debt-to-income ratio of 43 percent or lower. Talking to a lender prior to starting the mortgage application process may help a borrower determine if his or her chosen lender offers such leeway.

A borrower’s DTI ratio can 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 either 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. For more information, contact one of our mortgage professionals at Mason-McDuffie Mortgage.

Bi-weekly or Monthly Mortgage Payments – Which is better?

A When you apply for a new mortgage, your lender may ask if you want to set up monthly payments or bi-weekly payments. At one time, monthly payments were common, but bi-weekly payments are increasing in popularity. This is because they break a large expense up into two smaller and seemingly more manageable payments. In addition, you can also make what equates to a full extra payment on the mortgage each year with a bi-weekly payment structure. Before you decide which is best for you, consider a few factors.

Your Personal Budget

Many people may believe that if they get paid every two weeks, a bi-weekly mortgage payment is a better option than a monthly mortgage payment. This is not always the case. You should consider other sources of income and how much your payment is in relation to your paychecks. In addition, consider which part of the month your other regular bills are due. This is critical to establishing the best payment plan for you.

Control Over the Payments

You can still enjoy the benefit of making an extra payment per year with a monthly mortgage payment schedule. For example, you would simply need to pay $100 per month more each payment to realize the same results. When you establish a bi-weekly payment plan, this extra payment is automatic. This may be ideal if you do not think you would stick with paying more per month on your own. However, if you want more control over your monthly payment amount and when you make the extra payment, it may be best to choose a monthly mortgage payment.

The Financial Obligation

The final factor to consider is the financial obligation. When you set up bi-weekly payments, your total amount paid per month will be higher. This means that your total financial obligation will be higher than if you had a monthly payment plan. This financial obligation may impact your ability to qualify for other loans or to achieve other goals.

If you want to pay your mortgage off early, you can choose to make an extra small payment with each monthly payment or set up a bi-weekly payment plan. While each will give you the same overall result over the course of the long term, one option may be preferred for your financial situation. Consider the pros and cons of each option carefully to make a better decision for your financial circumstances.

If you have any questions or require more information, contact us at Mason-McDuffie Mortgage 925.242.4400 .

Three Proven Ways You Boost Your Credit to Get a Mortgage Approved

These 10 States Have The Biggest Mortgage DebtCredit problems are unfortunately common, and they can make it difficult for you to obtain a mortgage. Even if you are able to obtain a mortgage with your credit issues, the rate may be rather high in comparison to what you may qualify for if you obtain a mortgage without fixing your credit problems. While some issues may take a while to fix, you may be able to see a decent increase in your credit rating when you follow a few easy steps.

Pay Off Outstanding Derogatory Credit Items

When you review a copy of your credit report, you may notice that some items have an outstanding balance due. If the account is in good standing, the outstanding balance is not a primary issue unless you have an excessive amount of debt. If the account is not in good standing, such as if you have a series of late payments or a collection account being reported on the credit report, you can see a boost in your credit rating when you pay off these debts.

Settle Judgments

Legal matters can also be reported on your credit report, and they may be settled or still outstanding. An example of this would be if an electrician serviced your home, and you did not pay the bill. The electrician could file a lien against you. A settled judgment may still be a ding on your credit rating, but it is far better than having an unsettled judgment. If you notice that you have a judgment reported on your credit report, you may consider taking the necessary steps to settle it and get back in good standing.

Pay Off Small Balances

If you can afford to do so, it can improve your credit rating to pay off small balances. A portion of your credit rating will be determined by the number of open accounts and the number of accounts with balances that you have. By focusing on the small balances, you can often see a quick improvement in your credit score. There may also be a benefit to closing these accounts after they have been paid off.

Before you apply for a mortgage, it is wise to request a copy of your credit report. You want to remove any items that you find on the report that do not belong to you. For those derogatory items that are yours, you can follow these steps to help improve your credit rating with fast results.

Eliminate These 5 Barriers To Saving For Your Down Payment This Month!

Saving Up: 5 Barriers to Saving Money That You Can Eliminate in Just One MonthWith all the expenses that go into monthly living and the temptations that come along with life, saving money for the down payment on your new home can be quite a struggle for many people. If you’re having a hard time saving and are wondering what you can do to ensure a higher bank balance next month, here are a few things that may pose a risk to getting the home of your dreams.

Forgetting To Take Lunch

One of the things most likely to defeat your bank balance is the daily office trip to the deli or diner. Instead of opting for an easy but expensive $10.00 lunch, take a few minutes at the end of each day to put together a sandwich or salad so you don’t have to spend extra funds on your lunch break.

Relying On Cable Television

With all the available options for streaming services, many people are switching out their packages for something a lot more economical. Cable can easily add up to $100.00 a month to your expenses, but a streaming service may only be a fraction of the cost and will provide savings you’ll soon notice.

Splurging On Morning Coffee

Grabbing the familiar cup of joe on the way to the office is certainly a way to ease yourself into the day, but one coffee can add up to a huge expense by the end of the month. If this is a vice you crave, try taking your own coffee to work and opt for a treat once a week if you really can’t resist.

Impulse Buys At The Grocery Store

Food certainly counts as a necessity, but there are many things that end up in the grocery cart at the end of a shopping trip that aren’t really staple items. If your cart is filling up with chips and chocolate, you might want to stick to your list or review your cart before the final purchase.

Avoiding Your Budget

Unless you’re taking to a spreadsheet to balance out your expenses and earnings, you may not see any significant savings at the end of each month. Budgeting will give you a better idea of what you can and can’t afford consistently, so make sure you’re writing everything down.

The idea of cutting back on spending is rarely a popular one, but there are things you can do every day that will make for a better bank balance at the end of the month. If you’re looking for more tips on buying your own home, contact your trusted mortgage professional today!

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