Learn All About The Process of Home Buying
Tips For Building Equity In Your Home
A home of your own may be the biggest investment you make in your lifetime. After saving up a substantial downpayment, you look for a lender to provide your mortgage and financing.
You work hard to earn income to support your household and make your mortgage payments. So with all the time, effort, finances, and hard work you have put into your home, how can you protect it?
And how can you make the mortgage work for you? The answer is through a home equity loan.
What is Home Equity?
As a homeowner, your mortgage payments help you build home equity.
The more you have paid in mortgage over time represents the amount of the home you own, calculated by subtracting your mortgage balance from your home’s market value.
As time goes by, your home equity increases as you pay off more of your home. Building this home equity is vital to your household’s financial health.
The more of the home that you own, the more you can utilize it as a resource should you have an unexpected expense if you desire to take advantage of a business opportunity, or us it as an investment strategy.
That’s where a home equity loan comes into play. You’re able to draw from the equity you have by taking out a loan against it.
How to Build your Home Equity
Now that you have determined how important your home equity is, here are some ways to increase your home equity.
One way to start yourself off with more home equity is to make a bigger down payment on your home if you’re able to do so. It’s might be worth it to crowdfund additions to your savings for your down payment from friends and family.
There may be people in your life who would jump at the chance to help you achieve your dream of homeownership; especially if you’re just starting out, and you need a little hand up to make it to the next level of success in your life.
Another way to increase your home equity to improve your property value is through home remodeling and home improvement. Build a better investment with your own sweat equity if you’re at all handy.
You can also teach yourself a lot of DIY tasks, for example, YouTube is full of home improvement and repair videos from varied professionals.
Another option is to find local courses to assist you in learning skills to complete projects you wish to tackle.
Or if you’re too busy, not interested in working on your home yourself, or don’t have the aptitude or ability for physical labor, you can source contractors to make improvements to your home whenever you can afford an upgrade here or there.
Over time, these improvements will accrue to add considerable equity to your home.
Finally, you can increase your home equity faster by choosing to pay your mortgage on a biweekly basis, rather than monthly.
This way you’re paying off your mortgage faster by making twenty-six payments a year, instead of the standard twelve, often making one entire mortgage payment more per year.
Similarly, you can shorten the length of time you have to repay back your mortgage loan. At the beginning of your agreement, choosing a shorter loan time will mean you’ll secure greater home equity in a shorter period of time.
Whichever tools you choose to use to achieve greater home equity, it’s possible to increase your equity with some information, effort, and guidance from professionals.
Megastar Financial Corporation is here to partner with you, on everything from mortgage and financing to home equity. Please don’t hesitate to contact us with any questions you may have about the process of homeownership and adding equity to your home.
We would be happy to show you how to make your home works for you right now, and for all the years to come.
Why Loan-To-Value Is Important
Loan to value (LTV) is the difference between the fair market value of the home and the amount of your mortgage, typically when seeking financing, but applies throughout the life of the loan.
A mortgage is a secured loan, which means a loan that has collateral associated with it. The value of the asset is compared to the amount requested to determine loan-to-value.
TV is used to determine the risk to the purchaser and financier.
Importance of Loan-To-Value Ratio
The loan-to-value ratio is one of the important factors of a mortgage as this is the number lenders use to determine how big of a risk they want to take with a collateral loan.
The higher the LTV, the more costs the lender will need to recoup on a default. Lenders will use your credit history along with the LTV to determine the amount they’re willing to lend in general and specific to the house you’re purchasing.
Your interest rate will also be determined by credit history and LTV.
Another impact that LTV has on your home purchase is in the form of closing costs. Typically, this is due to the costs increasing as they’re based on the amount of the loan.
Usually, if your LTV exceeds 80%, you also will be required to carry Mortgage Insurance, which is an insurance policy that covers the lender should you default on your loan.
And for some reason, if you need to resell the home early, you could easily lose money.
Calculating Loan-To-Value Ratio
Calculating the loan-to-value ratio is pretty simple. You take the amount borrowed and divide it by the appraised value of the home.
For example, if you are buying a $200,000 home and you have $6,000 for a down payment. That would mean you are looking to borrow $194,000 on a $200,000 house.
Take that $194,000 and divide it by $200,000, and that would equal 0.97. Take 0.97 and multiply by 100, and you get a loan-to-value ratio of 97%. The calculation is relatively straightforward, but crucial in the home buying process.
Loan-To-Value Ratio Affects Interest Rate
We’ll begin this section with a discussion of risk-based pricing. Risk-based pricing is a strategy used by mortgage companies that consist of offering different interest rates based on the borrower’s creditworthiness.
Risk-based pricing takes into an account credit score, adverse items in credit history, and employment status including income. In using this methodology, lenders will also look at debt-to-income ratios (DTI) as well.
DTI is simply a ratio of your total debt payments compared to your monthly income. All of these factors in risk-based pricing combined with LTV will ultimately determine what your interest rate will be on a mortgage.
The threshold at which private mortgage insurance (PMI) is required is typically 80%.
If the LTV is significantly higher than that, in the upper 90%s for example, you may have to pay PMI for the entire life of the loan, although typically the PMI is paid off in the first 10-12 years of the loan and then that payment will stop.
The annual cost of PMI is generally between 0.5% and 1% of the total loan. So on that same $194,000 loan, the yearly PMI would be between $957 and $1940, which would come out to between $79.75 and $161.67 per month.
Lowering Your Loan-To-Value Ratio
There are many benefits to lowering your loan-to-value ratio. So the question then becomes how to do that or what’s the best way to accomplish this. The simplest way is to have a large down payment.
The more money you put down, the less the loan will be, and the lower the LTV.
Are there other ways to lower LTV? One other way would be to negotiate the purchase price. If the home is appraised for $225,000, but you have negotiated the purchase price down to $200,000, that alone lowers the LTV.
The LTV usually is calculated using the appraised value, not purchase price. So in this scenario,
if you have $10,000 for a down payment on a purchase price of $200,000 for a house appraised at $225,000, your LTV would be $200,000 (purchase price) – $10,000 (down payment) which is $190,000.
Now, divide that by $225,000 and now you have an LTV of approximately 85%, versus 95%.
The final way would be to lower borrowing costs. Borrowing costs are the many fees associated with procuring a mortgage. The lender charges some, and some will be charged by third-parties such as appraisers, home inspectors, title companies, etc.
When shopping for a loan, ask upfront for the lenders’ closing costs. You can compare different companies and select the lower-cost one, considering all else being equal.
Conversely, you can attempt to negotiate with the lender on their costs. Shopping around and negotiating prices can be done to help mitigate any of the associated costs.
Loan-to-value is one of the most important factors when determining your monthly payment on your new home. It’s a crucial component to know and understand when seeking a mortgage and a mortgage lender.
Different companies have different thresholds for what they’ll allow for LTV. And even within their allowable range, the closing costs and interest rates can vary greatly depending on what the LTV actually is.
Make sure you determine how LTV affects your mortgage before deciding on a lender.
Mortgage and Financing in 2020
If you’re planning to get great financing options for a home loan, let’s cover a few basics to get you sorted out.
Though conventional home loans may require you a 20 percent down payment for your new real estate, this doesn’t have to be the case.
In fact, the average first-time home buyer can do this at only 6% home equity. Some can even go for as little as 3% or zero down payment.
How is this possible?
We’ll be covering that and the financing options available for you to get the best deal in this article.
What this means for you as the aspiring homeowner is that you don’t have to plan for a hefty down payment thinking it’s conservative to do so.
Just be sure to secure two things – savings and your goals when home buying.
What are the 3 types of mortgages?
These would be Conventional, FHA, and VA loans. Each property loan type has something to offer whether it’s for first time home buyers looking to occupy or those into real estate investing.
Benefits of Conventional Financing
A conventional mortgage is a type of home loan that conforms to income and down payment requirements set by Fannie Mae and Freddie Mac.
Unlike FHA or VA loans, this is not backed by a government agency and requires a minimum 20% down payment.
Its advantage over other types of investment mortgage loans is that you have the option of not paying for insurance as well as other property financing options.
This type of home mortgage also allows you to opt for more than just an owner financing and extend to investment home mortgage for rental property.
Some types of home loans let you buy properties with zero down payments. The well-known ones are USDA (for rural and suburban) and VA loans.
However, choosing these options means you’ll need to pay cash to cover some or all of your closing costs.
How much is a down payment on a house with conventional financing?
The amount you’ll need will depend on the type of property loan and your initial home equity with those options.
With a conventional loan, you can start as low as 3 to 5% down payment. With a $300,000 house, you can expect $9,000 to $15,000.
When opting for an FHA loan, you’ll need to buy with a $10,500 down payment for the exact same house since the requirement is 3.5%.
Of course, the low down option comes with a monthly cost – the mortgage insurance. To qualify for zero insurance cost, you need to go for a 20% down payment or $60,000 in this example.
Conventional, FHA, and VA loans are your typical financing options for when you’re acquiring a new piece of real estate.
Each one has its fair share of advantages and we’re here to run you through each one so you can pick the best type of home loan for your situation.
You mainly get varying possibilities when you’re looking for financing options for an investment property or vacation home.
Categories of Conventional Mortgage
The Federal Housing Finance Agency sets a maximum loan amount and, if you get a conventional loan that meets standards with an amount lower than that, this is called a conforming loan.
As Fannie Mae and Freddie Mac are sponsored by the government, this type is also known as “GSE loan”.
When a conventional loan exceeds loan limits or deviates from the standards set by Fannie Mae and Freddie Mac, this is now a nonconforming conventional loan.
A common loan program you may encounter is the jumbo loan which is used in the majority of US counties for loaning homes whose value exceeds $484,350.
Whatever house mortgage you opt for, you’ll be required to pay interest as mortgage rates. When you get a fixed-rate conventional loan, the interest remains the same across the many years you hold the mortgage.
Most buyers opt for a 30-year fixed-rate conventional loan for this reason and save on monthly payments in the long-term. Shorter terms are still available though.
This type of conventional loan is a good alternative to fixed-rate loans. With an adjusted-rate mortgage, also known as ARM, you have rates that are subject to changes over time.
These are usually adjusted annually after the initial 3, 5, 7, or 10 years.
Also known as the 80/20 conventional loan, this allows you to go below the standard 20% down payment with the options being 3, 5, and 7%.
6. Renovation loans
With a tight budget, you may not be able to find a house you like. Going for a fixer-upper is a good way to get a family home for a lower price and move in when you’re ready for the renovation.
With this loan, you hit two birds with one stone – owner financing for the home purchase and the needed renovations as well.
Here are the minimum requirements for a conventional loan for the year 2020.
Certificate of eligibility
This is needed for VA loans only and qualified lenders (military personnel and veterans) can apply for one online.
Conventional and VA loan providers require a score of 620. Homebuyers on FHA loans who make a 3.5% down payment will need a minimum credit score of 580 and can go as low as 500 when making a 10% down.
For VA loans, a funding fee is charged to settle the cost of the program to taxpayers. Military borrowers who have disabilities due to their service may qualify for a waiver. In 2020, funding fees increased by 0.15% for borrowers who put down 10% or less of the purchase price. That translates to an extra $1,500 in fees for every $100,000 being borrowed.
Debt-to-income (DTI) ratio
Borrowers with a DTI of 455 or higher need to have a credit score of 740 or higher. In some cases, conventional lenders may reconsider.
For FHA loans, the requirement is below 31% for the front end which includes costs of housing such as the monthly house mortgage payment, insurance, and property taxes.
The back end ratio required is below 43%. This looks at debt such as mortgage payments, credit cards, car loans, and other debt payments.
VA loans require a ratio of 41% or lower.
Conventional financing can be your means to purchase a primary residence, your second home, or vacation home or an investment property you intend to monetize/rent out.
For FHA, the home must be your primary residence for the first year at a minimum once you purchase it. This is ideal for your first family home.
VA loans only apply for primary residences.
Mortgage Insurance and Rates
Mortgage insurance or Private Mortgage Insurance (PMI). This is required for conventional financing with less than 20% down payment.
Credit score should be at least 620. The yearly premium is anywhere between 0.15% to 1.95% of your loan amount yearly and can go as high as 2.5% if your credit score is low.
With FHA loans, this is a one-time premium of 1.75% of loan balance coupled with an annual Mortgage Insurance Premium MIP of 0.45 to 1.05%. For VA loans, no PMI is required.
No loan insurance fees exist for VA loans.
Employment and Income
Mortgage lenders will require proof of steady income and will take a good look at your employment history and income from the past two years.
Loan applicants who are self-employed or with variable income will need to provide documents to verify income.
Majority conventional loan providers do not set income limits.
However, Fannie Mae’s HomeReady and Freddie Mac will require that borrower’s income falls within the income limits for the local area when it comes to Home Possible loans.
For FHA loans, the limit is capped at $331,760 as opposed to $510,400 in most states.
The minimum down payment is 3% for conventional financing with premiums for private mortgage insurance.
It’s 3.5% for FHA loans or 10% if you have a credit score between 500 and 579.
Down payment for VA loans is zero but may exist if it exceeds standard amounts.
What is the best investment home loan rate?
There may be no single best property financing option, but this isn’t possible with FHA or VA loans. Depending on your goals, conventional loans can dive as low as 3% down payment or allow for zero insurance with a 20% down payment. Just be sure to be transparent about your plans with your loan officer.
If you’re planning for a down payment on your property mortgage today, consider more than just how much you can afford.
The whole transaction will need you to check your tolerance for risk on the loan you’re taking. Low down payment means low home equity.
You can discuss this with your broker to consider your long-term plans.
Loan officers may request for details on your current job, position, and compensation. Expect a verification process as part of the loan program when getting started on your property financing.
Also, note that considerations may be different for financing an investment property as opposed to financing as a first-time homebuyer.
Finally, when you have gathered your paperwork for the loan application, compare mortgage rates among different mortgage lenders.
Get a good loan overview for planning your first home purchase or various loan programs you’re considering in the long term when you’re hashing out your financial goals.
We hope you got the information you needed for your next house loan. Feel free to reach out to us for any questions you may have so we can set you up for a suitable plan based on your needs.
How Does My Debt Impact My Mortgage?
With the U.S. currently in the middle of a student loan debt crisis, it makes sense to be concerned about how your own existing debt will impact your ability to buy a house. According to debt.org, the average student loan debt for 2016 college graduates was $37,172.
You need to factor in your existing debt when determining your target price range for purchasing a home because it will affect the kind of mortgage you qualify for. But how exactly does your debt impact your mortgage loan options? Here we’ll cover everything you need to know about your debt to income ratio and how it impacts your home buying experience.
What is your DTI and how does it affect your mortgage?
Your debt to income ratio, or DTI, is one of the most important metrics to consider after your credit score. It’s the primary tool that lenders use when they’re considering your loan application.
Your DTI is the percentage of your income you need to set aside every month to pay off your debt. When calculating your DTI, your lender will divide your monthly debt obligations by your gross income. You want the lowest DTI possible because this number doesn’t take into account your utilities, transportation costs, health insurance, food, taxes, or childcare costs. A low DTI ensures you’ll not only get a good mortgage rate but also that you’ll be able to pay off your debts while living comfortably.
There are two types of DTI: front-end DTI and back-end DTI. Front-end DTI includes mortgage payments, insurance property tax, and homeowner costs. Back-end DTI includes other types of debt such as car loans, student loan debt, and credit card debt. Lenders take both DTIs into account when you file an application.
Your DTI will also be compared to your credit score. Applicants with credit scores under 500 are generally ineligible for FHA loans. But sometimes the FHA will make allowances for applicants if they meet requirements.
What’s the best DTI to have?
Your DTI is one of the reasons why it’s so important to get your credit in order when you’re looking to buy a house. To get approved for a conventional mortgage, it’s best to have a back-end DTI of less than 43%. With excellent credit, you could be eligible for a conventional mortgage with a back-end DTI of 50%.
However, even with a DTI of less than 43%, it’s important to keep in mind that the mortgage loan options available to you might not be ideal for your situation. Make sure to do the math so you don’t overcommit yourself to monthly mortgage payments you can’t afford. You know your household budget better than anyone else.
Want To Own A Home By 30? Here’s How Much You Need To Save
Born between the mid-1990s and early 2000s, many Americans born into Generation Z have officially hit their early 20s. And if they want to be able to afford a house by the age of 30, they need to start saving now.
According to recent data from Realtor.com, Generation Z would need to save up to $304 a month starting right now if they want to buy a home by the age of 30.
How much do I need to save per month?
Realtor.com projects that the average house will cost just over $386,000 by 2031 when the youngest members of Generation Z reach the age of 30. Granted, the youngest Gen Z-ers are currently age seven, and the oldest Gen Z-ers are currently age 24.
That said, the average cost of a house in the U.S. as of right now is $200,000. To make a 10% down payment on a $200,000 house complete with closing costs, the oldest Gen Z-ers would need to save up $278 a month over the course of the next six years.
But the location also has an impact on the average cost of a house. For instance, the average cost of a house in the city center of San Francisco is $1.62 million. But the average cost of a house in McAllen Texas is $111,000.
How can I save up for a down payment?
To save up for a down payment, you need to make sure that you have room for savings. You can’t save up if you’re living paycheck to paycheck.
Apply for jobs that pay salaries higher than your student loan debt and rent apartments that are one-third of your current salary. This will help to make sure you have enough in savings to apply for a good mortgage when the time comes to buy a house.
Looking for mortgage loan options?
In 2017, the average investor bought a median-priced property of $155,000. That’s a $12,000 increase from 2015. The good news is there are different mortgage loan options for you to choose from so you can afford a median-priced property.
Megastar Financial are the mortgage lenders Redding CA homeowners trust to find the best possible mortgage loan options. If you’re looking for conventional mortgage refinancing, an FHA loan, or other investment loans, Megastar Financial has what you need. To learn more or to speak with one of the best mortgage lenders Redding CA has to offer, contact Megastar Financial today.
Simple Ways to Start Investing in Real Estate
The world is full of opportunities to make money and dip your toes in various investments. Some people are intimidated by the idea of investing and the underlying risks involved. Others are willing to take the chance in hopes of matching their risk with reward.
One area in particular that investors like to get involved with is real estate. There are real estate investors of all types, and if you’re interested in becoming an investor, here are a few ways you can do so.
There are numerous ways to make money when investing in real estate, although many investors opt for the more direct payouts. Purchasing a rental property allows investors to see direct profits. This strategy can work in multiple ways. You can invest in a rental property company by allocating funds for a specific tenant building and sharing the profits that way. Or, the more common route is to buy a rental property yourself and rent it out to tenants. This strategy requires investment loans, but if done right you won’t be the one paying it back. If you purchase a small enough residential property that has multiple beds and baths, you can live in one room and rent out the others. That way you’re living “rent free” while the tenants cover all of your costs and you could still get a profit. Or you can purchase the rental property and fill it with tenants, and what they pay will directly cover the cost of the loan. That way, by the time it’s paid off, you’re maximizing your profit.
Popularized by home remodeling shows and media, house flipping can be a great way to make money through investing in real estate. The concept is a traditional business model: buy something underpriced, make it better, and then sell it for more than what it cost you. If you’re lucky, you can find a property that’s underpriced and only needs a little bit of work. The less you pay, the more profit you can get. The median price of a property that investors typically purchased in 2017 was $155,000, so if you found something under budget and stayed on the low end with repairs, you can see a large profit margin.
Of course, there are variables at play besides the property itself. You should consider location, distance to schools, community living, and much more when you’re looking to invest in real estate. If you’re looking to get started on a much smaller scale, consider renting out a room in your existing property. You wouldn’t need a new home loan or additional mortgage, and you could test the waters. Once you get a feel, you can branch out and start investing for real.
If you’re interested in investing in real estate, we can provide you with the investment loan that you need to get started. Give us a call today to talk about your financing options.
What Does the New Tax Plan Mean for Homeowners?
How will the Tax Cuts and Jobs Act affect your home mortgage?
With the recent passage of the tax reform legislation known as the Tax Cuts and Jobs Act, many Americans are curious as to how they might be affected. While the new tax code has major implications for many people with a home mortgage, others may notice no difference whatsoever.
Considering that the final House version of the tax law clocked in at 1,097 pages, knowing exactly how the Tax Cuts and Jobs Act affects you individually is best appreciated by a tax or mortgage professional. They can explain to you in fuller detail the extent of its influence. Since the new tax bill went into effect, many of our customers with a home mortgage in Redding, CA have asked us how they will be affected. There’s no single answer to this question, which depends on your income, where you live, and other factors. Yet there are few key points of the act which can assist you in understanding the potential changes you might experience and help you begin possible adjustments.
How the new tax law affects home mortgages: There are two scenarios you need to know
Already, you may have noticed that your paycheck is a little bigger. However, some potential drawbacks of the tax law may not be noticeable for homeowners until your file your 2018 taxes next year. In general, there are two primary scenarios in which the new tax law will affect you, and both have to do with your home mortgage.
If you live in a high tax state like California or New York, you won’t be able to deduct as much from your next tax return As of December 15, 2017, if you purchase a house worth more than $750,000, you won’t be able to deduct as much
Attention Homeowners: Say Goodbye To Your State and Local Sales Tax Deductions
If you live in a low tax state like Kansas, Texas, or Florida, then you don’t need to worry about this change. Of course, if you have a home mortgage in Redding, CA, then you need to pay attention.
Since California is a famously high tax state, let’s use it as an example. Previously, Californians could deduct the considerable costs of their state and local taxes, including sales tax and real property tax, from their annual taxable income. These deductions could be claimed with no limit. You can still deduct these costs after the Tax Cuts and Jobs Act, yet they will be subject to a $10,000 yearly limit for joint filings. If you are paying taxes on a home mortgage in Redding, CA, then you can no longer write off these taxes when filing your federal return.
In short, Californians and New Yorkers will see a major increase on their tax returns for the foreseeable future.
This deduction cap will affect homeowners who live in areas with higher tax liabilities, and those who usually rely on the limitless deduction may feel the burden of this new restriction. While some places have a lower property tax rate, the area might have higher home appreciations.
Understanding the New Mortgage Interest Deduction
The mortgage interest deduction is the primary change homeowners need to know about. Previously, homeowners with a mortgage of $500,000 or above could deduct their interest payments from their annual taxable income as long as the deductions didn’t exceed $1 million per year for joint filings. With the implementation of the Tax Cuts and Jobs Act, any mortgage loan taken out after December 14, 2017 will be subject to a deduction limit of $750,000 from the homeowner’s annual taxable income, a $250,000 reduction from the previous $1 million cap. Loans taken out before December 15, 2017 are not subject to the reduction, though, and the deduction limit will remain at the $1 million cap.
If your home is worth less than $750,000, or if you purchased your home before December 14, 2017, you don’t need to worry about this change to the tax code.
The Tax Cuts and Jobs Act involves many other alterations to previously established tax regulations and imposes some new ones as well. To understand the extent that you may be affected, you should consult with your tax professional.
Looking to borrow or refinance? Call us today, we can give you the best home mortgage Redding CA has to offer.
4 Considerations to Make Before Applying for a Home Loan
Making the decision to purchase a home is a very important step in anyone’s life. So before you begin shopping around for mortgages, it’s important to do some research and figure out exactly what type of home loan will be best for you. So if you’re looking to apply for a home loan in Redding, make sure you consider the financial factors discussed in this article.
1. How much you can afford – One of the most important things to consider is how much you can afford, at your current income, to pay towards your monthly mortgage payment. It’s also important to remember that the monthly cost you’ll be paying needs to include property taxes, homeowners insurance, and utilities. So your estimate of what you can afford should go beyond just the mortgage payment. This is important to understand before applying for loans because you don’t want to accept a loan you cannot afford to pay every month.
2. Your credit score – Before you even begin shopping around for a home loan in Redding, you should know your credit score. Your credit score will be one of the biggest determining factors in your approval of a loan and which type loan you’re eligible for. For example, people with credit scores around 600 may be eligible for FHA loans, but the FHA will sometimes make exceptions for applicants who have insufficient credit or nontraditional credit history. For more traditional mortgages, a credit score of 500 will put you at the back of the line. Your credit score is considered when calculating what mortgage rate you’ll end up with, which means it will have a direct impact on your monthly payments. Higher credit scores are awarded lower interest rates. If you give yourself enough time, you should try to get your credit score as high as possible to ensure you don’t suffer extreme interest rates.
3. Types of mortgages – You should do some thorough research before applying for loans. There are multiple types of loans, including a fixed-rate mortgage, an interest-only home loan, and a hybrid mortgage. When choosing the type of home loan, you should be realistic about your financial future. With that in mind, it’s important to choose a mortgage type that won’t leave you scrambling to pay your bills every month.
4. Potential lenders – You should meet with a trusted lender before signing an official mortgage application. By meeting with your lender, you’ll be able to ask any questions, find out about closing costs and other fees, and see what kind of loan you may qualify for.
These factors are just a few of the many considerations you should make before applying for a home loan in Redding. But by choosing a reputable lender, you’ll be able to ensure you gather all of the information you need to make an informed decision about what loan is best for you.
Prepping to Buy a Home: What to Have Handled Before Homeownership
Buying your first home will be one of the most intimidating purchases you’ll make. While the purchase itself is a large sum to handle, the intricate details of the home buying process don’t make it any easier. Between home loans, mortgages, refinancing, and the attached variability these things carry, home ownership can seem like more of a hassle than it’s worth. We’re here to help guide you through the process, but we’ll start small. Buying your first home requires a little preparation work that’ll ensure you have all your financial ducks in a row. Before you waltz up to the first house you see and start throwing cash at it, let’s look at some things that’ll make sure you know what you’re doing and keep you away from haphazard homeownership.
We don’t want to sound like your parents, and it may seem like beating a dead horse, but staying on top of your credit is imperative to being able to qualify for a mortgage. Analyze your credit history well before entering the home buying process. Look for inconsistencies, mistakes, ways to improve. After all, a mortgage is a large sum of borrowed money that you’ll need to repay over time. Your credit score, history, and proficiency are all determinants that make or break your ability to qualify and the trust a lender has in you.
Get to know yourself
Applying for mortgages and pursuing homeownership bring all sorts of personal details that we don’t regularly pay attention to. It’s not every day that we scour our entire foundation of assets, but now is the time. How much are you really worth? What are your personal risk factors that might play into a mortgage? Do you have any loose ends financially? Brushing up on economics and learning the details of home buying is important to staying fiscally responsible through the buying process. Plus, you’ll learn a great deal about your financial reaches and limits.
The down payment doozy
Depending on the cost of the home you’re looking at, the down payment is one of the most financially worrisome parts of buying. Plainly put, it’s a lot of money all at once. In a 2017 survey, 13% of all home buyers said that saving for the initial down payment was the hardest part of the home buying process. A down payment is something you should have solidified or saved for prior to the process. You’re not alone here, so shop around, do research, ask advice, and don’t forget that this is your process, so planning it the way that best suits your financial situation is essential to paving your own path.
We know it’s not easy, but you aren’t alone out there. Multitudes of people are buying homes for the first time and they’re just as intimidated. Talk to new homeowners, hire professionals, and never fear to ask questions. Entering this process for the first time with eyes wide open will make sure that you aren’t a blindsided buyer and that your first home purchase is handled without a hiccup.
Don’t Fall Prey to High Rates: Use These Tips to Get a Better Deal
Home-buying can be expensive and finding the best loan for you can be essential. The cost of buying property has gone up in the past couple of years, going from a median price of $143,00 in 2015 to $155,00 in 2017. There are numerous aspects of getting a loan that’s best for you, but the best possible thing you can do to help yourself is to prepare in advance.
Many people don’t consider they’re home-buying finances until they begin looking for a new home. Unfortunately, by that time it isn’t much you can do to significantly change the outcome of your mortgage approval.
However, by being properly prepared, you can get a better rate on your mortgage and can put the excitement back into home-buying.
1. Credit Score: Two words that when said together can nauseate a person. It doesn’t have to be a bad thing, though. Making improvements to your credit score now will significantly help with loan opportunities later. Lenders will associate a higher credit score with less risk and will be more willing to approve a better loan.
2. Keep Your Job: This may sound foolish, but presenting the bank with a history of employment can be another way to show that you’re a smart investment. Bring an employment record that shows you’ve been working for at least two consecutive years, even if it is not with your current employer when you talk with an originator. Even if you don’t have two years of employment history it is still wise to talk to a mortgage loan originator so they can tell you about other options.
3. Make the biggest down payment you can: Even though this is a little ironic since the entire point of this article is to save you money, spending more at the beginning can save you in the long run. Typical down payments are around 10%, there is a benefit to having 20% down to avoid mortgage insurance, however, it is always a better idea to buy (even without the 20% down) rather than rent because you can get 20% in home equity sooner with only one house payment!
4. Consider 15: The traditional 30-year repayment period tends to be the most common choice for homeowners, but may not be the best option for you. By choosing to pay over a 15-year span, you can save on your interest payments which can add up to a hefty number. Although, choosing this option will increase your monthly premiums.
If you’re looking around at types of mortgages and loans to try to get the best deal possible, talk with an MLO to see what options they have available. Many MLOs provide different types of home loans, such as FHA loans and VA loans.
Preparing your finances to purchase a home
It’s been about a decade since the financial crisis that took down many of the nation’s biggest banks, but many of us are still justifiably cautious about borrowing money. If you’re interested in taking the plunge and getting a home loan, here’s how to prepare your finances before you purchase a home.
6 steps before you purchase a home
1. Find a mortgage that fits your financial situation: This is a big decision; read the fine print very carefully. There are huge benefits to be had in terms of equity and potential tax deductions, but these benefits depend on finding the best mortgage for you.
If you aren’t sure what the best choice is, it’s a good idea to have a long conversation with your mortgage lender. There are tons of options available. Do you want the predictability of a fixed-rate mortgage or the low rates of an adjustable mortgage? How much money do you think you will be making 1, 2, 5, or 10 years down the line? These are all important questions to ask.
If you can’t find a mortgage that makes sense for you, then it’s best to talk to a mortgage professional to see if they can walk you through the process, and find something that works for you.
2. Assess your student loan situation: Good news! Student Loans are now common enough that they aren’t necessarily a deal breaker when securing a mortgage. In general, mortgage lenders will see it as they do any other debt obligation. As long as you’ve used your student loans responsibly, you may still be able to secure a good mortgage. Talk to your mortgage lender about your debt situation if you are unsure.
3. Reduce debt-to-income ratio: Debt-to-income ratio is one of the main metrics mortgage lenders use when assessing eligibility for a loan. Before you purchase a home, try to lower your credit card debt as much as possible. If you can, talk to your lender about consolidating debts into monthly payments.
4. Hold off on borrowing: It’s best not to acquire any new lines of credit before you purchase a home. Don’t apply for any new credit cards or loans for six to twelve months before signing a home loan.
5. Assess yourself as a borrower: All of the metrics that banks and lenders use to determine your eligibility for loans are really about one thing: How likely you are to repay what you owe. Take some time to reflect on your borrowing behavior in the past. Have you been reliable with your payments? When finding a loan, it helps to take a moment to see yourself how lenders will see you.
6. Optimize your credit situation: If you want to get a good rate on your mortgage, a good credit score is extremely important. Many consumers have errors on their credit reports that can be easily corrected. For instance, you could be able to save money on your mortgage by doing something as simple as increasing your credit limit or changing some of your spending habits.
Before you start looking for a home loan, familiarize yourself with your credit report and try to find ways to improve your situation.
What many of these tips boil down to is a need to secure the facts. It’s best to know everything you can about your financial situation before you look for a loan. Talk to your loan originator, and they can help you save money on your mortgage. A good loan is a powerful asset – don’t settle for anything but the best.
Need help finding the right home loan for you? Megastar Redding is prepared to help.
MEGASTAR FINANCIAL CORP. is an Equal Housing Lender. DBO Lic # 603 G365 NMLS Lic # 235828(3043)*
Licensed by the Department of Business Oversight (DBO) under the California Finance Lenders Act * NMLS # 1162668.
As prohibited by federal law, we do not engage in business practices that discriminate on the basis of race, color, religion, national origin, sex, sexual preference, marital status, age (provided you have the capacity to enter into a binding contract), because all or part of your income may be derived from any public assistance program, or because you have, in good faith, exercised any right under the Consumer Credit Protection Act. We are regulated by the Fair Housing Act (overseen by HUD) and the Equal Credit Opportunity Act (overseen by CFPB), Washington, DC, 20580.
Example of 30 year mortgage:
$300,000 sales price, $60,000 down payment, $240,000 loan amount, 360 months, 3% interest rate, 3.132% APR, $1,029 Principle and Interest monthly payments, Payment does not include taxes, insurance premiums or HOA dues. The actual payment amount will be greater. Rates shown valid on publication date of June 29th, 2020. This example is for a conventional, not jumbo, mortgage product; there are restrictive upper loan amounts for conventional loans based on the property’s location. Example given requires a minimum 740 credit score with a debt to income ratio of under 45%. Applicant must be employed. This is not a promise to lend. All terms and conditions are based on the subject property, the applicant’s credit worthiness and the applicant’s ability to repay the loan.
15-Year Fixed-Rate Mortgage:
The payment on a $300,000 15-year fixed-rate loan at 2.723% and 80% loan-to-value ratio (LTV) is $1,626. The annual percentage rate (APR) is 3.178%. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid on publication date of June 29th, 2020. This example is for a conventional, not jumbo, mortgage product; there are restrictive upper loan amounts for conventional loans based on the property’s location. Example given requires a minimum 740 credit score with a debt to income ratio of under 45%. Applicant must be employed. This is not a promise to lend. All terms and conditions are based on the subject property, the applicant’s credit worthiness and the applicant’s ability to repay the loan.