Tag Archive for: pre-approval

Who Qualifies as a First-Time Homebuyer?

April 10, 2024
Multiracial couple holding keys and standing outside their new h

We know the story: Part of you is thinking about homeownership, but another part is unsure whether you’ll qualify as a first-time homebuyer. The mortgage process can seem intimidating the first time around, which is completely understandable. You haven’t owned a home before! 

Not to worry, though, because Preferred Rate is here to shed some light on what it means to be a first-time homebuyer, the loan programs available to you, and any questions you may have on items like minimum credit scores, down payment assistance, interest rates, closing costs, income limits, and more.

So let’s get to it!

What Is a First-Time Homebuyer?

Let’s start with the basics: First-time homebuyers are generally defined as those who have not owned a primary residence within the past three years. This definition can vary slightly depending on which loan programs you’re considering.

Who Qualifies as a First-Time Homebuyer?

It may sound strange, but contrary to popular belief, the term “first-time homebuyer” refers to more than just people who haven’t owned a home before. You may still be considered a first-time homebuyer if you owned a home in the past but meet certain criteria.

For instance, if you’ve experienced a significant life event that prevented you from purchasing a home in the past three years, such as a divorce or a foreclosure, you could still qualify for some first-time homebuyer loan programs.

Naturally, the qualifications can vary based on the loan program. With a VA loan, offered through the Department of Veterans Affairs, you must be an active-duty service member, veteran, or surviving spouse of either group. A first-time homebuyer would still have to meet all the qualifications for the VA loan as a first-time homebuyer, in addition to proving their eligibility status.

Can You Have Previously Owned a Home?

As we just touched on, yes. There are instances where you might have owned a home before but can still qualify for a first-time homebuyer program. Typically, the most important stipulation is that you can’t have owned a primary residence within the past three years. 

What Programs Are Available to First-Time Homebuyers?

There are lots of loan programs created specifically to help first-time homebuyers achieve their goal of owning a single-family house. These programs are often offered through government entities, such as the Federal Housing Administration (an FHA loan), the Department of Veterans Affairs (a VA loan), and the Department of Housing and Urban Development (a HUD loan).

For example, the FHA loan program provides some benefits to first-time homebuyers, including lower down payment requirements and lower minimum credit scores. VA loans also offer those who qualify as a first-time homebuyer—and who are veterans/active-duty service members/surviving spouses—the chance to purchase a home with no down payment. There’s no better form of down payment assistance than that!

You’ve also got Fannie Mae and Freddie Mac. They offer loan programs that assist first-time homebuyers in accessing affordable mortgage options with competitive interest rates and flexible eligibility requirements. These include financing up to 97% of the purchase price, meaning that you make a 3% down payment. 

You can also use nontraditional income sources such as alimony payments, Social Security, rental income, and so on, to qualify for these guaranteed loans. A mortgage lender can give you the lowdown on all the attractive loan programs that may be right for you.

Many people also overlook the various incentives for purchasing in rural areas. The U.S. Department of Agriculture offers loans that are guaranteed by the USDA Rural Development Guaranteed Housing Loan Program. These loans generally offer no down payments and lower interest rates if you buy in rural areas. 

Do You Need to Be a First-Time Homebuyer to Take Advantage of Down Payment Assistance?

Down payment assistance (DPA) programs are frequently available to first-time homebuyers to help mitigate the upfront costs associated with buying a single-family home. These can include the down payment and closing costs.

You may assume that these programs are normally for first-time buyers, since they may need the most help on their first single-family home purchase. But many DPA programs are open to other buyers as well. These can include those who meet certain income limits, minimum credit scores, and other criteria, regardless of whether they’ve owned a home before. DPA programs tend to vary by location and may be offered at the federal, state, or local levels.

Need More Help with Your Home Purchase?

The term “first-time homebuyer” can apply to more than just individuals who have never owned a home before. Those who haven’t owned a principal residence within the past three years may still qualify for various loan programs and closing cost assistance programs designed to make homeownership more accessible for everyone.

Even with all this information, it’s important to consult a knowledgeable mortgage lender when determining who qualifies as a first-time homebuyer. Our Preferred Rate Mortgage Advisors can guide you through the process and help you discover which loan programs you qualify for.

Whether you’re interested in an FHA loan, a VA loan, or a conventional mortgage, there are almost certainly options out there that will fit your financial situation.

So we’ll leave you with this: Homeownership is within reach for many, many people, regardless of whether you’re a first-time homebuyer or have owned a home before. With the right resources and guidance, you can achieve your dream of owning a home. 

Contact a Preferred Rate Mortgage Advisor today to explore your options and get on the path to homeownership! 

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 programs 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!

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.

Seven Red Flags to Look for When Buying a Home

August 29, 2023
AdobeStock 468205064 copy

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.

Is Buying a Home for a College Student a Good Investment?

August 4, 2023
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Tuition, books, transportation, room and board…the cost of college adds up fast. At first glance, then, it may seem crazy to consider buying a home for a college student, but is it? 

The truth is that there can be many benefits when you buy any property, and this scenario is really no different. In fact, when you consider the high cost of both on-campus and off-campus living in an expensive college town, buying a house that your student can use during their college years begins to make a lot of sense. 

The High Cost of College Room and Board

According to Credible, on-campus room and board runs about $12,680 or more annually for private four-year colleges and $11,140 or more for public, in-state colleges. Of course, these numbers can be much higher in certain areas, or at certain schools.

The cost of off-campus housing in college towns varies widely depending on a number of factors. These can include location, the type of rental it is, the number of bedrooms, the number of roommates, and the community amenities. However, since food, utilities, cable/internet, and transportation to and from campus are not included, SharedEasy estimates that these costs come to an average of about $27,180 for the nine-month academic year. 

Then, don’t forget, you will have to multiply those costs times four—or more—to account for your college student’s full academic career. During that time, the cost of room and board on campus, not to mention the rents off campus, are almost certain to increase annually.

What if you put those five figures of expense to work for you instead? With some planning, you could buy a property that could initially house your college student and then later function as an investment property after they’ve graduated. It’s definitely worth weighing the pros and cons of this room and board option.

Considerations in Buying a Home for a College Student

Let’s think through a few of the pros and cons to see if buying a home for a college student may be the right option for your family. 

Lowering room and board costs

One big pro is the potential financial benefit. Buying a home or condo can significantly lower the financial burden of off-campus housing or room and board, which can result in massive student loan debt with high interest rates. This is especially true if the property has room for multiple roommates, which would garner rental income for you. 

Providing your child with stability

Another advantage of buying a home for a college student is their stability and convenience. Owning your child’s home can eliminate their need to find a new place and move every year. It also cuts down on storage costs over the summer, as well as security deposits every fall.

Turning a profit through appreciation

Home appreciation can be a potential benefit, especially if you buy in a high-growth area. There is the possibility of making a nice profit if you sell when your college student graduates, or you could make this home an investment property and collect rental income.

Buying a house in a college town can be very strategic, as there will always be a need for housing as more students enter the school every year. Real estate agents can tell you more about renting to students, but it’s great to have a built-in renter base as long as the college or university is there!

Risks of home depreciation

Speaking of college students, depreciation is something to consider carefully. Tenants are always plentiful in college towns, but students aren’t necessarily the best renters when it comes to taking care of a property. Your property could lose value if your student renters don’t maintain it well, or if they do something illegal while living in the home. 

It’s important to have a conversation with your child about the responsibilities of being a good tenant—especially for their parents! You should have the same discussion with any of your child’s roommates. It’s also a good idea to involve the roommates’ parents. After all, many parents co-sign leases for their students. As a result, they should also be informed about what you expect, as well as any house rules. 

You might also consider paying to have the home’s basic maintenance and landscaping needs taken care of by a professional on a regularly scheduled basis. Your student likely won’t have time for maintenance and repairs, and this step can help your investment retain its value.

Tax write-offs

Now for some more good news: Buying a home typically comes with tax benefits. These could pertain to the interest on the monthly mortgage payment, mortgage insurance, and any repairs or updates you make to the home.

Tax write-offs can vary by state and can also depend on how you use the property. For example, there are different tax implications if you buy a property and allow your college student to stay in it rent free, vs. renting it out to other roommates. That’s why it’s always a good idea to check with your tax advisor before buying a home for a college student.

Your student’s independence

Owning the home means your student will always have their own private space and can personalize it any way they would like. They will also be able to choose their own roommates, do their own cooking, and control the noise level of their space. 

Retirement potential for yourself

It’s also never a bad idea to take your retirement strategy into consideration if you’re thinking of buying a home for a college student. Buying a property in a college town can be a great long-term plan. Consider that your child can live in it when they are in school, you can use it as an investment property and accrue rental income when they graduate, and then you can move into the property yourself when you’re ready to retire.  

Are You Ready to Buy a Property?

Now let’s look at all the costs associated with buying a house—whether you’re buying a home for a college student or not. There is the sticker price of the home, of course, but there is also the down payment, the closing costs, the monthly mortgage payment, the possible mortgage insurance (if you put less than 20% down), and the cost of any work that may need to be done to the home.

You also need to think about interest rates at the time you’re looking to buy. And you’ll definitely want to schedule a home inspection. The house may have served as student housing previously, and as mentioned, students aren’t always the most conscientious tenants! 

To help make the final decision, look at the bottom line costs. Consider these three possible scenarios for housing during your child’s college years:

  • Your college student lives on campus and pays for room and board, likely through student loans.
  • Your child rents a property off campus. Consider that they will have to set up accounts for all ongoing living expenses, get themselves to and from campus, and remember to pay each individual bill on time.
  • You buy a home for your college student and house them yourself for four or more years. After they graduate, you will have the option to sell the home or convert it into an investment property that earns ongoing rental income.

All in all, purchasing a home in a college town is something to consider—but it’s far from a no-brainer. It can, however, be a great way to skirt some of the college debt for you and your child; ensure that they’re housed in a safe, clean environment; and possibly earn you some money in the process. 

Are you ready to discuss this idea further? Preferred Rate is here to go over all your options and create a plan that’s right for you. Contact us today to speak with a Mortgage Advisor. 

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.

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

August 31, 2022
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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.