Tag Archive for: debt-to-income ratio

Can I Qualify for a Mortgage With Student Loan Debt?

May 11, 2022
mortgage blog, student loan debt, graduation

Graduation season is here! For many college graduates, student loan debt can turn into long-term financial stress. Even years after graduation, student loan debt can keep people from realizing dreams of homeownership. Add the recent economic shifts and inflation, and buying a house right now might feel downright impossible. This article can help bring some good news and help you make a plan.

If you’re getting ready to buy a house for the first time, but you’re worried about how your student loan debt will affect your mortgage, keep reading. A steady job and a good handle on your monthly expenses will take you farther than you think, especially if you’re a first-time homeowner. 

One of the best moves you can make is to lock in your rate today by getting pre-approved, which we blogged about here.

How to Buy a House With Student Loan Debt

This article will explain how student loans affect your home loan eligibility and how to qualify for a mortgage. Specifically, how to apply for a mortgage and get a home loan while you’re still paying off your student debt. 

A great first step is to connect with a mortgage advisor. You’ll be able to get personalized advice about your situation and find out about custom mortgage options. Start here to find a local advisor.

Three Factors That Affect Your Eligibility When You Apply for a Mortgage

#1 Debt to Income Ratio (DTI)

Your debt-to-income ratio impacts your buying power the most. Lenders compare your gross monthly income against your monthly debt obligations to determine how much you can afford to borrow. A DTI ratio higher than 43% can make it difficult to qualify. But there are select options for borrowers with student loan debt.

#2 Credit Score

A good credit score will get you a better home loan and a lower mortgage rate. But there are also special programs available for first-time homebuyers who have a lower credit score.

It’s always a good idea to download a free copy of your credit report. This will allow you to fix any errors, dispute incorrect information, and know your credit score.

#3 Down Payment

A larger down payment can often lock in a better rate and a more affordable mortgage payment. Ask your mortgage advisor about using investment stocks, retirement funds, gift funds, or borrowing from other sources.

Related: How to FAST TRACK your mortgage pre-approval

Best Home Loan Options for Homebuyers With Student Loan Debt

Related: Does every mortgage need an escrow account?

How Debt-to-Income Ratios Affect a Mortgage Application

When you apply for a mortgage, your debt-to-income ratio directly impacts your eligibility, your rate, and your loan terms.

Why? Lenders compare your total monthly income with monthly debt repayments to determine how much you can afford. For this reason, it can be difficult to qualify if your monthly debt payments are higher than 40% of your pre-tax income.

This is where student loan payments make a significant impact.

Student loan payments are automatically included in your monthly debt balance, so they directly affect how much you can afford for a home loan. Since there are different student loan repayment programs, the structure of your specific student loan payment plan can make a big difference.

First, let’s look at how debt-to-income ratios are calculated. Then you can decide whether or not it’s a smart idea to restructure your student loan debt.

How to Calculate Your Debt-to-Income Ratio (DTI)

Figuring out your debt-to-income ratio (DTI) is easy.

First, write down your gross monthly income, then list all your recurring monthly payments.

Leave out expenses that vary each month, such as utility bills, entertainment, groceries, transportation, etc.

To calculate your DTI, combine your required monthly payments such as:

  •  Monthly rent or mortgage payment
  •  Student loan payment
  •  Minimum credit card payment
  •  Monthly car payment
  •  Any court-ordered payments (child support, back taxes, etc.)

Related: Boost your credit score in less than 60 days

Example: Calculating Your Debt-to-Income Ratio with Student Loans

For example, if your gross monthly income is $6,000, 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan.

Next, it’s time to subtract your monthly debt repayments. For example:

  • Monthly car payment = $200
  • Credit card payment = $135
  • Student loan payment = $250

In this scenario, your monthly debt repayment would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

There are several loan options and custom mortgages available. Many home loans for first-time homebuyers offer home loans with 0-5% down. FHA loans only require a 3.5% down payment. Conventional 97 requires only a 3% down payment.

How Different Student Loan Repayment Programs Affect Your Mortgage Application

Finally, restructuring your student loans can help lower your debt-to-income ratio and be a better option than paying off your student loans.

Why? To apply for a mortgage, you’ll want to have a down payment ready as well as emergency funds. So you don’t want to deplete your savings to pay off your student loans.

If your monthly student loan payment is high, you might consider restructuring your student loan debt to lower your monthly payment. This will help lower your DTI.

Contact your student loan program and ask about the following options:

  •  standard repayment plan
  •  deferred student loan
  •  income-driven payment plan
  •  graduated payment plan

Don’t Let Student Loans Keep You From Buying a House

Buying your first home might be closer than you think, even while you’re paying off student loans. And several loan programs can work to your advantage, especially for first-time homebuyers.

Plan for your down payment, find out your credit score and calculate your debt-to-income ratio. Once you have a clear financial picture, you can consider restructuring your student debt to lower your DTI ratio.

Taking Action

Working with a local mortgage advisor can help you compare your best mortgage options, lock in the lowest mortgage rate, and secure the best home loan that fits your life goals. Even with student debt. Connect with a local mortgage advisor to discuss your options and save money on your mortgage. We’d love to help.

Can a Co-Signer Help Me Get a Better Mortgage?

August 31, 2022
mortgage blog, cosigner, preferred rate

Mortgage rate increases have begun slowing down but there’s no getting around the fact that 3% mortgage rates are well in the rearview mirror. Higher mortgage rates turn into higher mortgage payments and for a lot of homebuyers, this means they can no longer afford houses with a higher price tag. Especially for first-time homebuyers who have been saving diligently over the past few years, watching mortgage rates rise can be discouraging. Asking a family member or friend to be a co-signer on a mortgage application could help you qualify for a better home loan.

If you’re ready to buy a home but the mortgage rates are pushing up faster than your savings account, a co-signer might be worth considering. A co-signer can help you meet some of the requirements for a home loan and may help you qualify faster. That said, having a co-signer on your mortgage isn’t always the best choice and there are a few restrictions to keep in mind.

This article can help.

When is a co-signer a good idea for a mortgage?

In general, most homebuyers benefit from a co-signer when they need a boost with their income, employment history, or credit score.

A good fit for a co-signer will be a person with a high credit score, steady income, stable employment history, and solid credit history. If you’re falling short in any of these four areas, then adding a co-signer to your mortgage application could help you get approved faster and secure better terms on your home loan.

In many cases, adding a co-signer to a mortgage application can help push your mortgage approval across the finish line, but it’s not a guarantee.

For example, if a mortgage applicant doesn’t have the means to pay back the mortgage or if the lender considers the homebuyer a high risk, adding a cosigner typically won’t sway the lender’s decision.

Connect with a local mortgage advisor to talk through your specific situation. You might be closer than you think to a great mortgage and the keys to your dream home.

Related: How to boost your credit score in 60 days

TOP 3 BENEFITS TO HAVING A CO-SIGNER ON A MORTGAGE

1. A co-signer can help you meet the credit score requirements.

In general, a cosigner will not be able to override negative marks in your credit history, such as bankruptcy or loan defaults. But a cosigner with a strong credit history can give your credit profile a bit of a bump if you land in the medium range. The typical mortgage lender will look at your mortgage application in its entirety to determine risk and decide if you’ll be able to pay back the loan as agreed.

If your credit score is in the midrange and you have a cosigner with a strong credit history, this reduces risk in the eyes of the mortgage lender. More importantly, it increases your chance to secure a great mortgage.

2. A co-signer can provide support to help you meet employment criteria.

If you have good employment but a short employment history, a cosigner with stable long-term employment can help you qualify for a preferred mortgage. In many cases, borrowers just beginning their career or starting a new career path might have a good employment profile, but it isn’t steady enough for the best mortgage. A co-signer can help boost your profile in this area.

Related: How to Qualify for a Mortgage if You’re Self-Employed

3. A co-signer may help you qualify for a larger home loan.

To qualify for a mortgage with a co-signer, the mortgage lender considers both incomes. For this reason, you might be able to qualify for a bigger home (and a better loan) by having a co-signer on your mortgage application. The co-signer will be responsible if the borrower defaults, so verifiable income for both parties is an important factor. That said, an individual borrower will only qualify if they have the independent resources to pay back the loan as agreed. Ultimately, the mortgage lender will decide the level of risk and whether or not they approve the mortgage application.

Who can qualify as a co-signer on a mortgage application?

To be eligible as a co-signer, the individual must be a family member close to the borrower. Family members such as parents, siblings, grandparents, aunts and uncles all qualify by definition. Family-type relationships are also eligible for a cosigner on a mortgage. For example, friends in this category would be someone you’ve had a close, long-term relationship with for most of your life, or someone you’ve lived with for an extended period of time.  

This requirement is in place to protect the borrower from having a cosigner who has divided interests. For instance, a real estate agent or a builder might want to be a cosigner since they would directly benefit if your mortgage application is approved. For this reason, non-family members are not eligible to cosign a mortgage.

Related: Buying a House With a Friend or Relative–Everything You Need to Know

3 THINGS A CO-SIGNER ON A MORTGAGE APPLICATION CAN’T DO 

A co-signer cannot make the minimum down payment on your behalf.

The homebuyer must meet the minimum requirements for making the down payment, typically 5% for most home loans. Fannie Mae sets this guideline, which requires that the home must be the borrower’s primary residence, and the loan-to-value ratio cannot exceed 95%. The cosigner can increase the down payment, but the resident borrower must provide the minimum down payment required.

A co-signer cannot improve your debt-to-income (DTI) ratio.

The homebuyer must meet the minimum requirements set by the lender for the DTI ratio. In most cases, mortgage lenders allow borrower’s a maximum DTI of 43%. This is your debt-to-income ratio. DTI is calculated by combining all recurring debt payments such as credit cards, car loans, and student loans and measuring the total debt against your income.

Therefore, even if your cosigner has ample assets and minimal debt, the main borrower must meet the loan requirement with a DTI ratio of less than 43%.

A co-signer cannot override or erase your credit history.

While a co-signer’s credit history can help boost your mortgage application, it cannot override substantial credit implications such as bankruptcy, foreclosure, or a credit score below 580. If you have a credit score in the mid-range, check out our recent post on how to boost your credit score in 60 days.

Are there risks to having a co-signer on a mortgage?

Deciding to ask a family member to cosign on a mortgage is a serious decision. For the most part, the co-signer takes on more risk than the designated borrower. This is because the cosigner will be legally responsible for the mortgage, along with the borrower, until the mortgage is paid off.

For this reason, the borrower should make every attempt to remove the cosigner from the mortgage as soon as reasonably possible. The best option is to refinance the mortgage as soon as the homeowner can qualify for their own mortgage.

In addition, the mortgage will be reflected on the cosigner’s credit report. As such, it will affect their buying power for future opportunities. Finally, late payments will be reflected on the credit reports for both the borrower and the cosigner as well. Download a free copy of your credit report here.

An important note–if the borrower defaults on the mortgage, the cosigner will be legally responsible for paying the loan obligations in full. If the cosigner isn’t on the title of the property (which is often the case), they will have to meet the financial obligation with their own assets.

Taking Action

One of the best first steps you can take is to start your mortgage application. Once you’ve started the process, talk with your mortgage advisor about adding a co-signer. Adding a co-signer to a mortgage application can be a difficult decision but it may help you qualify for a better mortgage. We can guide you through the process and help you determine if a co-signer on your mortgage will help you qualify for a preferred home loan. Either way, discussing your options can give you a jump start on your mortgage goals. Connect with a local mortgage advisor to get started. We’d love to help.

Should You Have a Co-Signer on a Mortgage?

October 12, 2021
blog signature, mortgage blog, preferred rate

Adding a co-signer on a mortgage application could help you qualify for a better home loan. Mortgage rates are still low and no one knows how long it will last. If you’re ready to buy a home but in a tough financial position, you may have considered applying for a mortgage with a co-signer. A co-signer can help you meet some of the requirements for a home loan, but not all of them.

When is a co-signer a good idea for a mortgage?

In general, most homebuyers benefit from a co-signer when they need a boost with their income, employment history, or credit score. A good fit for a co-signer will be a person with a high credit score, steady income, stable employment history, and solid credit history. If you’re falling short in any of these four areas, then adding a co-signer to a mortgage application could help you get approved and secure better loan terms.

In many cases, adding a co-signer to a mortgage can help push your mortgage application across the finish line, but it won’t make up for everything. For example, if a mortgage applicant doesn’t have the means to pay back the mortgage or is considered too high risk by the lender, adding a cosigner typically won’t sway the lender’s decision.

Related: How to boost your credit score in 60 days

TOP BENEFITS TO HAVING A CO-SIGNER ON A MORTGAGE

1. Provide flexibility with credit score requirements

In general, a cosigner will not be able to override negative marks in your credit history, such as bankruptcy or loan defaults. But a cosigner with a strong credit history can give your credit profile a bit of a bump if you land in the medium range. The mortgage lender is looking at the mortgage application in its entirety to determine risk and decide if you’ll be able to pay back the loan as agreed. If your credit score is in the midrange and you have a cosigner with a strong credit history, this reduces risk in the eyes of the mortgage lender.

2. Provide backup with employment requirements

If you have good employment but a short employment history, a cosigner with stable long-term employment can help you qualify for a preferred mortgage. In many cases, borrowers just beginning their career or starting a new career path might have a good employment profile, but it isn’t steady enough for the best mortgage. A co-signer can help boost your profile in this area.

Related: How to Qualify for a Mortgage if You’re Self-Employed

3. Opportunity for a larger home loan

To qualify for a mortgage with a co-signer, the mortgage lender considers both incomes. For this reason, you might be able to qualify for a bigger home (and a better loan) by having a co-signer on your mortgage application. The co-signer will be responsible if the borrower defaults, so verifiable income for both parties is an important factor. That said, a borrower will only qualify if they have the resources to pay back the loan as agreed. Ultimately, the mortgage lender will decide the level of risk and whether or not they approve the mortgage application.

Who can qualify as a co-signer on a mortgage application?

To be eligible as a co-signer, the individual must be a family member close to the borrower. Family members such as parents, siblings, grandparents, aunts and uncles all qualify by definition. Family-type relationships are also eligible for a cosigner on a mortgage. For example, friends in this category would be someone you’ve had a close, long-term relationship with for most of your life, or someone you’ve lived with for an extended time.  

This requirement is in place to protect the borrower from having a cosigner who has divided interests. For instance, a real estate agent or a builder might want to be a cosigner since they would directly benefit if your mortgage application is approved. For this reason, non-family members are not eligible to cosign a mortgage.

Related: Buying a House With a Friend or Relative–Everything You Need to Know

3 THINGS A CO-SIGNER ON A MORTGAGE CAN’T DO 

A co-signer cannot make the required down payment.

The homebuyer must meet the minimum requirements for making the down payment, typically 5% for most home loans. Fannie Mae sets this guideline, which requires that the home must be the borrower’s primary residence, and the loan-to-value ratio cannot exceed 95%. The cosigner can increase the down payment, but the resident borrower must provide the minimum down payment required.

A co-signer cannot change your DTI (debt-to-income) ratio.

The homebuyer must meet the minimum requirements set by the lender for the DTI ratio. In most cases, mortgage lenders allow borrower’s a maximum DTI of 43%. This is your debt-to-income ratio. DTI is calculated by combining all recurring debt payments such as credit cards, car loans, student loans and measuring against your income. Therefore, even if your cosigner has ample assets and low debt, the residential borrower must meet the loan requirement with a DTI ratio less than 43%.

A co-signer cannot override your credit history.

While a co-signer’s credit history can help boost your mortgage application, it cannot override substantial credit implications such as bankruptcy, foreclosure, or a credit score below 580. If you have a credit score in the mid-range, check out our recent post on how to boost your credit score in 60 days.

What are the risks to having a co-signer on a mortgage?

Deciding to ask a family member to cosign on a mortgage is a serious decision. The cosigner will be legally responsible for the mortgage, along with the borrower, until the mortgage is paid off. For this reason, the borrower should make every attempt to remove the cosigner from the mortgage as soon as reasonable. The best option is to refinance the mortgage as soon as they can qualify.

In addition, the mortgage will be reflected on the cosigner’s credit report. As such, it will affect their buying power for future opportunities. Finally, late payments will be reflected on the credit reports for both the borrower and the cosigner as well. Download a free copy of your credit report here.

An important note–if the borrower defaults on the mortgage, the cosigner will be legally responsible for paying the loan obligations in full. If the cosigner isn’t on the title of the property (which is often the case), they will have to meet the financial obligation with their own assets.

Next Steps

Adding a co-signer to a mortgage application can be a difficult decision. We can guide you through the process and help you determine if a co-signer on your mortgage will help you qualify for home loan. Either way, discussing your options can give you a jump start on your mortgage goals. Connect with a local mortgage advisor to get started. We’d love to help.

Get Approved for an FHA Mortgage with 3.5% Down

July 27, 2022
mortgage blog, fha mortgage, home loans, preferred rate

An FHA mortgage is one of the best options for new homeowners and first-time homebuyers. FHA home loans have more flexible requirements for approval and offer some of the lowest mortgage rates available. What’s more, with an FHA loan, you can get approved with a lower down payment and an imperfect credit history.

FHA loans are government-backed mortgages which means they are widely available. Still, be sure to partner with a mortgage lender who underwrites FHA mortgages and has experience in your local housing market. An experienced local mortgage advisor will talk through your big picture goals and make sure your mortgage helps you build financial security. After all, a new mortgage in 2022 is one of the biggest financial commitments many people will make this year.

One of the best early moves you can make is to get pre-approved and lock in your mortgage rate.

Finding The Right Mortgage Advisor for an FHA Mortgage

For the best FHA mortgage, partner with a mortgage advisor who does custom mortgages. FHA loans are fairly straightforward, but every mortgage has subtle differences that can end up costing you thousands of dollars over the life of your home loan. Even when a lender promises a low introductory interest rate, it can cost you more through one-time fees at closing.

Partnering with a local mortgage advisor who writes custom mortgages and FHA loans on a regular basis can get you a better home loan every time. They’ll look at your whole profile — the purchase price and appraisal, along with your credit score, income, debt-to-income ratio, assets, employment history, and your down payment.

Quick tip—not all mortgage lenders are licensed to write FHA loans. So it’s best to make sure your lender writes FHA mortgages before you start working together. Make sure to check client reviews, too. Your mortgage is one of the biggest financial commitments you’ll make.

How to Get Approved for an FHA Home Loan

FHA loans are easier to qualify for compared to most other home loans.

There are three main financial buckets that lenders evaluate for your mortgage: your income, credit score, and total assets. Combined, this provides your lender with your DTI ratio (debt-to-income ratio). Your DTI is one of the most influential factors mortgage lenders use to determine risk.

Here’s a snapshot to get approved at a preferred rate:

  • 3.5% Down Payment: The minimum down payment required for an FHA loan is 3.5% of the amount you want to borrow. If your credit score is 500-579, a minimum down payment of 10% is required.
  • Minimum Credit Score: The minimum credit score to qualify for an FHA loan is typically 580, though some lenders will approve a borrower who has a credit score between 500-579. Note that you must be free of 30-day late payments within the past year and no foreclosures within the past three years.
  • Debt-to-Income (DTI) Ratio up to 45%: Your debt-to-income ratio (DTI) measures your monthly income against any recurring debt obligations and is one of the biggest factors that affects your mortgage offer. Most mortgage lenders require a DTI of less than 45% to qualify for an FHA. In addition, your mortgage payment should be below 32% of your gross monthly income.
  • Low Closing Costs: Closing costs for an FHA mortgage are the one-time fees associated with writing the loan. Prepare to pay 2%-5% of the total loan amount at closing. This is in addition to your down payment.

Related: How to FAST TRACK your mortgage pre-approval

A Few Restrictions With FHA Loans

First, the property must be your primary residence when you decide to apply for an FHA loan. It can be a single-family home or a multi-unit property (up to four units), as long as you live in one of the units full-time.

Second, FHA loans include an additional fee referred to as a mortgage insurance premium (MIP). This is similar to PMI (private mortgage insurance) that is typically added to a conventional mortgage for homebuyers who put less than 20% down.

For the mortgage insurance premium required with FHA loans, there are two fees: a 1.75% fee due at closing and an annual installment that is typically added to your mortgage payment each month. Many homebuyers roll the up-front fee into their mortgage. Also, the MIP payment is typically added directly to your mortgage payment each month for convenience.

Quick tip: many homeowners refinance their mortgage once they’ve built some home equity. Once you own at least 80% of your home, you can qualify for a number of custom loan programs that may reduce your mortgage payment. Also, you’ll be able to get rid of your mortgage insurance premium.

Connect with your local mortgage advisor and start your application and get pre-approved for your best home loan.

Summary

FHA loans offer homebuyers an opportunity to make homeownership a reality in 2022 with a down payment of 3.5% and less than perfect credit history. Be prepared for closing costs and a mortgage insurance premium that will be added to your mortgage payment. 

Finally, partner with a local mortgage advisor who is licensed to write FHA loans and specializes in custom home loans. This will give you the best of both worlds and a mortgage that will save you money.

Taking Action

Applying for an FHA loan in 2022 is a smart move for homebuyers looking for a low mortgage rate and a low down payment. From buying and selling property, investing in real estate, wealth-generation strategies, and providing opportunities to improve your financial situation, our trusted mortgage advisors are here to help guide you along your homeownership journey. Connect with a local mortgage advisor today to get started. We’d love to help.

Good News for First-Time Homebuyers

August 17, 2022
mortgage blog, first-time homebuyers, preferred rate

As mortgage rates swing upwards along with inflation, it can be discouraging to wonder if homeownership can ever be a real possibility. What’s more, as housing costs increase, many people are choosing to relocate, even change careers to move to areas with more affordable housing and a balanced lifestyle. But there’s good news for first-time homebuyers! Keep reading to learn first-hand about the benefits and advantages that are available to you.

Even if you’ve owned a home before, many repeat homeowners can still qualify as first-time homebuyers right now, so keep reading to see if you’re eligible. Homeownership might be closer than you think.

One of the best early moves you can make is to get pre-approved and lock in your mortgage rate.

How to Qualify as a First-Time Home Buyer

According to the U.S. Department of Housing and Urban Development (HUD), a first-time homebuyer meets any of the following conditions:

  • An individual who has not owned a principal residence for at least three years.
  • An individual who has owned a home (but their spouse has not) can still purchase a new home together as first-time homebuyers.
  • A single parent who has only owned a home with a former spouse while married.
  • A displaced person who has only owned a home with a former spouse while married.
  • An individual who has only owned a principal residence not permanently affixed to a permanent foundation (following applicable regulations).
  • An individual who has only owned a property that was not in compliance with state, local, or model building codes, and cannot meet compliance for less than the cost of constructing a permanent structure.

Top Mortgage Benefits for First-Time Home Buyers

A few highlights:

  • Down payments as low as 3.0%
  • Use of gift funds to help with closing costs
  • HUD-issued grants and down payment assistance
  • Government-backed loans with lower interest rates
  • Withdraw IRA funds for use without penalty
  • Tax deductions for points and origination fees

Many first-time homebuyer programs allow you to use gifted funds from family or friends, withdraw from retirement funds without a penalty, and even access down payment assistance. Talking with a mortgage expert can help you get access to the best options based on your goals.

Related: How to FAST TRACK your mortgage pre-approval

Top Home Loans for First-Time Home Buyers

One of the biggest obstacles for a lot of first-time homebuyers is the down payment. These popular first-time homebuyer mortgages can help lower your down payment and get you into a house without massive fees or unexpected costs:

  1. FHA Loan – 3.5% down payment
  2. VA Loan – 0% down payment
  3. USDA Loan – 0% down payment
  4. Conventional 97 Home Loan – 3% down payment
  5. HomeReady Home Loan by Fannie Mae – 3% down payment
  6. Good Neighbor Next Door Program – $100 down
  7. 203(k) Section Loans – 3.5% down payment

Connect with your local mortgage advisor and start your application and get pre-approved for your best home loan.

Depending on your unique situation (including your employment status and credit rating), there are custom solutions that can take advantage of government-backed loans, get you super low rates and save you money.

You can finally stop renting and start building equity in your first home. Homeownership is possible.

Down Payment Assistance for First-Time Home Buyers

FHA grant and loan programs and down payment assistance programs are available across the country, and many are state-specific.

Find out more about FHA Home Loans and Down Payment Assistance programs that are offered to first-time homebuyers available in 2021 in your state: find your state.

You can even learn about government programs that make it easier to purchase a home. Go here to check information on vouchers, state programs, and even foreclosures in your state.

Taking Action

If you’re dreaming about buying a home and you’re curious to see if you qualify for first-time homebuyer advantages, start the process today by connecting with your local mortgage advisor. Talk with your advisor and ask them to show you which home loan programs will give you the best advantages. Getting pre-approved early on can help you move fast when you find your dream home. We’d love to help.

2022 Jumbo Loans: Get Pre-approved and Lock Your Rate

April 20, 2022
mortgage blog, jumbo loan, pre-approval, preferred rate

Mortgage rates continue to push upwards and housing prices are still at record highs, but the market appears to be slowing down. Realtors say offers are coming in with greater caution and less competition as the season progresses, and jumbo loans are on the rise in high-cost areas. Nevertheless, high purchase prices create a challenge for most homebuyers who are ready to buy a bigger home or refinance a mortgage.

Jumbo loans offer qualified borrowers a mortgage solution to the high-cost dilemma.

Whether your want to refinance or buy a bigger home, getting pre-approved can help you lock in a mortgage rate before they jump again.

Jumbo Loan Limits for 2022

In early 2022, jumbo loan limits increased to $647,200 in most of the U.S. and up to $970,800 in high-cost areas. Why does this matter? Jumbo loan limits put mortgages in two distinct brackets: conforming and non-conforming home loans. Historically, conforming loans offer homebuyers the lowest mortgage rates.

Click here to visit the FHFA site and see the loan limits for every U.S. county.

Right now, jumbo rates are dropping and are even lower than conforming rates in some cases.

Jumbo loans offer freedom and opportunity for homebuyers, especially in areas where the cost of homes is substantially higher. Jumbo loans have stricter criteria to qualify, but a jumbo loan can give you extreme flexibility. And since jumbo loans are conventional home loans, qualified borrowers can use a jumbo loan to purchase single-family homes, multi-unit properties, vacation homes, and investment properties.

How to Qualify for a Jumbo Loan in 2022

Borrower criteria are more strict for jumbo loans. Since jumbo loans are not government-backed, mortgage lenders assume more risk and have stricter approval requirements. A high credit score and low DTI will give you the best mortgage rate and better loan terms.

Qualified borrowers will typically meet the following requirements:

  • High credit score or 680+
  • High cash reserves
  • Large down payment (20% or higher)
  • Low debt-to-income ratio (36% or lower)
  • Verifiable income and employment

Tips to Maximize Verified Income

Most of us can’t flip a switch to increase our income. However, you’ll qualify for a better jumbo loan when you can find ways to verify higher income. Employment is only one aspect of qualified income.

Consider the following revenue streams and be sure to include them if they apply to you:

  • investment gains, interest, and dividends
  • restricted stock units (RSU)
  • employee stock purchase plans (ESPP shares)
  • rental property income
  • business income
  • spousal support and/or child support

How to Lock Your Rate: Fast Track Your Mortgage Pre-approval

When you decide to get pre-approved for a jumbo loan, the mortgage lender does the extra work to verify your income, credit history, and required documentation to get your loan approved fast. If you’re refinancing, getting pre-approved for a jumbo loan can lock in your rate so you don’t hit any surprises during the application process.

If you’re purchasing a new home, getting pre-approved for a jumbo mortgage will lock your rate and give you a pre-approval letter to present with every offer. As a buyer, you’ll be confident knowing that your loan is approved up to the maximum amount designated. What’s more, realtors and sellers will know that you’re a serious buyer who can close fast.

Step 1: Connect with a local mortgage advisor.

First, talk to a mortgage advisor as soon as you think you might be ready for a jumbo loan. A mortgage advisor can start the mortgage pre-approval process and lock in your rate right away.

A local mortgage advisor will understand the unique challenges of the housing market in your specific area and can get move your documentation quickly to underwriting. A mortgage advisor is your greatest asset in the loan process, so be sure to work with someone who understands your goals.

Find a qualified mortgage expert in your local area

Step 2: Download your free credit report.

You can download a free credit report once every 12 months. Know your credit score and check the report to see if any errors need attention. Your credit score will directly impact the terms of your loan and your mortgage rate. By getting a free copy of your credit report early, you can resolve any errors ahead of time.

Click here to download your free credit report

Step 3: Gather required documentation.

An experienced mortgage advisor will provide a checklist to follow, lock in your rate, and get your jumbo loan pre-approved fast.

Start gathering the paperwork you may need to fast-track your jumbo loan pre-approval.

  • Identification such as a passport or driver’s license
  • Employment verification
  • Proof of income (e.g., pay stubs, W-2 statements, bonuses, alimony)
  • RSU, ESPP shares, or other stock options
  • Tax returns for the past two years 
  • Recent bank statements
  • Investment account statements

Ask your mortgage advisor for a quick list to help keep things on track.

Next Steps

Get pre-approved and lock in your mortgage rate now if you’re thinking about a jumbo loan. Getting pre-approved is the best next step, especially in today’s housing market.

An experienced mortgage advisor can help you get approved, lock in the lowest mortgage rate, and secure the right home loan. Connect with a mortgage advisor to discuss your options and save money on your mortgage. We’d love to help.

Boost Your Credit Score and Save Money on Your Mortgage

July 9, 2021
blog credit score

Applying for a mortgage can feel stressful, especially if you don’t know your credit score or if your credit score is low. Your credit score directly impacts the terms of your loan, mortgage interest rates, and whether or not you might qualify. 

The great news is you can save thousands of dollars on your mortgage by boosting your credit score. Why? Lenders look at credit scores as an important factor in determining your ability to repay the loan. Lower risk (for the lender) means a better mortgage for you.

Together, a better credit score and low debt-to-income ratio can help you save thousands of dollars on your mortgage.

RELATED: WHY GETTING PREAPPROVED FOR A MORTGAGE IS A SMART STRATEGY

How can I raise my credit score quickly?

A better credit score means a better mortgage. However, if your credit score isn’t where you want it right now, there’s a lot you can do to improve it. Follow the steps below to boost your credit score fast.

  • Excellent credit: 740 + 
  • Good credit: 700 – 739
  • Fair credit: 620 – 699
  • Not so great: 580 – 619

Smart tips to boost your credit score in less than 60 days

Step 1: Download a free copy of your credit report

Review your credit report for accuracy and look for any errors or negative marks that need your attention. Get a free copy of your credit report here from the Federal Trade Commission.

Step 2: Clean up any errors on your credit report

First, check to confirm that your personal information is correct (name, address, past addresses, etc.) Next, check for collection accounts, late payments, credit inquiries, or anything else that shouldn’t be there. If needed, you can also dispute credit inquiries or negative items that might hurt your credit score. Most errors can be cleared within 30 days.

Step 3: Pay down high credit card balances

The lower your balances are, the higher your credit score will be. Ideally, you want to aim for a balance below 30% of your available credit (also called your credit utilization ratio). This is because lenders consider it a lower risk when a borrower isn’t maxed out on their credit.

RELATED: BECOME A HOMEOWNER WITH LESS THAN 3% DOWN

Step 4: Catch up on past-due payments

Bringing your accounts current will boost your credit score. If needed, call your creditors to make a payment arrangement so that you bring your accounts current.

Step 5: Keep old accounts open

Payment history can help your credit score. So even if you have old accounts that you haven’t used in years, keeping them open with a zero balance is a smart move.

Step 6: Don’t apply for new credit cards or loans

Each time you apply for a new credit card or loan, it negatively impacts your credit score. So when you’re ready to apply for a mortgage, hold off on buying that car or opening a new line of credit.

Does it hurt my credit score when I apply for a mortgage?

No. When you apply for a mortgage, it shows up on your credit report as a new inquiry, but it doesn’t negatively affect your credit rating for the first 45 days. However, if you apply to multiple lenders beyond the first 45 days, the additional inquiries will begin to affect your credit score.

Should I pay off my loans early to improve my credit score?

In most cases, no. Believe it or not, keeping installment loans open and making your payments on time is the best way to keep your credit score in check.

Should I pay off my credit cards to boost my credit score?

Probably not. The best strategy is to pay down your balances significantly and keep your credit line open with a low balance. If possible, pay down your highest balance credit cards first and push your balance below 30% of the credit line.

High credit score? Leverage your mortgage options.

A high credit score means lenders will compete for your business. Download a free copy of your credit report so you can resolve any errors or misinformation. Keep making your payments on time and don’t take on any new debt or apply for new credit lines.

Now’s not the time to open a new credit card or apply for a new loan. Instead, keep your credit report as clean as possible when you’re ready to apply for a mortgage.

Low credit score? The FHA home loan might be the best fit.

A good credit score will typically get you the lowest mortgage rate. But there are also specialty loan programs available for homebuyers who have a lower credit score. In addition, your credit score isn’t the only factor when it comes to qualifying for a mortgage. Talk to a mortgage expert who understands the big picture and can help you reach your homeownership goals. 

RELATED: TOP 5 HOME LOANS FOR FIRST-TIME HOMEBUYERS

Let’s talk about Debt-to-Income Ratios and Credit Scores

When you apply for a mortgage, your debt-to-income ratio impacts your mortgage application right along with your credit score.

Why? Lenders compare your total monthly income with your monthly debt repayments to determine how much you can afford. If your monthly debt payments are higher than 40% of your pre-tax income, it might be harder to qualify for the best rate.

It might be worth it to pay down your debt when it comes to your credit score, so your debt-to-income ratio is favorable.

How to Calculate Debt-to-Income Ratio (DTI)

To calculate your DTI, combine your required monthly payments (e.g., monthly rent or mortgage, minimum credit card payments, student loans, car payments), and subtract the total from your gross monthly income.

For example, if your gross monthly income is $6,000, then 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan. Next, subtract your monthly debt repayments:

Monthly car payment = $200
Credit card payment = $135
Student loan payment = $250

In this scenario, your monthly debt obligation would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

RELATED: HOW DO I QUALIFY FOR A MORTGAGE WITH STUDENT LOAN DEBT?

What Happens with Co-applicants or a Joint Mortgage?

If you want to buy a house with a partner, spouse, friend, or relative, your mortgage application will require a credit report for everyone on the application. We blogged about this recently, which you can check out here: How to apply for a joint mortgage with a friend or relative (their credit score might help you qualify).

Summary

Buying a home or refinancing a mortgage can be a lot less stressful when you know what to expect. Mortgage lenders look at your credit report to evaluate risk and determine if you’ll be able to pay back your loan. Talk to a mortgage advisor (for free) to discuss options that can save you money.

The best way to boost your credit score is to make your payments on time, fix any errors on your credit report, and lower your balance on revolving credit cards.

Find out your credit score and download your free credit report. You can clean up any errors, dispute negative marks, and take action to boost your credit score in less than 60 days.

Next Steps

To get the best mortgage interest rate and terms, work with a local mortgage expert who understands your financial situation. No matter your credit score, we’re dedicated to helping you save money on your mortgage. Financial freedom might be closer than you think.

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Bump Your Credit Score and Get a Better Mortgage

July 6, 2022
blog credit report

Applying for a mortgage can be a stressful process, especially for new homebuyers.  While mortgage rates begin to steady, it’s a little easier to make a budget and determine how much you can afford. But if you really want to get your best mortgage, one of the best actions you can take is to boost your credit score. Most people can bump it up several points in less than 60 days.  Your credit score directly impacts the terms of your loan, mortgage interest rates, and whether or not you might qualify. 

The great news is you can save thousands of dollars on your mortgage by boosting your credit score. Why? Lenders look at credit scores as an important factor in determining your ability to repay the loan. Lower risk (for the lender) means a better mortgage for you.

Together, a better credit score and low debt-to-income ratio can help you save thousands of dollars on your mortgage.

RELATED: WHY GETTING PREAPPROVED FOR A MORTGAGE IS A SMART STRATEGY

How can I raise my credit score quickly?

A better credit score means a better mortgage. However, if your credit score isn’t where you want it right now, there’s a lot you can do to improve it. Follow the steps below to boost your credit score fast.

  • Excellent credit: 740 + 
  • Good credit: 700 – 739
  • Fair credit: 620 – 699
  • Not so great: 580 – 619

Smart tips to bump up your credit score in less than 60 days

Step 1: Download a free copy of your credit report

Review your credit report for accuracy and look for any errors or negative marks that need your attention. Get a free copy of your credit report here from the Federal Trade Commission.

Step 2: Clean up any errors on your credit report

First, check to confirm that your personal information is correct (name, address, past addresses, etc.) Next, check for collection accounts, late payments, credit inquiries, or anything else that shouldn’t be there. If needed, you can also dispute credit inquiries or negative items that might hurt your credit score. Most errors can be cleared within 30 days.

Step 3: Pay down high credit card balances

The lower your balances are, the higher your credit score will be. Ideally, you want to aim for a balance below 30% of your available credit (also called your credit utilization ratio). This is because lenders consider it a lower risk when a borrower isn’t maxed out on their credit.

RELATED: BECOME A HOMEOWNER WITH LESS THAN 3% DOWN

Step 4: Catch up on past-due payments

Bringing your accounts current will boost your credit score. If needed, call your creditors to make a payment arrangement so that you bring your accounts current.

Step 5: Keep old accounts open

Payment history can help your credit score. So even if you have old accounts that you haven’t used in years, keeping them open with a zero balance is a smart move.

Step 6: Don’t apply for new credit cards or loans

Each time you apply for a new credit card or loan, it negatively impacts your credit score. So when you’re ready to apply for a mortgage, hold off on buying that car or opening a new line of credit.

Does it hurt my credit score when I apply for a mortgage?

No. When you apply for a mortgage, it shows up on your credit report as a new inquiry, but it doesn’t negatively affect your credit rating for the first 45 days. However, if you apply to multiple lenders beyond the first 45 days, the additional inquiries will begin to affect your credit score.

Should I pay off my loans early to improve my credit score?

In most cases, no. Believe it or not, keeping installment loans open and making your payments on time is the best way to keep your credit score in check.

Should I pay off my credit cards to bump up my credit score?

Probably not. The best strategy is to pay down your balances significantly and keep your credit line open with a low balance. If possible, pay down your highest balance credit cards first and push your balance below 30% of the credit line.

High credit score? Leverage your mortgage options.

A high credit score means lenders will compete for your business. Download a free copy of your credit report so you can resolve any errors or misinformation. Keep making your payments on time and don’t take on any new debt or apply for new credit lines.

Now’s not the time to open a new credit card or apply for a new loan. Instead, keep your credit report as clean as possible when you’re ready to apply for a mortgage.

Low credit score? The FHA home loan might be the best fit.

A good credit score will typically get you the lowest mortgage rate. But there are also specialty loan programs available for homebuyers who have a lower credit score. In addition, your credit score isn’t the only factor when it comes to qualifying for a mortgage. Talk to a mortgage expert who understands the big picture and can help you reach your homeownership goals. 

RELATED: TOP 5 HOME LOANS FOR FIRST-TIME HOMEBUYERS

Debt-to-Income Ratios and Credit Scores

When you apply for a mortgage, your debt-to-income ratio impacts your mortgage application right along with your credit score.

Why? Lenders compare your total monthly income with your monthly debt repayments to determine how much you can afford. If your monthly debt payments are higher than 40% of your pre-tax income, it might be harder to qualify for the best rate.

It might be worth it to pay down your debt when it comes to your credit score, so your debt-to-income ratio is favorable.

How to Calculate Debt-to-Income Ratio (DTI)

To calculate your DTI, combine your required monthly payments (e.g., monthly rent or mortgage, minimum credit card payments, student loans, car payments), and subtract the total from your gross monthly income.

For example, if your gross monthly income is $6,000, then 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan. Next, subtract your monthly debt repayments:

Monthly car payment = $200
Credit card payment = $135
Student loan payment = $250

In this scenario, your monthly debt obligation would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

RELATED: HOW DO I QUALIFY FOR A MORTGAGE WITH STUDENT LOAN DEBT?

 

Summary

Buying a home or refinancing a mortgage can be a lot less stressful when you know what to expect. Mortgage lenders look at your credit report to evaluate risk and determine if you’ll be able to pay back your loan. Talk to a mortgage advisor (for free) to discuss options that can save you money.

The best way to boost your credit score is to make your payments on time, fix any errors on your credit report, and lower your balance on revolving credit cards.

Find out your credit score and download your free credit report. You can clean up any errors, dispute negative marks, and take action to boost your credit score in less than 60 days.

 

Next Steps

To get the best mortgage interest rate and terms, work with a local mortgage expert who understands your financial situation. No matter your credit score, we’re dedicated to helping you save money on your mortgage. Financial freedom might be closer than you think.

How Do I Qualify for a Mortgage With Student Loan Debt?

May 26, 2021
blog student loan debt

Student loan debt can cause a lot of financial stress, especially when you’re getting ready to buy a house for the first time. If you’ve got a steady job and a good handle on your monthly expenses, becoming a first-time homeowner is within reach.

So if you feel overwhelmed by your student loans, you’re not alone. A lot of first-time homebuyers wonder how they’ll qualify for a mortgage with student loan debt.

So You Want to Buy a House? Don’t Let Student Loan Debt Stop You.

This article will explain how student loans affect your home loan eligibility and how to qualify for a mortgage. Specifically, how to apply for a mortgage and get a home loan while you’re still paying off your student loan debt.

Let’s dig in.

Three Factors That Affect Your Eligibility When You Apply for a Mortgage

1. Debt to Income Ratio (DTI)

Your debt-to-income ratio impacts your buying power the most. Lenders compare your gross monthly income against your monthly debt obligations to determine how much you can afford to borrow. A DTI ratio higher than 43% can make it difficult to qualify. But there are select options for borrowers with student loan debt.

2. Credit Score

A good credit score will get you a better home loan and a lower mortgage rate. But there are also special programs available for first-time homebuyers who have a lower credit score. Check out your credit report for free here.

3. Down Payment

A larger down payment can often lock in a better rate and a more affordable mortgage payment. Ask your mortgage advisor about using investment stocks, retirement funds, gift funds, or borrowing from other sources.

Home Loan Opportunities for Borrowers With Student Loan Debt

Let’s Talk About Debt-to-Income Ratios and Mortgage Applications

When you apply for a mortgage, your debt-to-income ratio directly impacts your eligibility.

Why? Lenders compare your total monthly income with your monthly debt repayments to determine how much you can afford. If your monthly debt payments are higher than 40% of your pre-tax income, it won’t be easy to qualify.

This is where student loan payments make a significant impact.

Student loan payments are automatically included in your monthly debt balance, so they directly affect how much you can afford for a home loan. Since there are different student loan repayment programs, the structure of your specific student loan payment plan can make a big difference.

First, let’s look at how debt-to-income ratios are calculated. Then you can decide whether or not it’s a smart idea to restructure your student loan debt.

How to Calculate Your Debt-to-Income Ratio (DTI)

Figuring out your debt-to-income ratio (DTI) is easy. Write down your gross monthly income, then make a list of all your recurring monthly payments.

Leave out expenses that vary each month, such as utility bills, entertainment, groceries, transportation, etc.

To calculate your DTI, combine your required monthly payments such as:

  • Monthly rent or mortgage payment
  • Student loan payment
  • Minimum credit card payment
  • Monthly car payment
  • Any court-ordered payments (child support, back taxes, etc.)

Example: Calculating Your Debt-to-Income Ratio with Student Loans

For example, if your gross monthly income is $6,000, then 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan.

Next, it’s time to subtract your monthly debt repayments. For example:

  • Monthly car payment = $200
  • Credit card payment = $135
  • Student loan payment = $250

In this scenario, your monthly debt repayment would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

How Different Student Loan Repayment Programs Affect Your Mortgage Application

Restructuring your student loans can help lower your debt-to-income ratio and be a better option than paying off your student loans.

Why? To apply for a mortgage, you’ll want to have a down payment ready as well as emergency funds. So you don’t want to deplete your savings to pay off your student loans.

If your monthly student loan payment is high, you might consider restructuring your student loan debt so that you can lower your monthly payment. This will help lower your DTI.

Contact the institution that handles your student loan debt and ask about the following options:

  • standard repayment plan
  • deferred student loan
  • income-driven payment plan
  • graduated payment plan

Takeaway: Don’t Let Student Loans Keep You From Buying a House

Buying your first home might be closer than you think, even while you’re paying off student loans. And several loan programs can work to your advantage, especially as a first-time homebuyer.

Plan for your down payment, find out your credit score and calculate your debt-to-income ratio. Once you have a clear financial picture, you can consider restructuring your student debt to lower your DTI ratio.

Next Steps

Working together early on can help navigate your best options. If you’d like to understand how your student loans will impact your mortgage application, let’s connect. We’d love to help.