Tag Archive for: mortgage application

Bump Your Credit Score and Get a Better Mortgage

July 6, 2022
blog credit report

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

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

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

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

How can I raise my credit score quickly?

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

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

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

Step 1: Download a free copy of your credit report

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

Step 2: Clean up any errors on your credit report

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

Step 3: Pay down high credit card balances

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

RELATED: BECOME A HOMEOWNER WITH LESS THAN 3% DOWN

Step 4: Catch up on past-due payments

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

Step 5: Keep old accounts open

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

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

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

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

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

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

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

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

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

High credit score? Leverage your mortgage options.

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

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

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

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

RELATED: TOP 5 HOME LOANS FOR FIRST-TIME HOMEBUYERS

Debt-to-Income Ratios and Credit Scores

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

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

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

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

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

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

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

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

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

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

 

Summary

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

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

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

 

Next Steps

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

Buying a House With a Friend or Relative: What to Know

June 28, 2021
blog friends in home

Can you apply for a mortgage with a friend? Absolutely. The tricky part is finding the right friend and choosing a property that will help you both reach your financial goals. For people seeking financial stability through homeownership, buying a home with a friend has some clear advantages.

In this article, you’ll learn the pros and cons of buying a home with a friend, how to apply for a joint mortgage, and why a co-ownership agreement is essential for everyone.

THE PROS AND CONS OF CO-OWNING A HOME WITH A FRIEND

Buying a home with a friend is a big financial decision, no matter how you run the numbers. That said, you could reach your financial goals faster by co-owning a home as a residence, second home, or investment property. So if you’re ready to buy a home with a friend, these benefits and drawbacks are worth considering.

The Pros: Top Advantages of Buying a Home With a Friend

1. Buying a home with a friend could make it easier to qualify for a mortgage.

Qualifying for a home loan can be challenging. Lender requirements and criteria can be strict, and housing prices are high in many preferred areas.

When you apply for a mortgage with a friend, you get to combine your income to qualify for a home loan. Together with a combined income, you’ll most likely be able to afford a higher purchase price, get better loan terms, and even a lower interest rate. 

2. Buying a home with a friend could help you become a homeowner sooner.

Want to stop renting and start building equity? Sure! But coming up with a down payment, closing costs, homeowners insurance, and cash reserves for maintenance can create an obstacle for many homebuyers. 

Buying a home with a friend can alleviate this pressure while increasing your buying power. Together, you can make a larger down payment and prepare for closing costs. You’ll also have more cash reserves for immediate repairs that might be necessary. The result is a preferred mortgage with favorable terms and a lower mortgage rate.

RELATED: Is it a good idea to roll the closing costs into your new mortgage?

3. As co-owners, you can share the costs of homeownership.

Property taxes, homeowner’s insurance, maintenance and repairs: it all adds up. Co-owning a home with a friend can help share the burden. There will be predictable costs such as property taxes and homeowner’s insurance that you could decide to split 50-50. There will also be maintenance and repairs that may be unpredictable. 

It’s a good idea to create a co-ownership agreement to decide who will pay these costs and what percentage. Also, you’ll need to agree on other financial details, such as who will claim mortgage interest and property taxes as a deduction on their taxes.

4. As co-owners, you can earn passive income on your investment.

Joint homeownership can set the stage for shared passive income. As homeowners, you’ll have the flexibility to rent out a bedroom, use it as a vacation property, or otherwise earn investment income.

Common drawbacks of buying a home with a friend

1. Buying a home with a friend who has bad credit or heavy debt could make it harder to qualify for a mortgage.

Qualifying for a home loan can be challenging. Lender requirements and criteria can be strict, and housing prices are still rising in many preferred areas. If you have good credit and a steady income, but your friend has a lower credit score, this might make it harder to qualify for a low-rate mortgage.

2. As co-owners, you’ll need to agree on, well, everything.

When you own a property by yourself, you can make every decision, good or bad, and deal with the consequences. But, in a joint mortgage, you’ll need to agree on how things get done and who pays—home upgrades, landscaping, house repairs, you name it. From paint colors to remodeling the bathroom, you’ll need to make every financial decision together.

3. If one of you stops making mortgage payments, you could risk foreclosure.

If one of you stops paying the mortgage down the road, the other will need to make the entire payment or risk foreclosure. Talk openly about your finances with your friend. Look at your debt-to-income ratio and be willing to share your bank statements and financial habits.

Ideally, you want to be on the same page financially and have similar financial habits and goals regarding homeownership. Also, talk about an exit plan if one of you gets laid off from work or needs to relocate. 

RELATED: Find out how to get pre-approved for a mortgage fast

HOW TO APPLY FOR A JOINT MORTGAGE

First, share financial information with each other.

When you apply for a home loan with a friend, the lender will consider you co-applicants. Both of you will need to provide complete financial documentation, including bank statements, employment status, proof of income, debt statements, and credit scores. You can get a free copy of your credit report here.

Share your information with each other and be prepared in case the lender has questions about anything.

Next, talk with a qualified mortgage expert and start your application.

Discussing your homeownership goals with a mortgage advisor can take out the stress and save you money along the way. In addition, an experienced mortgage advisor can recommend custom loan options to fit your financial situation.

Buying a home with a friend shouldn’t be stressful or complicated. The right mortgage advisor can walk you through the process and lock in a low rate early.

Finally, choose the best mortgage structure for the title.

Every home purchase comes with a title. The title is a formal document that proves who owns the property. There are two main types of title ownership when you buy a house with a friend:

Tenants in Common: You can split the ownership (equity) of your home however you’d like in this arrangement. For example, you might own 70% and your friend would own 30%. With this type of ownership, you can sell your stake in the home without the permission of your co-owner. Similarly, you can designate your ownership to a relative if you pass away.

Joint Tenancy: In this arrangement, you and your friend will split ownership equally. You will each own 50% of the home and you can each borrow against your 50%. Worth noting, if one of you passes away, the surviving owner automatically gets full ownership of the home.

WHY YOU NEED A CO-OWNERSHIP AGREEMENT

When you buy a home with a friend, creating a co-ownership agreement is in everyone’s best interest. A co-ownership agreement declares the division of equity, who is responsible for what costs, and how the owners will share the costs of homeownership.

To buy a home with a friend, consider these questions:

  •  How do you want to split the equity? (e.g., 50/50, 70/30)
  •  Who will be responsible for property taxes?
  •  Who will pay for homeowner’s insurance?
  •  How will you decide the cost of maintenance and repairs?
  •  What happens if one of you gets married or has children?
  •  What happens if one of you loses a job or needs to relocate?
  •  Do you have an exit plan if one of you wants to sell?
  •  Do you plan to rent out a portion of the house for passive income?

We highly recommend hiring an attorney to draw up the terms of a co-ownership agreement. The agreement can protect your homeownership interests and your friendship.

Together, you can create a plan that works for both of you as new homeowners.

RELATED: TOP 5 HOME LOANS FOR FIRST-TIME HOMEBUYERS

Final Takeaway

There are clear pros and cons to purchasing a home with friends or relatives. Buying a home with a friend could increase your buying power, help you qualify for a better mortgage, and get you into a home sooner. On the other hand, if one of you cannot keep up with the payments or walks away, it might be hard to refinance and qualify on your own.

Homeownership is a big financial decision, especially when you’re thinking about buying a home with a friend or relative. Working with a mortgage advisor can help you know what to expect and get a better mortgage.

Next Steps

Talk to a mortgage advisor to discuss custom mortgage options that can help you save money and get started. Buying a home with a friend can put you on the fast track to homeownership and financial freedom. If you’d like to understand more about co-ownership and how to apply for a joint mortgage, give us a call. We’d love to help.

 

Refinance Your Mortgage and Lock in the Best Rate (How To)

June 12, 2021
blog refinance

The recent dip in 10-year Treasury bonds is good news for homeowners ready to refinance a mortgage and first-time homebuyers. Whether you want to refinance your mortgage for a lower payment, apply for a cash-out refinance, or refinance your mortgage for a lower rate, now’s the time to take action.

Historically, a dip in Treasury yields translates to lower mortgage rates. Still, the economy is opening up, and rates have been near historic lows for months. Despite the downshift, mortgage experts predict rates to begin an upward rise soon.

Connect with a mortgage advisor to start the process early and lock in a low mortgage rate before they start to rise again.

Related: First-Time Homebuyer Advantages for 2021

How to Refinance Your Mortgage and Save Money in 5 Steps

Every borrower wants the best rate possible, and lenders will compete for your business if you’ve got a good financial track record. Borrowers with a good credit score and a low debt-to-income ratio will have leverage when deciding to shop around. But even if you’re financial picture isn’t where you’d like it to be right now, these tips will help you prepare.

When you apply for a mortgage refinance, the top three factors that will impact your mortgage application are your credit score, debt-to-income ratio, and home equity (loan-to-value ratio).

Take note of these five steps to leverage your knowledge and approach lenders with confidence.

Step 1: Protect your credit score.

Download a free copy of your credit report so you can resolve any errors or misinformation. If you have high consumer debt or multiple loans, pay down the balances to improve your credit score.

Keep making your payments on time and don’t take on any new debt or apply for new credit lines. Now’s not the time to open a new credit card or apply for a car loan. Keep your credit report as clean and consistent as possible when you’re ready to refinance.

Step 2: Shop around for the best mortgage refinance lender.

Just because rates are low doesn’t mean lenders will give you the best mortgage rate. Shopping for the best rate is a common strategy for most homeowners, but it’s smarter to shop around for the best mortgage advisor.

Yes, mortgage rates are one of the main factors borrowers consider when refinancing a mortgage. But the best loan terms are part of an overall package that goes beyond your interest rate. Fees, closing costs, points, and mortgage insurance are a few costs that can overshadow a low mortgage rate.

You don’t want to end up with a mortgage refinance that ends up costing you more and keeps you from meeting your long-term financial goals. 

We recommend shopping around for the best mortgage advisor. Read reviews, check in with colleagues, follow up directly when you find a low rate.

A great mortgage advisor will talk with you about your financial and homeownership goals. Together, you can refinance your mortgage with a custom solution that checks all the boxes. You should be able to refinance your mortgage with a low-interest rate, a better mortgage payment, and loan terms that meet your financial goals.

  • Do they deliver exceptional customer service?
  • Do they offer the refinance product you want (fixed, adjustable, streamline, cash-out, etc.)?
  • Do they understand your financial goals?
  • Do they have great customer reviews?

Related: When is it a good time to change mortgage lenders?

Step 3: Compare mortgage refinance offers to find the best loan.

Advertised rates are helpful metrics to find out where the market is trending, but refinancing a mortgage can end up costing you a lot of money if you’re not careful.

So, shopping for the lowest rate won’t always get you the best mortgage refinance. Instead, compare your refinance offers side-by-side using the loan estimates provided by your lender.

The truth is, mortgage rates vary based on the borrower’s information, the loan product, and the lender. Certain lenders might advertise super low rates, but they might offer you higher rates than other lenders based on your credit score. The same goes for your debt-to-income ratio and your home equity.

When you apply for a mortgage refinance, you’ll receive a quote, also called a loan estimate. Your loan estimate will offer a line-by-line breakdown that shows the terms of your home loan.

Prepare ahead of time and review this sample Loan Estimate. All lenders use the same format, so this will make it easier to compare refinance offers.

Step 4: Estimate the closing costs for a mortgage refinance.

Refinancing your mortgage is about saving money for most borrowers. So if your mortgage refinance has a lower rate but high closing costs, it might not be a great solution.

Check out your Loan Estimate again to verify closing costs and any other fees that might be negotiable. Closing costs will be written in a different section and cover one-time expenses.

When you refinance a mortgage, many borrowers have the option to pay closing costs up front, roll them into the loan, or get a lender credit in exchange for a higher rate. 

To find out which fees are negotiable, check out this sample Loan Estimate.

Closing costs typically include:

  • Origination Fee
  • Appraisal Fee
  • Credit Report Fee
  • Prepaid Homeowner’s Insurance
  • Prepaid Interest
  • Property Taxes
  • Mortgage Insurance

Remember these are one-time fees that you wouldn’t incur without refinancing your mortgage. One way to know whether refinancing your mortgage will save you money is to calculate your closing costs.

Related: The Truth About Closing Costs and No-Closing Cost Loans

Step 5: Lock your rate when you apply for refinancing.

Lenders vary in how and when they offer mortgage rate locks, so be sure to ask your mortgage advisor about the terms. Often, borrowers have the option to lock in a mortgage rate early in the application process.

A float-down option often allows rate flexibility that protects the borrower: if market rates drop, the borrower’s rate “floats down” with the market; but if rates rise, the quoted rate stays secure. Mortgage lenders typically offer rate locks for 30 to 60 days. 

Ask your mortgage lender about locking your rate and what happens if mortgage rates shift. If the refinance process takes longer than anticipated, you don’t want the uncertainty of a fluctuating mortgage rate in the mix.

Related: Your Complete Guide To Refinancing Your Mortgage

Final Takeaway

Refinancing a mortgage can help you reach your financial goals faster. Take a minute to clarify your goals to make an informed decision once you get a loan estimate from your lender. Keep your credit report in check, take a close look at closing costs, and lock your rate if possible. Most importantly, shop around for the right mortgage lender and make sure you’re comparing apples to apples when you evaluate the terms of your refinance.

Next Steps

To get the best refinance rates and loan terms, work with a local mortgage expert who understands your financial situation. We’d love to discuss your financial goals and build a custom mortgage refinance that saves you money. 

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

May 26, 2021
blog student loan debt

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

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

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

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

Let’s dig in.

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

1. Debt to Income Ratio (DTI)

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

2. Credit Score

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

3. Down Payment

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

Home Loan Opportunities for Borrowers With Student Loan Debt

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

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

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

This is where student loan payments make a significant impact.

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

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

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

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

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

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

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

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

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

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

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

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

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

How Different Student Loan Repayment Programs Affect Your Mortgage Application

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

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

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

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

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

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

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

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

Next Steps

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