3 Ways to Prepare for Mortgage Approval

You have been wanting to move into your own home for quite some time, but are not sure where to begin. In order to work towards mortgage approval, here are three things you need to do to really invest in the future you want. Remember, if you are not able to move into your dream home right away, you can always move later. The point is to get started!

Know What You Can Afford

Do you have a household budget? If not, please sit down with pen and paper or spreadsheet and create one. You will amazed how much disposable income you actually have at the end of the month. Look at everything, including your Starbucks habit. Work hard to account for every penny. It seems like a daunting task, but it really isn’t. It’s the first step in your mortgage approval process. Here is a short list to get you started:

  • Begin with your paycheck. What is your monthly take home pay? If you have a partner, you need to include their information, too.
  • Deduct all fixed, monthly payment amounts, such as: rent, car payments, student loans, charge cards, utilities, child support, and anything else you may have.
  • Deduct all non-fixed monthly expenses. This part is more difficult. How much do you spend on gas, clothes, and dining out (even if you charge it), coffee, etc. The list may be long, but this is also something you have control of and can curtail if necessary. This is your disposable income. If it is higher than you thought, congratulations! Although, you may still want to tweak it, and you will see why in a minute. If it is lower than you thought, or perhaps you had no idea what it might be, you really need to take some drastic changes. These are not tweaks, these changes may include pleasure points you will have to limit yourself to. Did you ever think about how much you give Starbucks in a week? The cost of a White Chocolate Mocha is $4.75 without taxes. If you have one each day on your way to work, you are spending $23.75 weekly, $95.00 monthly. Let it be a weekly treat to yourself and you are still saving $76.00 a month. A 48 ounce serving container of Folgers, bought at Walmart averages $9.98, and that’s without a coupon, see the difference? Put your money back into your pocket.

Review Your Credit Report

Have you actually looked at your credit report? Do you know your credit score? This is taken very seriously by mortgage providers and significantly affects your chances for mortgage approval. Why, you ask? Because this determines how much money lenders feel comfortable lending you, and how high your interest rates will be. The lower the number the higher the rate, and of course the opposite is true: higher score, lower interest rate. Know your numbers, and if they are low, take steps to improve them. One sure way to improve them is to pay down or off your credit card debt. If you have any judgments, find out what they are for, and how you can get them removed; these bring down your score, fast. It may take a while to get this resolved, but in the meantime, you are taking other positive steps in procuring your home.

Save For a Down Payment

Now we go back to budget. You must make a down payment or in many instances, at least be able to pay closing costs. The positive steps you take in amending your budget will help you get to house shopping sooner than you realize. Earmark that money for a single purpose. Sometimes it is easier if you open a separate designated bank account, and immediately transfer it each pay period. Do not touch it; watch it grow. Were you able to find $100.00 a month? That’s $1200.00 a year. Good job! You are now much closer to buying your home.

Pacific Mortgage Group is here to help you get moved in to your home ASAP! Licensed in six states so far, and working with over 100 lenders, we are more than happy to assist in getting financing for your home loan. Contact us to see if you qualify for $0 closing costs. Let’s make you a homeowner.


What Can I Afford?

Whether you’re buying a home for the first time or considering a move into a new home, how much you can afford—in terms of a mortgage and general housing expenses—is the biggest calculation you’ll need to make.

To figure out how much you can afford, first you’ll need to calculate how much of your gross monthly income can go towards your mortgage. When doing the math, your goal is to have your monthly mortgage payment not exceed 28 percent of your gross monthly income, although that percentage isn’t necessarily set in stone. However, if your calculations come to quite a bit more than 28 percent, then you may need to scale back on how much you can afford in terms of a monthly mortgage payment.

Next, figure out your total debt and what percentage of your gross monthly income goes to that debt. This calculation will give you a rough estimate of your total household expenses. As a rule, your total debt should be no more than 36 percent of your income. Much like your earlier calculations with your monthly mortgage payment, 36 percent is just a general guideline and you may come in over or under that number by a couple of percentage points.

Once you’re comfortable with those figures, take into consideration general expenses directly relating to your new home. Not only should you look at one-time expenses such as moving and renovations, but—more importantly—also look at general homeowner expenses that you may incur each month such as maintenance, homeowners’ association fees and unexpected home repairs. For this, it’s a good idea to budget in 30-40 percent more than your monthly mortgage payment.

Finally, after you’re done with your own budgeting, you’ll need to get a pre-approval from your lender. With a pre-approval, a lender determines how much they are willing to lend to you by assessing your income, assets, employment and credit history. Once you have a pre-approval, you’ll know what your price range is for buying a home. Keep in mind that the purchase price of your new home doesn’t need to be the same as what your lender is willing to lend—it’s okay to buy a home that’s less than what you’re approved for.

The key to not overextending yourself is to make sure to leave plenty of space in your budget for unforeseen costs and expenses. If you’re going to err, make sure you err on the side of affordability. ∆

 

© Left Field Media


FHA Loans

The trick with Federal Housing Administration (FHA) financing is that it’s a mortgage insured by the federal government. The way the FHA manages to ensure the loan is that they require the borrower to pay for mortgage insurance. The mortgage insurance protects the lender in case if the borrower defaults on the loan.

FHA mortgages must be obtained from FHA-approved lenders. The FHA has standards that have to be met before the FHA is willing to insure the mortgages.

Because the FHA is behind the loan and the risk to the lender is less, interest rates can be very favorable and less down payment may be required. Because the lender is protected by the insurance, the lender is less cautious about making loans to riskier customers and those with lower credit ratings. For many people, the FHA loan offers the only way they can obtain a mortgage in today’s market. Many first-time home buyers take advantage of FHA loans.

To get a mortgage with a down payment as low as 3.5%, the borrower needs a FICO credit score of at least 580. Those with credit scores of 500 to 579 must make down payments of at least 10%. People with credit scores below 500 are generally ineligible for FHA loans except for special circumstances. The low 3.5% down payment floor is a major attraction for many home buyers. Some special minimum down payments of as low as 3% are also sometimes available.

FHA borrowers pay for their down payments out of their own savings. However, gifts from family members can also be used. Grants from state or local governments down-payment assistance programs are also sometimes available. Closing costs can also be covered by lenders, builders or lenders as an inducement to purchase.

The borrower can use a relative as a non-resident co-borrower to help support qualification for the loan using blended debt-to-income ratios that equally blend the borrower’s and non-occupant co-borrower’s income and monthly payments to qualify for the loan.

Because the government is involved, lenders do find some additional paperwork involved. The appraiser has the additional duty to evaluate and report any health or safety hazards that could affect the insurance. They can require that concerns be repaired before the loan is closed.

The FHA mortgage insurance consists of two payments. The “upfront premium” is paid as part of the down payment. It is 1.75% of the loan amount (a $100,000 loan would cost $1,750 upfront). The annual premium (paid monthly) vary by the size of the down payment and the length of the mortgage.

  • If you take a 15-year mortgage with a down payment of less than 10%, the insurance would cost .7% annually. On a $100,000 mortgage, this would mean $7,000 per year or $583 monthly added to your mortgage payment.
  • On a 15 year mortgage with a down payment larger than 10%, the insurance may cost only .45% or $375 monthly.

On longer mortgages, risks are greater and the insurance premiums are slightly higher.

  • On a 30 year $100,000 mortgage with very low down payments (less than 5%) the annual insurance premium would be $8,500 or $708 per month.
  • If the 30 year $100,000 mortgage were started with a down payment of 5% or more, the annual premium would be at $667 per month.

In addition, for those with credit scores above 639, the FHA supports a Housing and Urban Development (HUD) lending program called a 203k. This program guarantees loans to renovate or repair homes.

  • The loan must be made by an FHA lender.
  • You have to have at least a 3.5% down payment on the home.
  • You can have no other FHA-approved loans outstanding.
  • The loans can range from $5,000 for minor repairs to sufficient coverage to virtually reconstruct the home.
  • The loan is based on the value of the home after the repair or improvement is made.
  • The loans are subject to certain basic energy efficiency and structural standards.

Pacific Mortgage Group can help you lock in the most competitive rates. If you are ready to start looking for a home loan or home quotes give us a call and we can help you every step of the way. Please contact us to learn more.


What is a reverse mortgage? What are some of the pros and cons?

You’ve probably seen one of the many commercials on TV for a reverse mortgage, and you’re probably wondering if you should get one for yourself or, for your older loved one. In this short article, we’re going to talk about what exactly a reverse mortgage is, and what are some of the pros and cons of getting a reverse mortgage so you or your loved one can make an informed decision about getting one.

A reverse mortgage is sometimes called a home equity conversion mortgage (HECM). This type of loan doesn’t require the homeowner to make monthly mortgage payments (though they are still responsible for the property taxes, homeowner’s insurance, and HOA fees if any),  but it allows the homeowner to access the equity they’ve built up in their home.

Here are some of the pros of a reverse home mortgage:

  • It allows people on a fixed income to remain in their homes until their death, without worrying about the financial burden of a mortgage.
  • The homeowner keeps their home, regardless of their financial straits.
  • The money can be disbursed in a variety of ways (such as a lump sum cash payment, or a monthly payment of funds).

Here are some of the cons of a reverse home mortgage:

  • The interest rate on a HECM is higher than on a traditional home equity loan.
  • When you die, your heirs are responsible for either paying off the balance of the reverse mortgage or selling the home in order to cover the balance.
  • If you haven’t lived in the home for a year or more, you may not qualify to get the reverse mortgage.

Contact us today to see if a reverse mortgage is right for you or your loved one.


When Does Cash-Out Refinancing Make Sense?

Cash-out refinancing is a good option for you if you want a lump sum of money financed at a relatively low-interest rate. You’ll probably qualify for this type of refinancing if you have already paid off a significant portion of your mortgage.

For instance, if you still owed $50,000 on a home that’s worth $150,000, you could ask the bank to refinance $70,000. They’d pay off the $50,000 left and give you a check for $20,000, then you’re responsible for paying off the $70,000 mortgage according to the terms. This is a great deal when you need money, but it isn’t the right move for everyone.

Lower Interest Rates

Cash-out financing makes sense if you can get lower interest rates. When you get a quote from the bank, compare this offer to the current rate on your mortgage as well as the rate you’d receive if you were to finance the extra money a different way, such as with credit cards or a home equity loan. If the rate is higher, though, you’ll end up paying more money in the end.

Lower Payments, Longer Term

When you refinance your mortgage, you can sometimes lower your monthly payment, which is a good move for those who are feeling a financial pinch. The lump sum you receive can pay off debt so that you only have to focus your efforts on the new mortgage. However, you’re also taking on a new 15- or 30-year mortgage. If you have 10 years or less on your original mortgage, the refinance isn’t worth it, since a larger percentage of your current payment is going toward the principal balance. Taking on a new mortgage is like starting over.

Other Things to Note

When you refinance your mortgage, you’ll have to pay closing costs. This can put a dent in the money you were hoping to receive. Home equity loans don’t have these charges. You should also pay attention to whether you’re getting a fixed or adjustable rate mortgage, as this affects how much your monthly payment is over time.

Preparing to Apply

Ultimately, cash-out refinancing makes sense for some people, while others might benefit from a home equity loan instead. A qualified loan adviser can take a look at your personal situation to help you decide which method is right for you. Gather up your financial documents like tax returns and pay stubs and contact us to speak with a loan adviser.


Do You Qualify for a Jumbo Loan?

In most areas, conventional loans are limited to just over $400.000. Of course in certain, more expensive, residential areas, those amounts may be higher, sometimes even up to around $700,000. But what if the home of your dreams is currently selling for well over what a conventional loan in your area will offer?

The answer is that you need a jumbo loan. Of course the next question is do you qualify for one? According to bankrate.com, there are three main qualification areas that will answer that question.

Qualification #1: Can you afford at least 20% down payment on the home? Just a few years ago this requirement was only 5% in some cases, but things have changed. A credit squeeze that started in late 2007 frightened some lenders away from jumbo loans entirely. Now they are back, but they are looking for clients that can put a substantial amount down to lessen their risk.

Qualification #2: You must be able to fully document your income. They want cold, hard proof that your annual income is exactly what you say it is.

Qualification #3: If you get the loan, will the monthly mortgage payments be less than 38% of your monthly income before taxes? If yes, then you should be in good standing. Of course the smaller percentage of your income that will be needed for the mortgage the better.

If you think about it, all of these qualifications make sense. No lender wants to lend money that they don’t fully expect to get back–with interest. Meeting these three requirements goes a long way in helping a lender feel comfortable with agreeing to your jumbo loan.

One note, though, is that you shouldn’t expect to get a fixed rate loan for these higher-end amounts. Adjustable-rate loans are common for this market. The good news is that the interest rate can be relatively low for these loans.

Need more information? Please contact us and we will answer any questions you may have about your loan options.


What is an Adjustable Rate Mortgage and What Are the Benefits?

If you’re trying to find a loan, especially to purchase real estate, you’ve probably heard of the adjustable rate mortgage. You may be wondering why it would be good for you, or maybe even what it is. Let’s answer a few of your questions here.

What is an adjustable rate mortgage?

An adjustable rate mortgage is actually almost as simple as it sounds. The bank will give you an initial interest rate for your loan, but as time goes on, this rate will probably change. Of course, it’s not just up to the banks to choose whatever mortgage rate they want. The rate will depend on one of several indexes, so the rate can go up or down. Most of these indexes are similar, so it doesn’t make much difference which one the bank chooses, but you should still find out which one your loan will follow and why the bank chose that one.

The benefits

Using an adjustable rate for your mortgage can be very helpful to you. For example, because the bank considers you to be taking the risk when you accept an adjustable rate loan, it will often give you a lower initial interest rate. An adjustable rate loan is great if you think that interest rates are likely to go down, or even stay about the same, over the course of the loan. It also might be a good choice if you don’t plan to hold onto the property for very long.

Are you considering an adjusted rate mortgage? Contact us. We’re experts and can help you with everything that you need.


FHA Mortgage

The Federal Housing Administration provides mortgage insurance on loans granted by FHA-approved lenders. A FHA mortgage insurance policy gives lenders protection against losses that result from homeowner default. The benefits of this type of loan are:

Lower Down Payment: FHA loans require a low down payment. You can deposit as little as 3.5 percent. A bonus is this allows you to start building equity sooner.

Lower Mortgage Insurance: The insurance fee is lower than the fee you would pay on a conventional mortgage. The overall monthly payment is also lower.

Better Interest Rate: FHA offers the same low-interest rate to all borrowers. If you qualify for a loan, you get the current rate and the guidelines do not require a minimum credit score.

Higher Seller Contribution: This type of loan has a higher allowable seller contribution and you can negotiate to have the seller pay most of the closing costs.

The FHA approval process involves the following 5 steps:

  • Pre-approval during which the lender reviews your financial circumstances.
  • A standard Loan Application also known as a Uniform Residential Loan Application. You must give them information about the type of loan you want and the property address.
  • A property Appraisal which involves having a licensed home appraiser determine the true market value of the property based on sales prices and the condition and unique features of the property.
  • An underwriting and documentation review that involves an analysis of your income, paperwork, and credit score.
  • FHA loan approval if the underwriter is satisfied you meet all of the lender’s guides and FHA guidelines.

A mortgage group can help you find the best possible home loan at the lowest interest rate available. For more information please contact us.


What is a mortgage broker and why work with one?

The home mortgage process is a complicated one. When you purchase a home, you don’t only have to worry about finding the right home, but you must deliver the best offer and get your mortgage lined out.

Likewise, the refinancing process is also complicated. Even though you aren’t buying a new home, you still must go through much of the same process. Luckily, there are some great options out there when it comes to those who will help you out with this process.

In either situation, most people will turn first to their bank. This is the location where they have developed a relationship and are comfortable with the environment. Plus, there is likely to be at least one mortgage loan processor to work with. However, there are some other options that you should consider in addition to your own bank.

One fantastic option is a mortgage broker. What is a mortgage broker and why work with one? They basically work in the middle of the buyer and the bank. Not only do they work with you to determine the best mortgage loan, but they will work with the bank to get you qualified.

One of the main values of a mortgage broker is the additional work that they do for the homebuyer. With any bank, there is a limited number of options available when it comes to the different types of loans that are available. However, with a mortgage broker, they will take your basic information and determine which loan will work best in your favor.

This is a process that is beneficial to both those who are looking to purchase a new home or to refinance the one that they already have. For example, most people who are refinancing their homes are looking for better loan rates. In order to find the best rate, it is important to compare the different options in your area. This is an extremely time-consuming process.

To complete this process, you would find that you would have to physically travel to every bank. For those refinancing, this is something that could make the entire loan process take longer. This would mean that you would need to continue accumulating fees and making payments towards your original loan. On the flip side, when you are looking to purchase a home, this could mean that closing is delayed, which could mean that you are not able to purchase the home of your choice.

If you are interested in purchasing or refinancing a home, a mortgage broker can help to make the process easier. To learn more about the services that we offer, be sure to contact us today.


The Benefits of an Adjustable Rate Mortgage

Over the past several years, many people have developed some strong opinions against an adjustable rate mortgage. However, there are actually several reasons that this type of mortgage is still relevant in today’s society. Is this the right decision for you? Learn more about this mortgage below in order to find out.

Low Interest Rates

One of the best things about this type of loan is that it allows you to save a great deal of money when it comes to the interest that you begin paying on your home. Typically, your ARM rate will be significantly lower than a fixed rate, which allows you to save money. To help increase the value, consider adding the savings to the principle of your home in order to pay it off faster.

Short-term Loans

Adjustable rate mortgages are especially attractive to those who do not plan to stay in their home for an extended period of time. This could be those who are only at a location temporarily or who are simply looking to upgrade their home not long after purchasing it. Regardless, this type of loan will help them to save money in the short run so that they can move on quickly.

Most people believe that ARM rates will only increase as time progresses. However, the opposite is actually true as well. When the rates are down, your loan payment will also decrease. This allows you to pay more towards the principle of your home and less to the interest.

If you are considering an adjustable rate mortgage, be sure to contact us today.