How Much to Put Down on a Home Loan

Whether or not to buy a home is, for many, the single most important financial decision in their life. The second is how much to put down on a home loan. Your down payment plays an important part in the home loan approval process.

The down payment influences:

  • Loan-to-value ratio,
  • Private mortgage insurance,
  • Debt-to-income ratio,
  • Housing expense ratio, and
  • Interest Rate.

Loan-to-Value Ratio: This is the percentage a financial institution lends compared to the value of the property. If a home’s market value is $100,000, and one borrows $80,000 to purchase it, the loan-to-value ratio is 80 percent. While special loan programs exist, in today’s marketplace, one should expect to need a down payment of 20 percent for loan approval.

Private mortgage insurance: This is an insurance policy paid by the borrower. In case the homeowner defaults on their mortgage payments, and the financial institution is unable to recover costs through the foreclosure process, private mortgage insurance offsets the lender’s losses. You can avoid paying this cost with a 20 percent down payment.

Debt-to-income ratio: One’s debt-to-income is the percentage of your monthly income that goes toward paying their debt. This includes credit cards, car payments, child support, legal judgements, and more. One’s potential housing expenses are also included.

Each financial institution, and depending on the type of loan, has their own requirements. However, exceeding this ratio will negatively impact loan approval. The down payment affects the payment and, therefore, one’s debt-to-income.

Housing expense ratio: This is sometimes referred to as the payment-to-income ratio. It is the percentage of your monthly income going towards housing: mortgage payment (principal and interest), private mortgage insurance, homeowner insurance, property taxes, et al. The housing expense ratio becomes difficult to understand for some home buyers.

An example is a bank requiring no more than 33 percent of one’s monthly income going toward housing expenses. However, these expenses are added into one’s debt-to-income calculation. The percentage limit decreases with the more debt one owes. As with the overall debt-to-income, your down payment lowers your loan payment and affects the housing expense ratio.

Interest rate: The interest rate represents your cost to borrow the funds for the home purchase. Your down payment is your initial investment. It creates instant equity in the property and lessens the lender’s risk. For this reason, many financial institutions will give a better interest rate with a higher down payment.

If you would like more information or to talk more about how much to put down on a home, please contact us.


Thinking Long-Term When Looking at Home Loans

Buying a home is still a dream for many people. For the vast majority of home buyers, they will use home loans in order to buy their home. Many people believe it is a good idea to borrow as much money as possible when taking out a home loan. However, there are many things to keep in mind when it comes to borrowing money over the long term. A mortgage is a huge commitment for anyone to make. It is vital that everyone involved understands how financially important a mortgage is.

Types of Mortgages

A home loan is simply a way to borrow money when purchasing a home. For many home buyers, getting a 30-year mortgage is the way to go. This type of mortgage spreads the monthly payments out over a longer period of time. If the home buyers can afford the higher monthly payments, getting a 15-year mortgage is a way to pay in a lower amount over the life of the mortgage. Buyers should weigh the pros and cons of each mortgage before making a final decision. If you have questions about mortgages in general, contact us today so that we can answer your questions.

How Much To Borrow

One of the best ways to examine how much you can afford to borrow for a home is by looking at the income to payment ratio. The higher your income relative to your monthly payment, the better off you will be financially. Always think long term when borrowing money to buy a home.


What Exactly is a Reverse Mortgage?

You’ve probably seen the commercials for reverse mortgages, and if you’re a senior citizen, you may have even considered one. Unfortunately, while the commercials do a good job of making a reverse mortgage sound good, they don’t do a very good job of explaining what they actually are. Let’s dive a little deeper into exactly what a reverse mortgage is.

First of all, a reverse mortgage is basically just a loan against your house. It allows you to turn the equity you have in your home into cash. You can draw on it a little at a time, almost like if the mortgage organization was making payments to you, however, whatever you take from the mortgage becomes what you owe, and whatever you owe accumulates interest every month. Payments are not required on the loan. Instead, the mortgage is paid off in full when the house changes hands, usually because the owner either passes away or sells.

As you may have already figured out, it is possible for the amount of the loan to grow to be bigger than the value of the house. Generally the borrower, or their estate, isn’t expected to pay more than the value of the home.

You may be wondering if it is possible for you to get a reverse mortgage. Reverse mortgages actually exist in several countries, but in the United States, you have to be at least 62 years old, and you have to consider the property you want to use in the reverse mortgage to be your principal residence. It’s okay if you still owe a little on the property, but the money you receive from the reverse mortgage must be able to pay that off. If you live in a less traditional property, such as a condo or a manufactured home, you may be wondering if you can still participate. In these cases, more research is necessary, but you are likely to be eligible.

Before accepting a reverse mortgage on your house, you are required to take a counseling course, however, the required courses are often considered to be less than adequate, and it is advisable to do your own research before you apply.

Interested in a reverse mortgage, but aren’t sure where to start? Contact us. We’re experts and can help you with everything you need.


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.


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.


Three Reasons Not to Ignore The Holiday Season

There’s no doubt that mortgage refinancing is very stressful. After all, who has fun crunching numbers and dealing with lenders? However, the upcoming season is something to look forward to. It’s not something to ignore, and will give you a break from the hassles of your finances. Here are a few reasons why you shouldn’t ignore the Holiday season.

#1. Your Family is Essential

Though mortgages and finances are very important, family is just as essential. Not only do the Holidays come around only once a year, but it’s also a time where many people put aside their usual tasks, to spend time with those they care about. Of course that’s not to say the Holidays are the only time we see our family members, but between debts, jobs, and loans, the interactions we have with our loved ones are sometimes very limited.

#2. It Will Be Over Before You Know It

The Holidays are a time to relax, enjoy yourself, and spend time with the family. However, the bright lights and Christmas trees come and go as quickly as they’re put up. If you spend all your time and energy focusing on financial tasks (instead of focusing on your family and the true meaning of the season), you’ll realize what a missed opportunity you had. That’s not to say you should neglect what you need to do, but it’s the best moments in life that tend to pass us by in the blink of an eye. Make every moment during the season last.

#3. You Will Have A Fresh Start 

Once the Holidays are over and you’ve had your break, you’ll be rejuvenated and ready to accomplish your tasks. It’s not just for your direct benefit, but for our benefit as well. Generally speaking, if sufficient breaks aren’t taken, it may affect one’s determination to complete what’s required of them. After all, mortgage refinancing isn’t easy to deal with when experiencing a burnout.

After you’ve enjoyed the Holidays, contact us regarding home loans and mortgages. Thanks, and have a happy new year.


House Hunters: How Will an Increase in Mortgage Rates Affect Your Bottom Line?

The Federal Reserve Board has been talking about interest rates a lot lately, and has made it clear that an increase will probably happen soon. Back in September, the real estate community breathed a collective sigh of relief when they thought it would be approved, and they decided to wait. But the Federal Reserve was clear that it would be brought up again before the end of the calendar year. People who are currently searching for homes to buy know that mortgage rates will make a difference in their budgets, so it is important to know what to expect.

If mortgage rates increase, then obviously homeowners will either have to pay more each month for a home, or decide on a lower-priced house. Because the rates haven’t been increased in a while, it is expected that the change will be small, and then they will assess the change in the economy.

For a home that costs $200,000, the monthly payment on a 30-year loan with a 4% interest rate is $955. Should the mortgage rates increase to 4.5%, then that payment jumps to $1013, and a 5% rate translates to $1074 each month. House hunters will need to decide if they are willing to pay more each month, or if they need to search for homes in a lower price bracket.

In addition to monthly payments, the increased rate will change how much interest is paid over the life of the loan. Just a half of a percentage point equates to tens of thousands of dollars in interest over 30 years for most mortgages.

The Federal Reserve Board is scheduled to meet on December 6, 2015. October’s employment reports were strong, with good job creation numbers, and lower unemployment. As a result, it’s safe to say that interest rates will probably increase after that meeting. For home buyers who want to take advantage of lower rates, lock in a rate now and get serious about choosing a home.

For assistance in finding the right mortgage for your situation, contact us.


The benefits of using mortgage brokers!

You may be wondering if there are any benefits that are inherent in working with mortgage brokers, and we’re here to assure you that there are, indeed, benefits of working with brokers. Here, then, is the list of benefits you will receive when you work with a mortgage broker:

  • It will save you time and effort. You don’t have the time in the day to go searching for the best deal on your mortgage — and it definitely takes a long time to find the perfect deal. But that’s all the mortgage broker does, and will ever do: find the perfect deal on your mortgage. By hiring a mortgage broker to handle this important part of the home-buying process, you will be saving time and effort.
  • Mortgage brokers already have contacts and relationships in the banking industry that put them at a distinct advantage over non-professionals. These relationships will be suited to your needs — for instance, if you have poor credit, you will need one kind of mortgage broker; if this is your first time buying a home, you will need another kind of mortgage broker.
  • Finally, your mortgage broker will be able to streamline your application materials into one package. If you were to fill out a new application for each mortgage you were looking to apply for, you would waste time and energy and money in the process.

We are a committed team, here to help you find the right mortgage rate for your needs. We understand that every borrower is different, and we offer a variety of services to meet your individual requirements. For more information about us and our services, contact us today to see what we can do for you.

What does a mortgage broker do?