Tag Archive for: mortgage application

How to Qualify for a Second Home Loan

July 25, 2023
Island with house, cottage or villa in Thousand Islands Region i

The American dream is not one size fits all. Some borrowers want to purchase a second home where their family can vacation for part of the year. Buying property as a second home could mean a cabin in the mountains, a beachside bungalow, or anything in between.

The vision is up to you. But what’s important is that you understand that buying a second home is completely attainable for many people. That’s right: Buying property as a second home can be within your reach, but it starts with understanding the second home mortgage requirements.

Second Home vs. Investment Property

Let’s clear one thing up before we discuss second home mortgage requirements. While an investment property may in fact be the “second home” you purchase—after your primary residence—that is viewed as a different product with a different purpose in the eyes of mortgage lenders.


A second home is an additional dwelling for you and your family. It can act as a personal vacation home, a place to stay when visiting family, or as your retirement home in a few years. While you may be able to rent out your second home on a short-term basis, the primary purpose of this property is for you and your family. With that in mind, you cannot rely on the rental income this home may generate when qualifying for a second home loan.

Down Payment

Most lenders require at least 10% down on a second home, though 20% down tends to be standard. Lenders need to see that you’re committed to buying a second home, as it’s easier to walk away from a home that isn’t your primary residence. A larger down payment may also help you avoid higher interest rates. 


As with a primary residence, you can obtain your down payment by tapping into savings, utilizing a monetary gift from a relative or domestic partner, or liquidating investments. You may even be able to use some of the equity in your primary residence when buying a second home by using a cash-out refinance or home equity loan. Your loan adviser can help you navigate this process.


You might be thinking, “But there are loan programs that don’t require any money down,” and you would be right. However, these are government-backed mortgages or down payment assistance, which cannot be used for second home purchases. Most second home loans are conventional loans, although FHA loans can be used as well.

Credit Score

Every lender is different, but credit standards tend to be a bit tighter when qualifying for a second home mortgage. That’s because a primary residence provides shelter, whereas a second home is a “nice-to-have,” not a necessity.


Lenders may consider applicants with a score of 620 or higher, though a score above 700 is preferable when qualifying for a second home mortgage. Naturally, lenders will also want to look at your credit history, taking into account any late mortgage payments, exorbitant credit card balances, and bankruptcies. The more you are extended with various debt payments, the higher risk you may be for the lender.

Debt-to-Income (DTI) Ratio

You’re not a stranger to this; you’ve been around the block before when you purchased your primary residence. Like last time, lenders will want to analyze your debt-to-income ratio—or the amount of money going out versus the money coming in.


You need to understand that this time your existing mortgage payment will be factored into your DTI, along with other monthly payment debts, including credit cards, student loans, and auto payments. Remember, too, that you cannot offset your DTI by factoring in any forward-looking rental income that you may be able to collect by renting out your second home. That would make this an investment property. Investment properties come with investment property mortgages, with a different set of mortgage requirements. 


When qualifying for a second home mortgage, lenders generally want to see that your debt, which would include your new mortgage, will represent 43% or less of your pre-tax monthly income. This number can sometimes vary depending on your credit score and down payment.

As with a primary mortgage, you can get pre-approved for a second home loan, so it’s always a good idea to talk to a loan officer before you enlist a real estate agent to search for properties.

Reserves

Things happen. Mortgage professionals know this more than anyone, which is why they like to see some liquidity from second home buyers. This comes in the form of reserve funds.

Well-qualified borrowers generally need to show at least two months of reserve funds that can cover both their primary and secondary mortgages, property taxes, and insurance should their income or employment change. Weaker borrowers and those who are self-employed may need to show six months of reserve funds.

Is a Second Home Right for You?

Though the process of qualifying for a second home mortgage isn’t that different from qualifying for a primary home, borrowers may face a little more scrutiny and tighter lending standards on these properties. You should also keep in mind that these homes may have tax implications, short-term rental restrictions, and additional condo or HOA fees. These are all things to consider when determining whether a second home is right for you.


Preferred Rate is always standing by to help with your housing-related needs. Give us a call today to go over your unique financial situation and the process of qualifying for a second home loan.

Financing and Buying an Investment Property

July 19, 2023
modern corner apartment complex with blue colored windows and light leaks

Investing in income property can be a crucial step toward achieving financial independence and building wealth for future generations. Whether your aim is to generate rental income, take advantage of tax benefits, or both, owning an investment property can expedite the accomplishment of your long-term goals.

However, financing and acquiring an investment property require careful planning and consideration. It’s important to understand the various types of investment properties available to you. But before delving into those details, let’s explore why purchasing an investment property can be a wise decision:

 

  1. Rental income: By renting out your property, you can earn a steady stream of cash flow and passive income.

  2. Appreciation: Real estate investments have the potential to increase in value over time, allowing you to build equity and enhance your overall investment. Making improvements to your property can further boost its value and enable you to command higher rental rates.

  3. Diversification: Adding an investment property to your portfolio helps spread out risk and reduces the overall volatility of your investments.

  4. Tax benefits: Real estate investments offer several tax advantages, such as deductions for mortgage loan interest, operating expenses, property taxes, insurance, and depreciation.

  5. Inflation hedge: Investment properties, including most residential homes, tend to hold their value and often appreciate over time, providing a hedge against inflation.

 

How to Finance and Buy an Investment Property

 

Now let’s discuss how to finance and purchase an investment property. Financing is typically the most challenging aspect of any home purchase, often involving a considerable amount of paperwork and calculations to evaluate your income, debts, and potential impact on your monthly budget. However, mortgage lenders and experts like Preferred Rate are available to guide you through the process, taking into account your specific financial situation, goals, and available options.

 

If you are considering investing in real estate, here are some steps to get you started:

 

  1. Establish clear investment goals: Define the type of property, desired location, budget, expected returns, and timeline.

  2. Assess your finances: Evaluate your credit score, calculate your savings for a down payment, and organize the necessary documents for loan pre-approval. Most mortgage lenders require a minimum credit score of 620 for investment property purchases. Preferred Rate, for instance, accepts a down payment as low as 15% for single-family investment properties and 25% for multifamily properties. It’s important to note that many lenders may also require six months’ worth of cash reserves and private mortgage insurance (PMI) if your down payment is less than 20%.

  3. Consider interest rates: Interest rates for investment properties are generally higher than those for primary residences due to the perceived higher risk for lenders when the property is not owner-occupied.

  4. Understand loan-to-value (LTV) ratio: Investment properties often have stricter LTV requirements, meaning you may need more equity or a larger down payment to meet these requirements. Preferred Rate offers up to 80% LTV.

  5. Analyze your debt-to-income (DTI) ratio: Lenders will examine your DTI ratio, which compares your monthly debt obligations to your monthly income. For investment properties, there might be more stringent DTI requirements, although lenders usually consider rental income when calculating this ratio.

  6. Compare financing options: Many loan options available for primary residences can also be used for investment properties, including conventional loans, FHA loans, VA loans, and jumbo loans.

  7. Do the math: Calculate the potential return on investment (ROI) by factoring in rental income, expenses, mortgage payments, and vacancy rates. Additionally, consider the long-term mortgage payments, which can extend up to 40 years if financed through Preferred Rate. It’s essential to ensure you can handle tenant turnover, regular maintenance, updates, and both expected and unexpected repairs.

  8. Consider maintenance and property management: Determine whether you want to hire a property manager to handle tenant screening, rent collection, and property maintenance. While property managers can be beneficial, remember to account for their cost in your monthly budget.

 

Types of Investment Properties 

 

Next, let’s explore the different types of investment properties available:

 

  1. Single-family homes: These properties are ideal for securing long-term tenants and, depending on local laws and homeowners’ association (HOA) regulations, can also be used for short-term rentals.

  2. Multifamily properties: These properties consist of two to four units or even entire apartment buildings, allowing you to accommodate multiple renters and collect higher monthly rent payments.

  3. Condominiums: Purchasing a unit in a condominium complex provides the opportunity to rent out the property. However, it’s crucial to understand the building’s bylaws and restrictions.

 

A Little Info on Airbnb

 

Before investing in real estate with the intention of renting it out on platforms like Airbnb, it’s essential to familiarize yourself with local regulations governing short-term rentals. Cities often have specific rules, permits, or limitations for Airbnb rentals. Complying with legal requirements and understanding any potential restrictions in your desired location can help you avoid legal complications or unexpected issues.

 

Consider properties with features that appeal to travelers, such as proximity to attractions, adequate space, desirable amenities, and a welcoming atmosphere. Evaluate the property’s layout, number of bedrooms, parking availability, and outdoor spaces to offer a unique and comfortable experience for guests. While owning an Airbnb can be profitable, it’s crucial to consider the long-term sustainability of your property. Look for areas with economic stability, diverse tourism sources, and growth potential. Anticipate market changes or regulatory updates that could impact your business and evaluate your ability to adapt.

 

Second Home vs. Investment Property

 

It’s important to note the distinction between a second home and an investment property. While an investment property can be your second home, there are significant differences between the two. Financial requirements, financing options, cash flow potential, and tax benefits vary depending on whether the property is classified as a second home or an investment property. A second home is primarily intended for personal use, such as a vacation home, and typically needs to be located at least 50 miles away from your primary residence. Renting out a second home is generally limited to a maximum of two weeks per year.

 

Although investment property purchases involve financial requirements, obtaining a mortgage loan for an investment property can be made easier with the assistance of professionals like Preferred Rate. We can guide you through the guidelines, options, and strategies to position yourself for the best chance of success. Reach out to a mortgage advisor at Preferred Rate to learn more about your investment property financing options.

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.

The True Value of a Mortgage Advisor

July 20, 2022
blog mortgage advisor

When you’re getting ready to buy a new home or refinance a mortgage, an experienced mortgage advisor can make all the difference. Unfortunately, every big bank and mortgage lender seems to promise the lowest rate and fastest close. So how can you tell who to trust when seeking the best mortgage lender? Mortgages aren’t one-size-fits-all anymore. 

The truth is that every homeowner has a different story and different financial goals. A qualified mortgage advisor listens, understands, and works with you to build a mortgage that meets your long-term goals and saves you money at the same time. What’s more, a qualified mortgage advisor will work hard to secure the right financing for your current budget while also helping you build wealth through home equity.

One of the best early moves you can make is to lock in your rate today by getting pre-approved.

Financing your home is one of the biggest financial commitments most people ever make. When you partner with a mortgage advisor you can be confident that they are working on your behalf to create a mortgage that fits your goals. While big banks and online lenders treat every borrower the same, our mortgage advisors build genuine relationships and often become a trusted advisor for life.

How a Custom Home Loan Can Save You Money

This might seem obvious, but mortgages are not one-size-fits-all. Loan programs are becoming increasingly specialized to meet the growing needs of homeowners with personal goals about homeownership, financial security, and building wealth.

What’s more, securing the lowest mortgage won’t always save you money or give you the lowest mortgage payment. Consider just a few costly variables that go beyond the advertised “low mortgage rate” you might see from big banks or online lenders:

  • Fees
  • Points
  • Closing costs
  • Adjustable terms
  • Variable terms
  • APR vs. Interest Rates
  • Balloon payments
  • Private Mortgage Insurance
  • Prepayment penalties

These are just a few variables that could end up costing you a lot of money in the long term. Every mortgage has fine print and there are a lot of variables to consider. This is one of the biggest reasons why working with an experienced mortgage advisor in your area is a smart move.

Custom Loan Programs to Keep You Competitive

A great mortgage advisor will also make sure that you’re ready to compete when it’s time to make an offer. They can help expedite paperwork, fast-track your mortgage pre-approval, and execute a fast close. What’s more, a qualified local mortgage advisor knows every hurdle that might come up and will make sure the entire process moves seamlessly from start to finish. 

We can even set you up with our Keys on Time™ program, which guarantees the seller that your loan will close on time or we’ll pay a $2,000 commitment fee (restrictions apply). 

Another custom mortgage solution is the CashBuys™ program, which allows you to operate like an all-cash buyer while still financing your mortgage. With the CashBuys program, you can get pre-approved for your mortgage and finance your mortgage behind the scenes, then make a real-time all-cash offer to the seller. Find out more about the CashBuys program here.

Related: How to FAST TRACK your mortgage pre-approval

How to Unlock the True Value of Your Home

Finally, a qualified mortgage advisor can help set you up with a mortgage payment you can afford and put you on the fast track to building home equity. They can also show you the true cost of homeownership over time, including historic appreciation rates and average annual costs. As a trusted advisor, they can guide you through different strategies that will help you save money over the life of your loan, as well as opportunities to leverage your home through its equity. 

The bottom line: An experienced mortgage advisor will take the time to understand your unique situation and offer custom home loan options to meet your financial goals.

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

Taking Action

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.

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.

Mortgage Rates are Rising: How Much Can I Afford?

April 27, 2022
mortgage blog, mortgage rates, how much can I afford, preferred rate

Mortgage rates are ticking up right alongside inflation, and home prices continue to rise in many areas across the country. So if you’re looking to buy a home in 2022, it can be difficult to figure out how much you can afford.

One of the top questions we’re hearing from homebuyers across the US is, how much can I afford right now?

It makes sense. The minute you start shopping for a new home, you want to know how much you can afford and what your mortgage payment will be. With rates increasing it’s hard to plan ahead. After all, the last thing you want is to make an offer on your dream home only to watch your loan fall through.

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

5 SMART TIPS TO DECIDE HOW MUCH YOU CAN AFFORD

If you’re looking for a ballpark figure, be sure to check out this mortgage calculator. Just a reminder that daily mortgage rates can change and mortgage calculators only offer you a general idea of what you can afford.

The truth is, when you apply for a mortgage, your borrower profile determines your mortgage rate: income, employment, credit history, assets, and debt-to-income ratio. For this reason, mortgage calculators are useful, but they are only a starting point.

The best action you can take is to connect with a local mortgage advisor. Start here to find an experienced advisor in your neighborhood.

Tip #1 – Evaluate your spending habits.

When you start shopping for a new home, look at your current spending patterns. This might seem like a simple approach, but it’s common for some borrowers to qualify for a mortgage they can’t really afford.

This is because home loans are largely based on algorithms defined by mortgage lenders to calculate risk. If your spending habits aren’t in line with your new mortgage payment, it’s better to know your limits before you apply.

Also, think about creating a new budget based on being a homeowner. For example, do you plan on hosting backyard BBQs, putting in new landscaping, or maintaining a pool? Remember, you’ll have new monthly costs such as homeowner’s insurance, property taxes, home maintenance, and unexpected repairs.

Related: How to FAST TRACK your mortgage pre-approval

Tip #2 – Follow the standard 28/36% rule.

Most financial advisors recommend putting 28% or less in monthly income toward housing. As a homeowner, this amount (before income taxes) should be able to cover all housing costs, including your mortgage payment, utilities, property taxes, and homeowner’s insurance. 

The 36% rule extends the recommended monthly allotment to include debt repayments. For this model, all housing costs plus all debt repayments (such as credit cards, auto loans, student loans) should fall at or below 36% or your monthly gross income.

Some borrowers decide to set up a mortgage escrow account, which can help create a monthly budget. With an escrow account, your mortgage payment will include your property taxes and homeowner’s insurance. For homeowners, this is a convenient option that can help to establish financial stability.

Related: Does every mortgage need an escrow account?

Tip #3 – Evaluate your debt-to-income ratio (DTI).

Your debt-to-income ratio is one of the main factors mortgage lenders use to determine risk. To determine your debt-to-income (DTI) ratio, simply measure your gross monthly income against your monthly debt obligations.

Monthly expenses such as groceries or utilities are not taken into account here. Instead, only debt obligations count toward your DTI. For example–car payments, student loans, and credit cards would be included to determine your DTI when you apply for a home loan.

If you have a debt-to-income ratio above 43%, it will be more difficult to qualify for a mortgage at a low rate. Ideally, the lower your DTI, the better home loan you’ll secure.

That said, there are a number of custom loan programs to help homebuyers qualify even with a high DTI. So talk to your mortgage advisor and start your application to lock your rate and get pre-approved for your best home loan.

Mortgage rates rising, but this doesn’t mean you have to max out on your mortgage. It’s wise to keep a buffer in your finances when it comes to how much house you can afford. An affordable mortgage payment can help you breathe easier. Connect with a local mortgage advisor to get started.

Tip #4 – Boost your credit score.

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

One of the best ways to boost your credit score fast is to pay down credit cards (start with the highest balances), keep your credit accounts open, and don’t apply for any new credit. Be prepared to offer an explanation for anything on your credit report that is out of the ordinary. This can help you get a better mortgage.

Related: Boost your credit score in less than 60 days

Tip #5 – Plan your down payment.

If you’re able to put down at least 20% toward your new home, you’ll have more loan options at the best rate. Staying below 80% LTV (loan-to-value) typically means the mortgage lender won’t require PMI (private mortgage insurance). As a result, you’ll secure a lower mortgage payment and a better mortgage rate.

That said, 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.

Take the best next step and connect with a mortgage advisor to lock your rate and get pre-approved. An advisor can look at the big picture, offer the best loan options, and help you decide which home loan is best based on your homeownership goals.

Taking Action

Get pre-approved and lock in your mortgage rate now. Deciding how much you can afford can help you fast-track your mortgage pre-approval, especially in today’s housing market. When you’re ready, an experienced mortgage advisor can help you get approved, lock in the lowest mortgage rate, and secure the right home loan. Connect with a local mortgage advisor to discuss your options and save money on your mortgage. We’d love to help.