Author: production

Getting approved for a mortgage is easier than you think, but you do have to be proactive, plan ahead, and set your expectations appropriately before you begin.

In many areas of the country, homes are selling quickly, and there may be fewer properties on the market. So you’ll need to be on your A-game before you start to look.

If you’re planning to purchase a home and wondering how to go about it, a good place to start is with your mortgage professional.

Here’s the way it will go: To gain a baseline of information, your mortgage pro will ask about the basics, such as your income and your credit status.

He or she will run your credit information through what is called an automated underwriting system (AUS). Based on the information you provide, the AUS will show whether you can qualify for a mortgage at that time.

If for some reason you are unable to qualify, the AUS will provide very detailed information on what you need to do to qualify.

Even if you do qualify and are in a position to buy a home at that time, you still will want to find out from your mortgage pro what payments you can afford before you start looking. You don’t want to fall in love with a home only to find out later that it’s out of your reach.

Your mortgage professional can also discuss assets and credit; lender guidelines change frequently, and you will want to know what the current guidelines mean to you.

Credit is extremely important in determining whether a lender will approve you for a mortgage. If you need to pay down or pay off debt, it may take some time. Knowing ahead means you can start now.

Don’t be disappointed later; talk to your mortgage specialist now.

Many first-time home buyers are confused about the way mortgage interest works; in fact, it’s fairly easy to understand once you think about it.

As you know, any type of loan – whether it’s a mortgage or a car loan – requires you to pay interest to your lender for the use of this money while you’re paying it back.

However, the way you pay back a mortgage may be a little different from paying back other types of loans: you make your mortgage in what is called “arrears,” meaning that you pay for the use of the money after you use it.

For example, you take out a mortgage loan on April 15. At the time of closing, you will pay interest from that date through April 30.

Your first mortgage payment will typically be due on June 1 and that payment will cover the principal and interest for the month of May.

The payment due on July 1 will cover the principal and interest for the month of June, and so on, until the loan is eventually paid off.

If and when you go to sell the property, even years later, the process will work itself out as in the following example:

You sell your house and the closing date falls on October 8.

You had just made the October 1 payment, which took care of the principal and interest for the month of September.

So, at closing, you only pay the interest for the beginning part of the month.

More questions? Your mortgage pro can help.

“Distressed properties,” meaning those that have been either taken back or are at risk of being taken back by lenders, aren’t as numerous as they were 10 years ago during the real estate meltdown. But they still do exist, and you may be interested in purchasing one.

Here’s why: While the term “distressed” may conjure up images of homes that are in poor – maybe even unlivable – conditions, this often isn’t the case. Many of these properties have been well- and in some cases meticulously maintained by their owners, who, for whatever reasons, are now unable to keep making the mortgage payments.

In the case where the property is in less than ideal condition, the lender may be offering it in “as is” condition.

This isn’t as scary as it sounds, in that you will still have the opportunity to get a home inspection, and then make a decision based on the results of that inspection.

Often the owners will still be living in the properties. In a short-sale situation, for example, the owners may be current on their mortgage payments, but expect that the payments will be more than they can afford once the rate on their adjustable-rate mortgage adjusts upward.

In this case, the owners work with their lender to sell the property before it gets to the point of foreclosure. They do this mainly to keep a foreclosure off their credit report, as this may cause a significant drop in their credit score.

One thing to keep in mind is that purchasing a distressed property may take longer to complete than a traditional sale, but that’s not always the case. What often determines how long the transition will take is the caseload of the seller’s lender, and how well-staffed the lender is to handle that case load.

If you are interested in buying a distressed property and want more information, contact your mortgage professional.

Good news! You can use a gift of money to assist you in making a down payment toward your dream home. But while you don’t want to look this gift horse in the mouth, there are things to know before accepting.

Both Fannie Mae and FHA loan programs allow you to receive a gift as a down payment from a person related to you by blood, marriage, or adoption. (Yes, you can tap “the Bank of Mom and Dad!”)

However, the gift must be accompanied by documentation. The first such document is the gift letter. This shows that the gifted funds are being used to purchase a specific property, and that the donor does not expect you to repay the gift.

The second is proof that your donor is able to give the gift. This paper trail includes the source of the funds, such as a bank account statement demonstrating the donor has the money to give.

More important, it should show an average balance in the account over several recent months. This is to demonstrate to the lender that the funds were there and were not deposited from an undocumented source only to be withdrawn shortly after being given to you.

There may be other sources of down payment assistance, but it’s best to check with your mortgage pro before counting on them. One important point to note: your seller is not able to provide you with down payment assistance, although he or she can offer you seller credits toward your closing costs.

Your credit – knowing your score, ensuring credit reports are correct, and acting to improve your score – is among the most confusing topics relating to personal finance. Yet it’s extremely important – particularly if you’re planning to buy a house, and especially if you’re a first-time buyer. Your credit score is one of the first things a lender will look at when you make application for a mortgage.

To cut through all that confusion, here are five tips you can act on right now to identify and address any problems with your credit:

• Check your credit reports for free once a year through the three credit bureaus: Equifax, Experian, and TransUnion. Why all three? Because the information in each of the three bureaus’ reports can differ. If one or all of the reports include mistakes, your credit score may be negatively affected, and you may need to address the errors before going house shopping.
• Be strategic with credit card use. The percentage of your credit limit that you use every month can affect your score. Make sure your balance doesn’t come too close to your limit.
• The simplest and most important tip? Pay off your balance each month. To maintain a healthy score, pay off the balance before the due date. Anything after 30 days post due date can spell very bad news for your score.
• Be consistent. Good credit behavior over the long term will keep your score high.
• Don’t take on more credit. If you apply for several different credit cards, you’re sending a message that you may have maxed out your other accounts.

There’s always the bank of “my home”-the equity you’ve built up in your home over the years.

Equity is the difference between what the property is worth and what you owe on it; the amount you’ll be able to borrow on the property is based on how much equity you have in it.

You have many borrowing options, but each has its upsides and downsides. Consider the following:

Home equity loan

If you borrow through a home equity loan, you keep your existing first mortgage and use the equity you’ve built up as security for a second mortgage. The loan will be paid as a lump sum with a fixed, but generally higher, interest rate, and qualifying for a home equity loan may be more challenging. However, there are tax advantages to borrowing this way; as with deductions for first mortgage interest, the IRS typically allows a deduction for interest paid on a home equity loan.

Line of credit

A line of credit usually carries a variable rate. Typically, you don’t have to take it as a lump sum, so you’re only paying interest on the money you’re using; a zero balance means that you are paying zero interest. Some lenders, however, may have minimum withdrawal requirements, meaning you may have to take a minimum initial amount or a minimum amount each time you use your credit line.

Cash-out refinance

Here, you replace your existing mortgage with another – and put money in your pocket. If your existing mortgage has a higher rate and/or payment than your proposed mortgage, you’re ahead. In any case, the interest rate is usually lower than on a home equity loan. The downside: You’re borrowing the cash portion of the mortgage for the entire term – unless you pay it off ahead of time.

Your credit – knowing your score, ensuring credit reports are correct, and acting to improve your score – is among the most confusing topics relating to personal finance. Yet it’s extremely important – particularly if you’re planning to buy a house, and especially if you’re a first-time buyer. Your credit score is one of the first things a lender will look at when you make application for a mortgage.

To cut through all that confusion, here are five tips you can act on right now to identify and address any problems with your credit:

• Check your credit reports for free once a year through the three credit bureaus: Equifax, Experian, and TransUnion. Why all three? Because the information in each of the three bureaus’ reports can differ. If one or all of the reports include mistakes, your credit score may be negatively affected, and you may need to address the errors before going house shopping.
• Be strategic with credit card use. The percentage of your credit limit that you use every month can affect your score. Make sure your balance doesn’t come too close to your limit.
• The simplest and most important tip? Pay off your balance each month. To maintain a healthy score, pay off the balance before the due date. Anything after 30 days post due date can spell very bad news for your score.
• Be consistent. Good credit behavior over the long term will keep your score high.
• Don’t take on more credit. If you apply for several different credit cards, you’re sending a message that you may have maxed out your other accounts.

There’s always the bank of “my home”-the equity you’ve built up in your home over the years.

Equity is the difference between what the property is worth and what you owe on it; the amount you’ll be able to borrow on the property is based on how much equity you have in it.

You have many borrowing options, but each has its upsides and downsides. Consider the following:

Home equity loan

If you borrow through a home equity loan, you keep your existing first mortgage and use the equity you’ve built up as security for a second mortgage. The loan will be paid as a lump sum with a fixed, but generally higher, interest rate, and qualifying for a home equity loan may be more challenging. However, there are tax advantages to borrowing this way; as with deductions for first mortgage interest, the IRS typically allows a deduction for interest paid on a home equity loan.

Line of credit

A line of credit usually carries a variable rate. Typically, you don’t have to take it as a lump sum, so you’re only paying interest on the money you’re using; a zero balance means that you are paying zero interest. Some lenders, however, may have minimum withdrawal requirements, meaning you may have to take a minimum initial amount or a minimum amount each time you use your credit line.

Cash-out refinance

Here, you replace your existing mortgage with another – and put money in your pocket. If your existing mortgage has a higher rate and/or payment than your proposed mortgage, you’re ahead. In any case, the interest rate is usually lower than on a home equity loan. The downside: You’re borrowing the cash portion of the mortgage for the entire term – unless you pay it off ahead of time.

It’s sometimes difficult to understand how your mortgage payment is structured – that is, how much of the payment is interest and how much goes toward the principal to pay down the loan.

At the beginning of the mortgage process, you may receive an amortization table, which will show you how this is broken down for each payment.

As an example, if you have a $150,000 fixed rate mortgage for 30 years at 4%, your payments will be $716.12. In the first month, $500 of that will be interest and $216.12 will come off the principal. Your second payment is still $716.12, but you’ll pay less interest ($499.28) and more principal ($216.84).

The interest is about 70% of the total payment, but this will fall each month until it is near 0% at the end of the loan.

Comparison: 30-year versus 15-year mortgage

Now assume you have a fixed rate mortgage of $150,000 amortized over 15 years at 3.75%. (A loan with a 15-year amortization period likely will command a lower interest rate than one with a 30-year amortization period.) The monthly payment is $1,090.83, of which $622.08 will go toward the principal, and $468.75 to interest. While the payment is roughly one-and-a-half times that of the 30-year mortgage, the portion directed to principal is approximately three times that of the 30-year loan.

While a 15-year-mortgage may sound good, the monthly payment may be too high for you. In this situation, you can take a 30-year mortgage and make an additional payment toward the principal each month.

Over time, this may reduce the number of payments you make; every extra dollar you pay into the mortgage will reduce the amount you pay in interest on the remainder of the loan.

If you aren’t certain whether this approach is for you, discuss it with your mortgage professional. He or she can help you sort through your options.

The Home Affordable Refinance Program (HARP) was implemented by the federal government in 2009. It’s still available to help underwater homeowners (those who owe more on their homes than the home is worth) and those who are near-underwater refinance their homes into a lower payment. However, HARP is set to end in September 2017. As rates have been trending upward lately, you may be interested in taking advantage of the program. If so, now is the time to explore your options.

To qualify for HARP:

• Your mortgage must have been obtained through a Fannie Mae or Freddie Mac program lender, and you must have acquired it no later than May 31, 2009.
• You can’t have had a late mortgage payment in the past six months, or more than one in the past 12 months.
• The transaction, like all refinance transactions, must have a net tangible benefit to the borrower. It is not designed to keep homeowners out of foreclosure or to act as a loan modification program. For example, if you were going from an adjustable rate mortgage to one with a fixed rate, that would be considered of benefit to you. However, it would not be considered beneficial to you to refinance your mortgage at the same rate and pay fees to the lender in order to do it. In this instance, you wouldn’t qualify for HARP.

Is HARP for you? Discuss it with your mortgage professional, who can provide more details on the program and help you decide whether you qualify.