Tag Archive for: home loans

Understanding a 3-2-1 Interest Rate Buydown

February 9, 2024

Higher interest rate environments can make it difficult to buy a home, but there are silver linings and workarounds. The good news is that higher interest rates often mean less competition, lower prices, and eager sellers. These sellers can be more willing to consider concessions than they would have been in a hotter market. Today you may be able to negotiate who pays for many closing costs, including mortgage discount points.

There’s an alternative to buying points, however, that homebuyers should understand. It can significantly lower the interest rate on your mortgage payment for the first several years of the mortgage. It’s called a 3-2-1 buydown, and it can help combat these higher interest rates.

What Is a 3-2-1 Buydown?

A 3-2-1 buydown temporarily lowers the interest rate on your mortgage by 3 percentage points the first year, 2 percentage points the second year, and 1 percentage point the third year. After that time, your mortgage will revert to the original rate.

This is a huge deal with interest rates at their current levels. Suppose you lock in your mortgage with an annual percentage rate (APR) at 6%. If you purchased a 3-2-1 buydown mortgage, your rate would be 3% in year one, 4% in year two, and 5% in year three, wrapping up with the agreed-upon 6% note rate for the remainder of the loan term.

This program was created to give buyers a little breathing room when higher interest rates threaten to derail their dream of homeownership. A 3 percentage point difference in your mortgage loan can make a significant impact on your monthly payment.

This program can also free up cash at a critical time after you purchase a home. Remember that a down payment, closing costs, and moving expenses can be very expensive. The money you save with temporary buydowns such as a 3-2-1 buydown can replenish the savings or emergency fund that you might have exhausted to pay for these expenses.

Your savings can also be put toward furniture purchases or repairs and upgrades for your new home. You don’t want to max out your credit cards on these items, which negatively affects your credit score. Instead, put the money you’re saving to work for you.

How Can I Use the 3-2-1 Buydown to My Advantage?

Three years is a long time in the mortgage industry. You’ve seen how quickly the daily and weekly mortgage rates can change. The 3-2-1 buydown can get you through the current interest rate hike, but it can also position you to refinance after the program ends in three years. At that time—as long as your home equity is at least 20%—you can consider refinancing to a lower permanent rate.

This is assuming that 30-year fixed-rate mortgages will be lower at that time, although no one knows what the Federal Reserve will do three years from now. If rates do increase, you’re still ahead of the game with the mortgage rate you originally locked in.

This makes a 3-2-1 temporary buydown a win-win for homebuyers!

Who Pays for a 3-2-1 Buydown?

A 3-2-1 buydown can be paid for by the seller, homebuilder, or even the mortgage lender. This is a popular concession among sellers who are eager to sell for one reason or another. It often allows them to achieve the full asking price on their home, while also incentivizing buyers to invest in real estate.

What’s the Difference Between a 3-2-1 Buydown and Buying Discount Points?

The difference between 3-2-1 temporary buydowns and discount points all comes down to rate and timing. You know you’ll get to chop entire percentage points off your interest rate during the first three years of your loan term with the 3-2-1 buydown. Permanent buydowns such as discount points, on the other hand, lower your rate by a smaller amount—generally 0.125 to 0.5 percentage points—for the entire life of the loan.

Here’s where you need to weigh your options. Naturally, that 3 percentage point APR savings is an attractive benefit, but saving half a percentage point on a 30-year fixed-rate mortgage is valuable, too. That equates to a lot of savings over time.

Buying mortgage points can be the way to go if you plan to stay in your home a long time because you want to make sure you achieve your “breakeven.” This is the point at which the money you’ve saved on the permanent interest rate discount outweighs the upfront costs you (or the seller) paid for that discount. This breakeven is generally achieved around year five of your home loan.

An additional item to consider is how comfortable you are with the interest rate you’re locking in. You want to make sure this is an interest rate you can live with after the three-year period on a 3-2-1 buydown ends because it will be your permanent mortgage rate for the remaining years of the loan. The option to refinance as long as you’ve built up enough home equity is available, but there’s no guarantee that rates will be low enough to count on that.

Taking all this into account, the 3-2-1 buydown is still a very attractive option for buyers when interest rates are high.

We know these are important decisions, which is why Preferred Rate is always here to walk you through them. We can explore the various scenarios with you, outlining how much you’d save with each option. Locate a Preferred Rate Mortgage Advisor near you to get started.

How to Set Achievable Financial Goals

January 2, 2024

Happy couple, tablet and planning for finance, budget or application for loan on fintech app in home. Black man, woman or reading on touchscreen ux with smile, financial goals and investment profit

New year, new goals, right? When it comes to personal goal-setting, creating financial goals can be one of the most meaningful things you can do for yourself and your family.

Why? Because money may not be everything, but it can buy us choices. Where we live, what we do for work (and how much we work), what hobbies we’re able to pursue, and whether we’re able to help others in our lives often have strong ties to our financial picture. So, do yourself a favor in 2024 and set some financial goals you can crush.

No matter what your financial goals, remember that a goal without a plan is just a dream. Cheesy? Yes. True? Yes.

That’s why we’re here to show you not just the value of personal goal-setting, but a road map for killing those financial goals.

All Big Dreams Start Small

Whether your goal is to travel the world or pay off student loans, chances are this goal is more complicated than simply snapping your fingers and making it so. If that were the case, it wouldn’t be part of your list of goals. It would be on a to-do list.

So let’s acknowledge upfront that some of these financial goals can seem quite lofty. After all, it takes a lot of financial planning to, say, buy a home or live debt-free. But here’s the thing: Once you set a goal, you can work backward to see how you can achieve it.

For example, let’s say you need $18,000 to pay off your debt this year. That’s $1,500 per month, or about $750 every two weeks. If you know that you can afford to set aside $650 of every paycheck toward paying back debt, that leaves $100 per month you still need to find—perhaps through scrimping, selling, or a side hustle.

Breaking your goal into a smaller time frame helps you see how you can get there, and whether it’s really achievable.

Using SMART Goals

Using the SMART system to achieve your goals is extremely powerful. It’s all about breaking these larger financial goals into bite-sized, achievable pieces.

SMART stands for specific, measurable, achievable, relevant, and time-bound. Sounds fancy, but it’s really just a practical way to turn dreams into reality. Here’s what each component means.

Specific: Define your goal as precisely as you can. Instead of saying, “I need to get out of debt,” perhaps make it, “I want to pay off my credit card debt in a year.”
Measurable: Make sure you can track your progress toward your goal. For example, “On the first of every month, I’ll send $200 to the credit card company.”
Achievable: Make sure your goal is realistic for you. And then outline exactly how you plan to save the money. For example, to save that $200, maybe you commit to stopping buying coffee outside the house and making dinner at home six days a week.
Relevant: Ensure that your financial goals align with your personal life. If you’re ultimately dreaming of homeownership, maybe your priorities are to pay down debt and work on your credit score, rather than saving up for a vacation.
Time-bound: Give yourself a deadline. Saying, “I’ll have $5,000 saved for a down payment in 12 months,” helps you think about what that means on a weekly and monthly basis. It also creates a sense of urgency.

Financial Goals That Are Worth Setting

Let’s get one thing straight: Any goal that’s worth it to you is worth setting. Want to save money so you can buy a piece of artwork? Great. Need extra cash because your living expenses are increasing? Fabulous. Just really love to see a fat number in your savings account? We totally get it.

No two goals are exactly alike because the people setting them are all different. Nevertheless, when it comes to personal goal-setting, there are some financial goals that come up more than others. Here are some ideas for you.

Creating a budget

Perhaps you’re not sure what kind of financial goals to set because you’re not really sure where your money is going. If that’s the case, getting a handle on that is a valid goal for 2024!

Here’s a simple way to get started:

List all your monthly income. List all your sources of income, including your salary, freelance work, rental income, and any other sources of money.
List all your fixed monthly expenses. Fixed expenses are regular and consistent, like rent, utilities, loan payments, and other monthly obligations. For annual fixed expenses like property insurance, divide the total number by 12.
List all your variable monthly expenses. Estimate the expenses that can vary from month to month, such as groceries, gas, clothing, entertainment, and dining out.
Start tracking your spending. Make a spreadsheet to keep track of your actual spending in all the categories you’ve listed. This will give you a clear picture of where your money is going right now.

Once you have some basic information, you can start thinking about areas where you might be able to cut back or set realistic spending limits for yourself.

If you struggle to create a budget—or to stick to one—there are also many apps you can use to keep yourself on track.

Becoming debt-free

Ah, the “D” word. Credit cards, student loans, medical bills, mortgages, car payments, you know the drill. Being debt-free is like shedding a financial weight.

If this is one of your personal goals, then a good plan can be to tackle high-interest debts first. That’s because those interest rates are costing you the most money. You may also want to look into consolidating debt or opening a credit card that offers a 0% APR on balance transfers.

Only consider the credit card option, however, if you’re positive you can control your future spending. Part of the goal of being debt-free is improving your credit score. Getting into even more credit card debt is the opposite of what you want and can prevent you from reaching your financial goals.

For more help on paying off debt, see our blog post with eight practical ideas here.

Saving money

When it comes to saving money, the old set-it-and-forget-it method can be great. An easy way to do this is to auto-allocate a specific amount of money to be transferred to your savings account once your paycheck is deposited.

This is honestly the best kind of New Year’s resolution. You can take some time in January to set things up when your motivation is high, and then you’re done for the year. Goal achieved!

The other great thing about this strategy is it can help you work toward a long-term goal like buying a house, but it’s also great for short-term financial goals like, say, Taylor Swift concert tickets.

And you don’t have to have a spending goal in mind at all! If you want to save money simply to watch your savings account grow, that’s not only an achievable goal, it’s a brilliant one!

Improving your credit score

The credit score: also known as your financial goals’ gatekeeper. We don’t have to tell you that a great credit score opens doors—namely, to the ability to make big purchases by taking on more debt. This privilege can be yours if you work on your credit score.

Remember the SMART goals here. Before you can set a specific goal, you need to know what your starting score is. (You can request a free credit report here.)

Say you have a credit score of 650, and you want to get it up to 700 by the end of the year. Here are some achievable ways to do that:

Be sure to pay your bills on time. This is crucial, so set up reminders or automatic payments if necessary.
Keep your credit card balances low. Aim to keep your credit card balances at no more than 30% of your credit limit.
Keep old accounts open, and avoid opening too many new accounts. The length of your credit history is important. So having long-standing accounts helps you, while opening a lot of new accounts is viewed as risky behavior.
Seek professional help. If you want to improve your credit score before buying a home, a Preferred Rate Mortgage Advisor may be a great resource for getting personalized help on this goal.

Saving for a down payment

One of the most common financial goals involves real estate. This might take the form of buying your first house, a vacation property or adding an investment property to your portfolio. In any case, a down payment will be needed, making this one of the great personal goals for 2024.

Start by setting a specific savings goal for your down payment, then see where you can save—and where you can earn more money—to hit this target. It’s always great to put 20% down if you want to snag better mortgage rates and avoid private mortgage insurance (PMI), but it’s not required. Consult with a Preferred Rate Mortgage Advisor to see if you qualify for down payment assistance and what a good down payment savings goal might be for you.

Saving for retirement

It’s time to play the long game. Long-term financial goals keep your eye on the prize. If your dream is to work less or retire on a beach somewhere, then now is the time to start saving for it. If you haven’t done it already, set up a retirement account, such as a 401(k) or an IRA.

As you begin to save for retirement, you’ll see what compound interest can do to the money you’re stashing away. As you watch this money grow, you can feel confident knowing you’re working toward being financially secure for the rest of your life.

Making career goals a reality

Part of being financially secure is the ability to pursue what’s important to you. When you’re not tied to the punch clock, you can achieve the career goals of your dreams.

For example, maybe you’d like to save enough money to return to school part-time to learn a new skill. Or maybe you have an idea for an entrepreneurial adventure and need startup funding. Or perhaps your goal is to be able to quit your day job entirely to turn your passion project into a career.

The first step, as always, is to write out your plan, including how much it is likely to cost and how long it will take to save for it. But whatever your goals, the ability to invest in yourself will never go out of style.

Celebrate Wins of All Sizes

A large part of personal goal-setting can involve sacrifice. You have to devote the time, money, and energy to creating specific goals. But you also need realistic, actionable plans to help get you there.

Keep in mind that the payoff doesn’t have to be years down the road when you achieve long-term financial goals. Celebrate the short-term goals as well. Did you create a plan and exceed your savings goal in the first month? That deserves some acknowledgment. Plus, recognizing your victories can keep you motivated for the long haul.

Setting achievable financial goals doesn’t have to be a buzzkill. Instead, it’s a positive step toward realizing your dreams.

And always remember, we’re here to help. Whether you’re having trouble establishing goals, aren’t sure of the best ways to save money, or want to understand the SMART goals system better, we’re happy to assist however we can.

What Is a Good Credit Score to Get a Mortgage Loan?

January 23, 2024

credit score concept on the screen of smartphone

Before you go too far down the house-hunting rabbit hole, you’ll want to ensure that you meet the credit score requirements to secure a mortgage loan. After all, this mortgage loan will allow you to purchase your dream home. And while many factors go into qualifying a good credit score is definitely one of them.

We know that getting “rated” can make you feel like you’re back in school. Like in school, however, with a little hard work, discipline, and dedication, you can improve your credit scores quickly!

So let’s jump right in, starting with the obvious.

What Is a Credit Score?

Credit scores range from 300 to 850. The Fair Isaac Corporation, also known as FICO, originally created this scale to help lenders and investors determine the creditworthiness of consumers.

A higher credit score indicates that you’re a lower-risk borrower, which could lead to a lower mortgage rate over the life of the loan. That’s because a good credit score and a strong credit report imply that you can manage your credit wisely and make timely payments. Lenders are more likely to offer you a lower interest rate mortgage loan if you are a high-credit-score (low-risk) borrower.

Other agencies have adopted a similar scale and are expected to start playing a bigger role in credit scoring in the coming years. At the end of the day, your credit score is a tool that provides a snapshot of your credit history to lenders, essentially summarizing the risk of lending to you.

What Determines Your Credit Score?

Five factors help calculate your credit score. Here’s an overview of these elements of the credit scoring model.

1. Payment history (35% of your overall score)

Paying your credit accounts on time—including credit cards, auto loans, student loans, medical bills, and any personal loans—can increase your credit score. In the same vein, late payments can negatively impact your credit score.

The credit scoring model considers the frequency and severity of these late payments. A 90-day late payment, for example, will have a larger negative impact on your credit score than a payment that’s 30 days late. Ultimately, you want to do what you can to pay your bills on time to ensure that you don’t make bad credit worse or reverse all the work you’ve done to improve your credit score.

2. Utilization rate (30% of your score)

The ratio of your credit account balances to your available credit limit is known as the utilization rate. The credit bureaus consider the utilization rate of your individual cards, as well as your overall cumulative credit limits, in this factor. A balance-to-credit-limit ratio below 30% may improve your credit scores, while a ratio above 30% may lead to bad credit.

3. Length of history (15% of your score)

The age of your credit accounts matters. What we mean is that it pays to establish a long history of credit usage and on-time payments. Credit accounts that have been open and utilized for years can improve your credit score.

Many people use their credit cards for their monthly expenses, which earns them perks and helps establish their reputation as responsible borrowers. This is a good idea only if you know you can pay your balance off every month.

With this in mind, you might think that it makes sense to open a bunch of new credit accounts, just as long as you pay off the balance at the end of the month. However, opening new credit accounts lowers the length of your credit history.

This can result in a lower credit score in the first 12 months. Once an account reaches 24 months or longer, however, it becomes a more established account. That’s when you can expect to see a positive impact.

This is also why a mortgage lender may tell potential homebuyers not to open new lines of credit when they’re preparing to buy a house. It can lower your credit score and potentially affect your debt-to-income (DTI) ratio.

4. Type of credit (10% of your score)

Also known as credit mix, credit scoring models consider what type of credit you have. Generally speaking, a mix of different credit types is more favorable than only one type of credit. Various types of credit may include a revolving credit card, an auto loan, and an installment loan, for example. This mix of credit types can produce a higher score than using revolving credit cards.

5. Inquiries (10% of your score)

When a lender pulls your credit, it is considered a “hard” inquiry. That can have a negative impact on your credit score. That means you could be dinging your score every time you apply for a new credit card or loan.

Not all inquiries negatively impact your credit, though. Pre-approval and employer inquiries that check your credit aren’t detrimental and don’t trigger calls and letters from other parties trying to sell you their latest and greatest credit card. Multiple inquiries from mortgage companies made within a 45-day window will ding your credit score only once, allowing consumers to do their research without lowering their credit score.

Of course, not all inquiries negatively impact your credit. “Soft” inquiries, such as a potential employer checking your credit, aren’t detrimental. Multiple inquiries on a single new account, such as multiple credit checks for your mortgage, ding your credit score only once, as long as these checks are all made within 45 days of one another.

What if you want to check your credit scores yourself? Any request regarding your personal credit is considered a soft inquiry and won’t count against you.

What Are the Credit Score Requirements to Buy a House?

Every mortgage lender is different. No magical number will suddenly unlock a home loan, but there are credit score ranges that lenders generally view more favorably than others.

Credit scores are typically viewed this way:

800–850: Excellent
700–799: Very good
680–699: Good
620–679: Fair
580–619: Poor
500–579: Bad
499 and lower: Very bad

A higher credit score can lead to a more favorable home loan interest rate. However, it’s important to note that credit score is just one part of the equation, and other factors such as income and DTI ratio also play a role in home loan qualification.

Each mortgage lender has its own strategy, including the level of risk they finds acceptable for a given credit product. So remember that there’s no standard “cut-off score” used by all lenders. Instead, these general ranges can tell them whether a potential borrower has a good or bad credit score or is somewhere in the middle.

Don’t forget: When it comes to qualifying for a loan, your credit score is only one part of the equation. A borrower can have a perfect 850 score, but if their income and DTI ratio don’t support the loan amount they’re requesting—say they make $30,000 a year and are looking at homes in the $800,000 range with no other liquid assets—their desired amount can still be denied.

How Do You Check Your Credit Score?

You can request a free copy of your credit report once a year from each of the three credit bureaus: TransWestern, Experian, and Equifax. You can contact these bureaus directly or go to Annual Credit Report to get all three.

This is a solid strategy if you’re looking to get a mortgage loan in the next three months. If you have some time and want to improve your credit, you can always request one report from each credit bureau every four months to track your progress.

Once your credit report is in hand, review it for accuracy. Call the credit bureaus if you find any errors or if you have questions about anything in the report.

How Do You Improve Your Credit Score?

If you find that your credit needs some work, remember the five factors determining your score and then set about optimizing your credit.

The most effective ways to do this:

Make payments on time every time.
Pay credit cards down to 30% or less of their credit limits.
Limit the number of accounts you apply for at one time.
Leave established, older accounts open even if they’re paid off.

Keep in mind, too, that you might be able to qualify for a mortgage loan even if your credit score is in the “poor” to “fair” range. That’s because credit is not the only factor considered.

Preferred Rate’s specialty pr ograms can help individuals who have previously had a short sale, pre-foreclosure, or foreclosure reenter the housing market. There is no need to count yourself out of the market just because your credit score is less than perfect. your credit score is less than perfect.

If you have questions about your credit or want to learn more about the homebuying process, click here to connect with an Preferred Rate Mortgage Advisor in your area.

Buy a Home Now, Refinance Later at Reduced Fees

January 16, 2024

Laptop, living room and couple search website information for home investment, loan or real estate property discussion on sofa. Young people on couch with pc internet, planning future together

The real estate waiting game is no fun. But with today’s high-interest rate, some would-be buyers think it’s prudent to play if they want to secure the best homeownership deal. The problem with that is you miss out on homeownership opportunities today, including less competition and falling prices in many markets.

The thing is, once the high-interest rates of today’s market moderate, everyone who’s been sitting on the sidelines may very well flood into the market at once. Yes, that’s right: A lot of other potential homebuyers are taking the wait-and-see approach, just like you are. The likely outcome is that competition will return, and real estate prices may start heading north once again.

Thankfully, Preferred Rate has a solution to get you on the path to homeownership NOW while allowing you to take advantage of lower rates if they materialize in the near future. The Buy-Fi Program lets you buy a home now and then refinance later with reduced lender fees.

Let’s dig into the details of this program.

The Advantages of Preferred Rate’s Buy-Fi Program

Buy-Fi is a game-changing opportunity for potential homebuyers seeking confidence and flexibility in their purchasing decisions. It’s truly the best of both worlds.

Buy now with confidence

Preferred Rate’s Buy-Fi program lets potential homebuyers buy with confidence between November 1, 2023, and March 31, 2024, regardless of current high-interest rates, with the knowledge that they can refinance into a lower rate later for lower fees.

Flexible refinancing options

Participants in the Buy-Fi program can refinance their homes anytime before December 31, 2024. This allows them to capitalize on lower interest rates at any time before that date.

Reduced fees make it a no-brainer

Preferred Rate is committed to reducing the financial burden of refinancing by offering reduced closing costs. These include administrative, application, commitment, technology, processing, and underwriting fees. When you add all those up, that’s a lot of savings compared with another mortgage lender or financial institution!

How to Buy a Home Now, Refinance Later

A few simple steps can help you get into a home now with the Buy-Fi program while taking advantage of lower interest rates that may be forthcoming.

To secure your home purchase loan, you just have to do the following:

Start your homeownership journey by applying with Preferred Rate for the purchase of your new home.
Successfully close on your home loan, securing your foothold in the real estate market.
At that point, Preferred Rate will watch the interest rates for you. When they drop, we’ve got you covered!
You can refinance anytime before December 31, 2024, and we’ll reduce your lender fees.

The Buy-Fi program creates a stress-free homeownership experience without the hassle of waiting for higher interest rates to come down. The strategy to buy a home now and refinance later is a financially responsible way to invest in real estate. These reduced lender fees provide real-world benefits to you in the long run and allow you to start building equity sooner.

Plus, this flexible approach of refinancing when it’s right for you (up until December 31, 2024) allows you to dictate the timing while securing a more favorable interest rate.

Some people think sitting on the sidelines puts them in the driver’s seat in this market. But really, doing your homework, getting creative, and pulling the trigger when the factors are right for you are what really put you in control of your financial future.

Other Things to Consider

Here are a few other things to consider when considering this program.

The federal funds rate and its influence on real estate

Preferred Rate’s Buy-Fi program strategically aligns with market dynamics influenced by the federal funds rate. That’s the rate at which banks, credit unions, and other financial institutions lend one another money. This gives participants in the Buy-Fi program a competitive edge in the real estate market.

In other words, when these high-interest rates finally start moving down, we move to save you money!

A new way to save

An online savings account—not to mention a high-yield savings account—is great, but Preferred Rate’s Buy-Fi program positions itself as a modern alternative to the traditional savings account.

With Buy-Fi, you save money on reduced closing costs on the refinance (via reduced mortgage lender fees). You also save on the lower interest rate after you refinance. And, of course, you can start building equity right away.

Get into the market while the competition is lower

Those high-interest rates do make the housing market more attractive in a few respects. They mean that competition is lower, meaning you’re less likely to get into a bidding war over the home of your dreams. Lower competition usually leads to lower prices as well.

Waiting to Buy a Home Could Cost You

Getting a mortgage from other financial institutions or a mortgage lender comes with fees, including closing costs. The extra money required can strain the homebuying process, and waiting for rates to drop may not necessarily mitigate all these costs.

At the same time, putting the money that would go toward your home purchase into one of these high-yield savings accounts that compounds interest can be attractive. However, the opportunity cost of waiting for lower mortgage rates could lead to missed opportunities for homeownership, impacting your long-term financial goals.

That’s why Preferred Rate’s Buy-Fi program is here to help. By encouraging proactive decision-making, offering flexible refinancing options, and reducing closing costs, Preferred Rate hopes to pave the way for a smart and seamless homeownership experience.

Don’t let the uncertainty of market conditions dictate your homeownership journey. Seize the opportunity with Buy-Fi, and start your journey today!

What You Need to Know About Qualifying for VA Jumbo Loans

November 6, 2023

Securing a jumbo VA loan, a category within the spectrum of VA-backed home loans, presents numerous valuable benefits to qualified veterans and their surviving spouses. While there isn’t a distinct “jumbo VA loan” in the strict sense (as all VA loans are treated uniformly, regardless of the loan amount), it’s customary to label larger loans as “jumbo” for the sake of discussion.

In contrast to conventional jumbo loans, VA jumbo loans lack a predefined maximum loan amount, except for the limits established by the lender, which for Preferred Rate is often capped at $2 million in most cases. Instead, the loan amount is contingent on your eligibility for a VA loan, as established by your Certificate of Eligibility (COE) and entitlement. This flexibility allows you to secure a more substantial loan for your home.

Moreover, loans backed by the Department of Veterans Affairs, commonly referred to as VA-guaranteed loans, offer additional advantages. Notably, they come without pre-payment penalties, and those who qualify for VA jumbo loans are exempt from the burden of private mortgage insurance (PMI).

A significant disparity between non-VA and VA jumbo loans is the interest rate. While typical jumbo loans generally come with higher interest rates compared to home loans falling within the conforming loan limits, VA jumbo loans typically feature the same interest rates as any other VA-guaranteed home loan, although this may be contingent on various factors.

Acquiring higher loan limits without compromising on your interest rate can be particularly significant, especially in today’s real estate market, where luxury properties in high-cost regions frequently surpass conventional limits.

Eligibility: So, who qualifies for VA jumbo loans? Initially, you must meet all the eligibility criteria for the VA home loan benefit. This benefit is open to active-duty service members, veterans, and in certain situations, surviving spouses of service members or veterans.

If you’re entitled to the VA home loan benefit, your Preferred Rate Mortgage Advisor can facilitate the process. They will access the VA portal on your behalf and request your Certificate of Eligibility. In most cases, they can obtain your COE promptly upon entering your information. If, for any reason, this is not available, they can assist you in submitting the paperwork manually to acquire your certificate.

For veterans with service-connected disabilities, VA loans offer extra benefits. Those with such disabilities may qualify for exemptions from funding fees, further reducing the overall cost of homeownership.

Under specific circumstances, surviving spouses of deceased veterans may also benefit from VA loans, as they can often utilize their spouse’s VA loan entitlement, accessing the same favorable terms and benefits as veterans themselves, and avoiding the VA funding fee. This makes homeownership more attainable during times when stability is of utmost importance.

Qualifications: Once your eligibility is confirmed, here are some important requirements to consider for VA jumbo loans.

Credit Score Requirements: Credit score requirements may be higher for jumbo VA loans, but they can vary slightly between lenders. For higher loan amounts, FICO credit score requirements can be as high as 720, compared to around 580 for lower-balance VA loans.
Debt-to-Income Ratio (DTI): The DTI ratio for VA loans is calculated differently from traditional mortgages. While there is no strict maximum ratio, the VA requires a formula that considers your monthly payments, expected utilities, maintenance costs, and other obligations like car payments. This is compared to your net take-home pay, and the remaining balance at the end of the month is assessed. The specific requirements depend on the number of family members, and your loan officer can provide guidance on this residual balance for family support.
Down Payment: Standard VA loans are renowned for not requiring a down payment, and jumbo VA loans can offer the same benefit in some cases. The eligibility is determined by your VA loan entitlement, which indicates the amount available for guaranty on your home loan. Your Preferred Rate Mortgage Advisor can help you understand your full entitlement and whether any portion of it has been utilized.

If you’re already using your VA home loan benefit, your entitlement might not be at its maximum if you have active VA loans, experienced foreclosure, or sold your home through a short sale. However, if you’ve paid off your VA-backed home loan in full or sold the property, you should still qualify for your full entitlement. If a balance remains or if you’ve allowed a buyer to assume your VA loan, you can utilize the remaining unused portion of your VA loan entitlement.

Additional Considerations: It’s important to note that the property you purchase with a VA home loan must be your primary residence and meet standard inspection requirements. Eligible borrowers can also use their VA loan benefit to acquire multi-unit properties, such as duplexes, triplexes, or fourplexes, with the stipulation that one of the units serves as their primary residence. This strategy allows veterans to generate rental income from the other units, provided certain requirements are met, which can help offset the expenses of a VA jumbo loan.

Applying for a VA Home Loan: Preferred Rate Mortgage Advisors understand the challenges of serving in the military, and they’re proud to support eligible individuals in accessing the benefits of VA-backed loans. Many of their advisors are veterans themselves and are committed to helping you achieve your dream home. They’re available to assist you in applying for a VA home loan or discussing the advantages of VA jumbo loans as a gesture of gratitude for your service.

House Hunting: The Art of Timing and the Cost of Waiting

September 27, 2023

House for sale. A stunning real estate photograph of a suburban

When it comes to investments, a lot of folks say that timing is everything. Sounds good on paper, right? But let’s be real, when you’re thinking about making a big investment like buying a house, trying to time the market is like chasing a unicorn. Sure, we all wish for a world where both interest rates and house prices are in the basement, but that’s about as rare as a shooting star.

Remember the big housing price drop in 2007 during the Great Recession? Yeah, that was a rollercoaster. And then in 2020, the pandemic made home prices play hide and seek. But apart from those blips, it’s mostly been business as usual.

Of course, home prices have their ups and downs, driven by stuff like the overall economy, interest rates, and what’s happening in your neighborhood. Speaking of interest rates, those are like the secret sauce controlled by the Federal Reserve. They’re the only ones who really know what’s up with interest rates, and they sometimes have to do some last-minute tweaking.

But hey, no worries, right? You’re thinking of waiting it out until houses are raining from the sky, and interest rates are so low you’d think they’re on clearance.

But what if that never happens? What if mortgage rates decide to do a rocket launch to the moon instead? Housing inventory could become scarcer than Bigfoot sightings. And as for prices, well, they dance to the beat of their own drum.

Bottom line, market timing might sound good in theory, but while you’re waiting for the perfect alignment of stars, someone else might snatch your dream home.

The Waiting Game

Putting off a big money move like buying a home can make sense sometimes, like if you need to work on your credit, save up for a down payment, or build an emergency fund. But if you’re just twiddling your thumbs waiting for the stars to align in the housing market, it might be time to consider the cost of playing the waiting game.

In this world of rising inflation, the price tags on everything keep going up. Unfortunately, that can eat into your housing budget, leaving you with less cash to put down on your dream pad.

And remember, a home is like any other product on the shelf—it’s not immune to price hikes. While some markets have calmed down a bit in the past year, nobody can say for sure if that trend will stick around. The wild card here is interest rates. If they take a nosedive, demand could spike again, and the epic house bidding wars of 2021 might make a comeback. So, no guarantees of lower prices there.

On the flip side, if interest rates decide to climb, there might be less competition in the market, but those rates will gnaw away at your housing budget. They can even tack on extra bucks—sometimes hundreds—to your monthly mortgage payments.

Renting Costs

Now, let’s talk about your current housing situation. If you’re renting, you’re basically paying someone else’s mortgage (your landlord’s), and you’re probably dealing with annual rent hikes.

So far, this year has seen average rent increases of around 3.3%, according to NerdWallet. But in some places, like Hartford, Connecticut (7.3%), Buffalo, New York (6.3%), Chicago (6%), and Boston (5.8%), rent hikes are way steeper.

One of the perks of owning a home is that your monthly mortgage payment stays put if you’ve got a fixed-rate loan.

And here’s another nifty thing about mortgages: You can refinance them. It’s like giving yourself a safety net. You can buy a home now to cash in on lower prices and less competition, and then refinance whenever interest rates decide to play nice.

And trust us, interest rates will eventually behave. The real estate market operates in cycles, and this interest rate party won’t last forever. When it’ll end, though, is anyone’s guess.

Don’t forget, that homes tend to appreciate over time, even if they take a few price dips here and there. Just look at the median price of homes sold in July—it hit $406,700, according to the National Association of Realtors, and that’s with interest rates at 7.3%!

Ready to Make the Move?

So, if you’ve got your financial ducks in a row but you’re waiting for the perfect moment to buy a home, consider that the right time might be right now. You can always refinance down the road, and you don’t want to miss out on your dream home if rates or prices decide to do a moonwalk.

Got more questions? Click here to chat with a Preferred Rate Mortgage Advisor in your area. They can fill you in on your unique financial situation and what’s cooking in the housing market.

Eight Ways to Pay Off Debt

September 5, 2023

Having a significant amount of debt looming over you isn’t enjoyable at all. It’s even more disheartening when this burden is substantial enough to hinder your ability to pursue your desires and achieve long-held aspirations.

Imagine wanting to attend your best friend’s destination wedding in Bali, aiming to purchase your first home, or desiring to support your children’s college education. Achieving such goals becomes challenging when you’re saddled with hefty monthly credit card payments.

What’s worse, extricating yourself from a debt avalanche can seem like an insurmountable task, particularly when compounded interest is at play (which is often the case with credit card debt).

Thankfully, a plethora of approaches exist for paying off your debt. Not only does this relieve you of the burden of debt, but it also opens up a realm of possibilities, allowing you to make the most of your surplus funds and improved credit score.

Here are eight effective strategies to help you navigate and eliminate your debt.

Debt Strategy #1: Trim Your Financial Belt.

Begin by assessing your financial situation and meticulously outlining a budget. Detail all sources of income, including your regular salary, earnings from side gigs, bonuses, and more. Also, catalog your monthly expenditures, pinpointing those that are discretionary.

Identify areas where you can curtail spending and allocate the extra funds toward reducing the principal balance of your debt.

Debt Strategy #2: Embrace the Debt Avalanche Approach.

Before your debt becomes overwhelming, employ the debt avalanche method to systematically obliterate your bills. This method concentrates on eradicating your most costly debt first.

Here’s the game plan: Compile a list of all your debts, ranking them from the highest interest rate to the lowest. Maintain minimum payments on all debts while directing any additional funds toward the debt with the highest interest rate.

Once that high-interest debt is paid off, shift your focus to the debt with the second-highest interest rate. Apply the surplus payment you were making to that debt while continuing minimum payments on others.

Persist until you’re debt-free. This approach significantly reduces interest costs over time.

Debt Strategy #3: Implement the Debt Snowball Method.

For some, the debt snowball strategy resonates. This tactic involves settling your debt with the smallest balance initially and then proceeding to the next smallest principal balance.

Unlike other methods, the snowball approach doesn’t account for debt interest rates. Nevertheless, it delivers a swift psychological boost as you cross debts off your list one by one. The sense of accomplishment from conquering some of your obligations can serve as potent motivation to persevere. Eventually, you’ll tackle larger and larger debts until they’re all paid off.

While the snowball method doesn’t lead to substantial interest savings, it proves effective for those who prefer starting with the “easier” tasks, making it a suitable strategy for prompt debt settlement.

Debt Strategy #4: Refinance High-Interest Debt.

In certain cases, leveraging interest rates through the refinancing of high-interest loans into a single loan with a lower rate is advantageous.

Imagine holding multiple credit cards with elevated interest rates. You could consider applying for a personal loan with a reduced interest rate and utilizing the proceeds to settle all the high-interest cards.

If you opt for this route, be mindful of origination fees linked to obtaining a personal loan. Furthermore, invest time in exploring various options to secure the most favorable loan terms.

Debt Strategy #5: Master the Art of Balance Transfers.

Should you possess good credit and a manageable number of active credit accounts, transferring your debt to a new credit card featuring a low or 0% introductory rate might be strategic. Nonetheless, it’s vital to grasp the terms, including the duration, of the promotional rate.

Devise a plan to eliminate your debt before the standard interest rate on the new card takes effect.

Debt Strategy #6: Leverage Your Negotiation Skills.

Contrary to the belief that paying off debt or watching interest accumulate are your sole options, negotiating with your creditors is a viable alternative. Endeavor to secure a lower interest rate or a repayment plan that aligns better with your circumstances.

Be forthright with your creditors about the factors contributing to your debt and your strategy for overcoming it. Numerous creditors are open to adjusting terms, particularly when your sincere commitment to debt repayment is evident.

Debt Strategy #7: Harness Your Home Equity via Cash-Out Refinancing.

If you’re a homeowner, your substantial home equity can be an asset. A cash-out refinance offers one method to address significant debt.

This entails replacing your existing mortgage with a new, larger loan that surpasses your mortgage balance. The difference is disbursed as cash, which can be allocated to debt settlement.

By amalgamating high-interest debts into your mortgage payments, you can capitalize on the typically lower fixed mortgage interest rate compared to astronomical credit card rates.

Despite concerns about potentially undermining a super-low mortgage rate, it’s pivotal to analyze the “blended” or average rate of all your debts to determine if this approach suits your situation. Many homeowners have succeeded in clearing substantial debt while maintaining a new loan payment lower than the combined total of their current mortgage and minimum debt payments. Additionally, a mortgage loan provides a structured payoff plan and timeline.

This option holds the potential for substantial interest savings over the long term, and it might even offer tax advantages. It can also streamline payment management, as a single monthly payment is simpler to handle than multiple payments with diverse due dates. For those struggling to manage numerous payments, this strategy could potentially enhance their credit score.

Debt Strategy #8: Leverage Home Equity through a Home Equity Line of Credit (HELOC).

Home equity presents numerous opportunities. Some utilize it for home enhancements or to clear student loans. Others tap into it through a home equity line of credit (HELOC) to eliminate high-interest debt.

A HELOC functions as a revolving credit line secured by your home. You can access funds as needed, employing your home equity to settle debts. Generally, a HELOC carries a lower interest rate than credit cards, rendering it an astute debt repayment avenue.

Nevertheless, prudent usage of a HELOC is essential. Guard against accumulating additional debt by drawing on this credit line only when necessary.

Seeking Further Debt Repayment Options?

Whichever strategy you opt for, committing to responsible credit usage in the future is paramount. Construct a budget within your means and adhere to it to sidestep financial difficulties down the road.

Debt can be a formidable adversary but don’t allow it to dominate your life or curtail your prospects. Effective methods exist to wipe the slate clean, free up funds, and embark on a new financial chapter.

If you’re interested in additional debt repayment avenues, don’t hesitate to contact Preferred Rate. Our trusted Mortgage Advisors are eager to hear about your financial situation and provide tailored strategies that suit your needs.

Seven Red Flags to Look for When Buying a Home

August 29, 2023

It’s easy to get caught up in the fun of house hunting, but you also need to keep your eyes open for warning signs that the home you’re considering might not be a safe, sound, dependable dwelling.

Thankfully, you can easily spot major red flags. You just have to know what to look for, have the right people on your side (hello, structural engineer, home inspector, real estate agents, and your trusted licensed pest inspector!), and go into your purchase with your eyes wide open.

So let’s peel back the curtain—and possibly some paint to see what’s behind it—and start identifying the biggest homebuyer red flags.

1. Foundation Problems

It goes without saying that the home’s foundation is one of the most important structures—and structural issues can be expensive. The biggest sign to watch for, experts say, is cracking. While smaller hairline cracks in the basement are indicative of cement settling, larger cracks are a red flag. They may signal structural problems that compromise the integrity of the home.

One way to spot cracks: Unfinished basements are a starting point. Here you’ll get a clearer picture of the home’s foundation.If the home doesn’t have a basement, door frames can also provide some clues. If the door doesn’t close and open squarely with its frame, take a closer look. Unfit doors can point to larger structural issues.

If you’re still in doubt, consider investing in a structural engineer to inspect the foundation.

2. Pest Problems

No one wants to deal with a pest problem. But some pests can do more than send shivers down your spine. Wood-destroying insects like termites can cause serious damage to the home—and the bill for fixing it could be four figures.

One way to spot pests: A termite inspection from a licensed pest inspector is the best way to ensure that there are no creepy crawlies. Some states don’t require a professional inspection before buying a home, but your lender might. Either way, it’s a good idea to get one.

If the initial report raises any suspicions about possible pests, think about doing a more thorough pest inspection. If anything comes up, you have the discretion to ask the seller to cover the costs.

3. Freshly Painted Walls

It’s not uncommon for a home seller to make sure their home looks its best. This may include fresh paint. But a patch of paint—inside or outside the home—is one of the notorious homebuyer red flags. This patch of paint can signal an attempt to cover up damage, potentially costing you big bucks to fix.

How to spot patches of paint: Do your own inspection during the walk-through or open house before buying a home. Take a step back and look at walls from a distance. If you notice some inconsistency to the paint, there might be something hiding behind it.

Next, take a flashlight and get closer to see if there is damage to the wall underneath, obvious patches, or water staining. Be sure to alert your real estate agent if you see anything. They will pass the information to the seller’s agent or note it for the home inspector. Be sure to take a look at both interior and exterior paint in all areas of the home.

4. Questionable Repairs

DIY projects can be fun, but sometimes an owner’s attempt to repair something can go wrong. The savvy shopper will look at an amateur project and see a red flag. Remember that property flippers sometimes put a premium on speed but may lack the experience needed to make certain repairs.

One way to spot bad workmanship: If something looks rushed or incomplete, chances are it is. Some of the more common “quick fixes” can be found in the home’s plumbing, carpentry, and electrical work. Keep an eye out for leaky faucets, toilets (listen for sounds as well), missing trim work, and uneven flooring. Looking at outlet covers, corners of countertops, and air vent covers can give you a clue as to other workmanship issues.

5. What’s That Smell?

When looking at a home, it’s not just a foul smell that’s a warning sign. Pleasant smells can be warning signs, too. It goes without saying that a bad odor can indicate an issue with the home, but a pleasant smell can be an attempt to cover up unfavorable odors—and bigger issues.

How to sniff out an issue: Look for clues of compensation. Did the seller put a deodorizer in every room? Are all the windows open despite the cold weather?

Although these don’t always point to an issue, they could be homebuyer red flags. So be sure to inquire about all smells, both good and bad.

6. Mold Problems

I’m sure we don’t have to tell you that mold is one of the bigger homebuyer red flags. Not only can it indicate issues with the home, such as a leak, but mold can pose a health risk to you and your family. As you might imagine, fixing mold-related issues is also expensive.

One way to spot mold: Mold can be tricky to find, though water stains can provide a lead. The most common areas for mold are basements, attics, windows, and ceilings—as well as obvious wet areas, such as a bathroom or under a sink. There are also mold tests that can make a definitive determination on the presence of molds. In the end, a professional inspection is your best defense against mold.

7. There Goes the Neighborhood

The first six red flags dealt with the home itself, but you also want to put the neighborhood under a magnifying glass. Survey the area’s condition and look for an excess of for-sale signs, foreclosures, or abandoned lots. These can be indicators of stagnant growth and under-performance—things you definitely don’t want.

Other things to look for: Visit your prospective neighborhood at different times of the day (and night) to get a full snapshot of what it’s like. During these visits, take note of vehicle and foot traffic and other potential issues like noise. You can also search online databases for crime frequency and sex offenders, as well as learn about schools and amenities.

While some of these factors may not be an immediate hit to your wallet, they can have long-term effects on the equity on your home. And they will certainly weigh on your peace of mind.

What to Do with What You Find

If you find problems while house hunting, it’s up to you whether you proceed with the sale, try to negotiate with the seller, or walk away.

As you weigh those options, here are a few things to keep in mind:

As-is sales

Buying a home “as-is” is exactly how it sounds: You’re taking it as it stands, warts and all. The seller isn’t offering any warranties or guarantees regarding the home’s current condition, which puts the responsibility on you to get the home inspected and find any defects.

Even if you do find defects, the seller will not be covering their costs—you’ll simply have the knowledge that the defects exist. Buying a home as-is carries a higher level of risk, but these homes typically come with a lower price tag, so weigh the pros and cons.

Visible issues

No home is perfect, even a newly constructed one. But there’s a difference between your everyday problems and, say, encountering a horrible smell or seeing visible water stains during the open house.

You’ll want to document the issues with photos or a video, and then contact a professional who can help assess them. You can also request permission from the seller to conduct mold or water damage tests for a more accurate understanding of the situation. It’s important to fully understand the scope of a problem before making any decision.

Problems on the inspection report

Your home inspector will find things. However, you need to understand the problem, how it can be solved, how much that might cost, and how long it may take. Be sure to ask your inspector follow-up questions, as well as their personal opinion on whether this is one of the major homebuyer red flags or something minor that can be addressed later.

The Importance of Due Diligence

It’s no fun to think about inspecting paint or worrying about hairline cracks. But these little tasks—whether done by you or delegated to a professional—can save you time, money and, perhaps most importantly, your peace of mind! You want to know that, at the end of the day, your family lives in the best home you can provide.

Remember that some of these homebuyer red flags are bigger than others. Water stains may be inconvenient and expensive, but structural or electrical issues could pose a real danger. Knowing what warning signs to spot, when to call in the experts, and when to move on in the house-hunting process can not only save your wallet, but it might even save lives.

Want more information about homebuying and financing? We’re here to help!

What You Need to Know About Cosigning for a Mortgage

August 17, 2023

Smiling daughter and mother shopping online with credit card on laptop

Sometimes, we get by with a little help from our friends…or family.

There are many reasons someone may need help to qualify for a mortgage. They may just be starting out and haven’t established a good credit history yet. Or perhaps they’re just getting out of a tough financial situation that they’re turning around.

When it comes to cosigning for a mortgage, the cosigner is essentially boosting the financial profile of the mortgage application, while signing up to share responsibility for the loan should the primary borrower stop making their monthly mortgage payments.

Questions About Cosigning

Cosigning can be an amazing thing to do for someone, especially your children or other loved ones, but it comes with a lot of financial responsibility on your part. Before cosigning for a mortgage, you need to understand all the implications, risks, and potential consequences.

Does cosigning for a mortgage affect my credit?

Cosigning for a mortgage loan impacts your credit. The loan will show up on your credit report, meaning that it will impact your debt-to-income (DTI) ratio and overall credit utilization. Additionally, any missed or late payments by the primary borrower will impact everyone’s credit score—the primary borrower’s and the cosigner’s.

Now for the good news: If the primary borrower consistently makes their monthly mortgage payments on time, it can improve everyone’s credit score. It’ll all come down to the primary borrower and their ability and willingness to pay on time.

With this in mind, it is always a good idea to maintain an open and honest line of communication with the primary borrower. This ensures that mortgage payments are made on time and creates good credit for everyone.

Does a mortgage count as debt?

A home loan is a form of debt. Cosigning for a mortgage means you’re assuming responsibility for the debt alongside the primary borrower.

As mentioned, the mortgage debt will factor into your debt-to-income ratio, which lenders analyze to determine your ability to manage additional credit. It’s important to consider the impact of this debt when applying for other loans or credit lines in the future.

What are the risks of cosigning a loan?

It’s a cold, hard reality that if the primary borrower fails to make timely monthly mortgage payments or defaults on the loan, the responsibility for this debt will fall on the cosigner. This could lead to financial strain, credit score damage, and even potential legal action as the lender attempts to collect the outstanding debt.

Remember, too, that since your debt-to-income ratio will be affected by cosigning for a mortgage, your ability to obtain credit in the future may be impacted. This is why you should think long and hard not just about whether you feel that the primary borrower can consistently pay their home loan, but also about any large purchases or credit lines you may need in the future.

Reduced borrowing capacity could really hurt you if, say, you’re looking to finance a new car, help out a child with a student loan, refinance your own home, or invest in a second property.

Can a cosigner be removed from a mortgage?

The option to remove a cosigner from a mortgage loan depends on several factors. In some cases, mortgage lenders may consider removing a cosigner if the primary borrower has made consistent monthly mortgage payments.

It’s not as easy as just removing the cosigner’s name from the loan, however. The primary borrower typically has to refinance the home loan, putting it in their name alone. This means the primary borrower will have to take interest rates, credit score requirements, debt to income ratio, and their current financial circumstances into account. In essence, they would have to be sure they’ve cleared up the reason they needed a cosigner in the first place.

Trusted mortgage lenders can help you understand the specific requirements and conditions for removing a cosigner from a home loan.

What happens if a cosigner doesn’t pay?

We know what happens if the primary borrower doesn’t pay: The mortgage lender will come looking for the cosigner. But what happens if the cosigner also doesn’t pay?

When a cosigner fails to make the mortgage payments, the lender will typically pursue both the primary borrower and the cosigner for payment. If neither party fulfills the financial obligation, they can both be subject to legal action and collection efforts.

What’s the difference between a co-borrower and a cosigner?

A cosigner is someone who agrees to assume responsibility for the loan if the primary borrower cannot meet their obligations. On the other hand, a co-borrower (or co-applicant) is equally responsible for repaying the loan and shares ownership of the property.

While a cosigner’s name may appear on the loan documents, a co-borrower has equal rights and responsibilities, along with a stake in the house.

What else do I need to know before cosigning?

You need to give cosigning for a mortgage loan a lot of thought. Assess the primary borrower’s financial stability, including their income, employment history, and credit history.

If you’re willing to consider cosigning a mortgage loan for them, you probably know the potential primary borrower pretty well. Use this relationship to your advantage as you think about how responsible they are in general. Do they always do what they say they’re going to do? Are they quick to shirk blame? Do they go out of their way to rectify problems, or do they avoid them like the plague?

You want to be confident that your credit score, borrowing ability, and—most of all—good name will not be ruined by cosigning for a mortgage.

Next, ensure that you can comfortably handle the financial responsibility of the mortgage payment in case the primary borrower is unable to fulfill their obligations.

Finally, consult with a knowledgeable mortgage advisor like Preferred Rate to gain a comprehensive understanding of the specific loan terms, interest rates and any mortgage insurance requirements associated with the home loan.

Pros and Cons of Cosigning for a Mortgage

You’ve now got a lot of information about what it takes to cosign for a mortgage. But let’s weigh out the benefits and risks so you can really hone in on whether this is the right move for you.

Pros

Cosigning can help a loved one achieve their dream of homeownership.
It allows the primary borrower to qualify for a mortgage they might not otherwise have been eligible for.
On-time payments can, over time, help improve both the primary borrower’s and the cosigner’s credit scores and credit history.

Cons

Cosigning for a mortgage comes with financial risks, including knocks to your credit score and being held responsible for the other party’s missed payments or default.
It can limit your borrowing capacity, as the cosigned mortgage becomes part of your debt-to-income ratio.
The relationship between the cosigner and the primary borrower may become strained if payment issues arise.

Taking the First Steps

Cosigning for a mortgage is a big decision and a long-term commitment. So you have to weigh the risks and benefits carefully, considering both your financial situation and the primary borrower’s ability to fulfill their obligations. Sit down and have an honest conversation with the primary borrower. Make sure you lay the foundation for a healthy, open, and communicative relationship going forward.

Once you’re ready, bring a professional like a Preferred Rate mortgage advisor into your corner to make sure cosigning for a mortgage aligns with your financial goals and responsibilities.

If you’re at that point now and want to get started, give us a call today. We’re always here to help.