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First Time Home Buyers and Student Loan Debt

April 10, 2017 / Tom Bonetto

It’s sometimes more difficult to be a first-time home buyer as compared to an experienced one.

First-time buyers are often younger then the general home-buying population – that typically means less work experience, lower income levels, and less money saved for down payment.

In many cases, it also can mean higher levels of federal student loans and debt.

Source: The Mortgage Reports

Concerns about student loan obligations are among the reasons why first-time home buyers account for a smaller percentage of the housing market as compared to recent years.

The good news, though, is that homeownership and student debt aren’t mutually-exclusive. You can buy a home, get approved for a mortgage loan, and still make good on your student loans.

Income, Assets, Debt, and Credit – they key pieces

As a home buyer, your ability to get approved for a mortgage is based on for things — your down payment on the home, your current credit score, and your income, and your debt position.

Down payment matters because the size of your down payment determines for which mortgage loans you might be eligible.

For example, the VA mortgage and UDSA home loan both allow for 100% financing. Therefore, if you plan to use either of these two programs, it doesn’t matter whether you have a down payment or not.

However, with no down payment, you would not be eligible for an FHA home loan or a conventional one, which require 3.5% down and three percent down, respectively. The borrower’s credit score matters for the same reason.

As far as credit is concerned, all mortgage programs require that buyers meet some minimum credit score requirement. For some programs, minimum credit scores are high. For other programs, minimum credit scores are low.

It’s your monthly income relative to your debt, however, that is arguably the most important trait in your mortgage loan approval. Known as your debt-to-income ratio (DTI), this calculation is believed to be the best predictor of whether you can actually afford to buy.

Student Loans and Mortgage Approvals

A buyer’s debt-to-income ratio is a percentage that shows the amount of your monthly income required to repay your debts.

For example, if you earned $5,000 per month and had a monthly debt obligation of $2,000, your debt-to-income ratio would be 40%.

In general, your DTI must be 43% or less in order to get mortgage-approved for mortgages backed by Fannie Mae and Freddie Mac – but there are multiple exceptions.

For first-time buyers with student loans, though, using every available piece of DTI may be necessary. This is because student loans can eat into your budget and redirect they cash you’d rather be putting toward housing.

Consider that the average college student graduates with monthly debt totaling $300 per month. Add a car payment and a few credit cards, and monthly debt more than doubles to eight hundred dollars per month.

Assuming a monthly income of $4,500 and a maxing out of the allowable debt-to-income ratio, a first-time home buyer with student loans can “afford” a home for around $200,000, assuming a low-downpayment FHA mortgage.

But, student loans don’t have to be a barrier to entry. You have means to reduce your monthly student loan payments, which can help you with your home loan approval.

Student Loan Advice For First-Time Home Buyers

Per Pogol and the Mortgage Reports, one method by which to reduce your monthly student loan obligation is to switch to a graduated repayment plan on your loans.

“A graduated repayment plan is one for which the payment starts low, then rises every two years to meet the rising income of a typical college graduate. With lower monthly payments, your debt-to-income ratio is reduced, which can help you qualify for your home loan.”

Loan consolidation is another way to reduce your monthly student loan obligation.

It’s likely that your student loans are of different amounts, and at different rates of interest. By consolidating your loans, your can lump your principal balances together at, hopefully, a lower interest rate.

You can also request a lengthening of your payback period, known as your “term”.

Pogol states, “by lengthening your term to 15 years or 20 years, you can reduce the amount that you owe each month, which lowers your DTI. This will increase the long-term interest costs of your student loans, but will lower your monthly obligation.”

And, a third option doesn’t relate to student loans at all — but, rather, credit card payments and other monthly debts.

If graduated payments and student loan debt consolidation are not part of your plans, consider reducing your high-balance credit cards or any other debt which carries a high minimum monthly payment.

For example, if you have a credit card which requires a minimum monthly payment of $150, and that’s more than your other credit cards, you can reduce that card’s balance, which will reduce the monthly payment due, which helps to lower your DTI.

Mortgages For Buyers With Student Debt

As a first-time home buyer with student debt, there are a number of mortgage loan programs well-suited for your needs.

Many allow for low-downpayment and 100% financing, as well.

The FHA loan, for example, which is backed by the Federal Housing Administration (FHA), allows for a downpayment of just 3.5 percent for borrowers with a credit score of 580 or higher.

FHA loans allow debt-to-income ratios of up to 43%, but will allow higher debt-to-income ratios on a case-by-case basis .

You can also use the FHA home loan if your credit scores are below 580, but a larger downpayment of ten percent is required.

The Fannie Mae HomeReady mortgage is another loan available to borrowers with student loans. Via HomeReady, buyers can show a debt-to-income of up to 50%, with certain off-setting factors; and a down payment of just three percent is allowed.

The minimum credit score to get approved for a HomeReady™ home loan is 620.

It would be my pleasure to help the first time buyer find the right program that fits their needs ad budget!

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

Baseball Parenting the Wrong Way

April 8, 2017 / Tom Bonetto

What’s wrong with the picture above? Looks like a fun 9 or 10 year-old baseball game here in Phoenix, right?

Check out the dad behind the screen. Do I see that correctly? Is he really holding a radar gun?

I’m absolutely sickened by this image.

There are just so many things wrong here. Please pass this post on to everyone you know in the baseball community. I’ll attempt to break down just a few of the disasters here – and try not to rant too long.

The Radar Gun

First of all, with all of the things we now know about young pitchers and arm injuries, the last thing any young pitcher needs to be concerned with is radar gun velocity.

Dr. James Andrews is arguably the world’s most famous and best orthopedic surgeon, and he has saved the pitching arms of some of the greatest professional baseball players on the planet. To the right is an image of what actually takes place when doctors have to rebuild the joint and the ligament.

So when he has a request for the game he loves the most, we should be wise and listen to his request — especially at the youth and high school level.

“I think they should outlaw the radar gun,” he said. “Young pitchers, coaches, scouts and parents put so much emphasis now on throwing hard that these kids are hurting their elbows and their shoulders because they’re trying to throw 90 mph.”

The radar gun, Andrews says, is one of many injury risks at the youth and high school level in an age of baseball that is seeing more and more teenage athletes on the operating table instead of the pitching mound.

The Complete Lack of Perspective on Youth Baseball

What in the world is this dad thinking? How does measuring the velocity of a 9-year old pitcher have anything to do with what is important in a 9-year old baseball game?

Baseball is one of the most difficult games ever invented – it’s a self-esteem destroyer on it’s own. We need to be encouraging our kids at the youth level, not measuring the exit velocity of the fastball, for crying out loud.

The goal at the end of every 9 year-old baseball game is that the kid wants to come back and do it again.

I’ve got to turn it over to Steve Springer here so you can see his video on what’s important….a must watch for all baseball parents. Like Spring says, take the kid out for ice cream after the ballgame. Tell him how much you love him and how much fun you had watching him.

Also, see Brian Regan’s comedic take on youth baseball that will give you some insight on how many kids view the game.

The Singular Lack of Perspective on Pitching

Youth pitching is completely about having fun and learning to handle yourself on the mound. And that, by the way, isn’t easy. It’s also about learning proper pitching mechanics and throwing strikes. Period.

There is absolutely no way that any kid’s baseball future can be determined by how hard he throws or how effective he is when he’s 9.

With that said, there’s absolutely no way you can determine a kid’s baseball future in any way when he is 9 years of age.

The Absolute Unawareness of His Position in the Stands

Dude. Assuming that your son is the pitcher, he really needs to be concentrating on the catcher’s glove.

Not you right behind home plate holding that radar gun. I bet you give him the thumbs up when he throws a good pitch, too.

You know and I know (and I’m sure his coaches do, too) that he’s looking at you half of the time – and that’s not at all how it should be.

Secondly, you are more than likely blocking the view of other parents, grandparents, other family members, and friends at that ball game. You are taking up prime viewing real estate to get the 51 MPH reading, man. I’m also sure they are really impressed that he’s breaking 50 MPH from 46 feet.

Well, that’s what I’ve got for now – I can’t take this much longer. Please, please parents, encourage your youngsters. They need someone there for them after they fail – and they will in this game. Again, I ask that you share this post with anyone you know in the baseball community – let’s make sure we are encouraging and protecting our young players and pitchers.

Solve These 3 Problems And Improve Your Credit Score Fast

April 3, 2017 / Tom Bonetto

There are several ways to improve an ugly credit score, and some work fairly quickly. The methods you use depend on the reasons behind the FICO score itself.

Source: Solve These 3 Problems And Improve Your Credit Score Fast | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

One of the biggest concerns of buyers entering into the purchase of a home, is whether their credit score will have a negative effect on their ability to secure a good loan. Ugly credit scores can feel debilitating.

It is important for realtors and loan originators to know how to coach buyers through methods that will improve their score in a relatively short period, enabling them to move forward in their new home purchase.

Low FICO score? Is it because they don’t have much credit?

In some cases, one of the reasons buyers don’t have a high FICO score is that they simply don’t have much of a history. This is a completely different scenario from having a bad history! Lenders are able to pull both non-traditional and manual credit reports to check things like utility payments, rent-to-own agreements, leases and personal loans to provide evidence of good financial management. A low credit score does not need to be a deterrent if your buyer has been financially responsible.

If your buyer needs some quick fixes to a limited credit history, consider advising them to do the following:

Use a newly acquired credit card for small purchases and pay it off on time, in full, every month.
Piggy back on a relative’s good credit by becoming an authorized user of their credit card and get their card added to your history. (Hint: You do not have to actually use the card to get this benefit!)

Re-establishing Credit

Time is a healer of many things, but for the purpose of this report, it is a healer of bad credit. If your buyer has some baggage in their credit history (missed payments, bankruptcies, repossession), keep them focused on the most recent infractions. What has happened in the last 12 calendar months is the most important and can actually be used to compensate for mistakes made in years past. For example, the FHA is happy when buyers can show a 12-month on time payment history.

Likewise, using credit too often is a red flag, especially when the spending exceeds the ability to pay. Buyers should be careful in the months before applying for a loan, not to use too much of their available credit. Debt management plans may need to be put in place in the early stages of looking for a home so that when it comes time to lock a loan, your buyer can get the best deal for them.

If those of us in the business of helping buyers to find the home of their dreams, can offer some of these tips, the home buying experience will continue to improve.

Feel free to call, text, or email anytime, as it would be my pleasure to help!

Adjustable Rate Mortgages in Today’s Environment

March 13, 2017 / Tom Bonetto

Adjustable rate mortgages (ARMs) are becoming more attractive as home prices rise and fixed interest rates increase.

Buyers can now look to save money with an adjustable rate home loan, as the purchase landscape is now starting to change a bit. These types of mortgage will continue to become more attractive with tighter inventories and monetary policy.

Fixed Rates Are On The Move

The mortgage world has been enjoying the benefits of low interest rates for quite some time. As rates are expected to rise in the immediate future, it is important for realtors and lenders to be knowledgeable about the products available for our customers that will still enable them to get into a home they love.

Source: How ARM Rates Work: 3/1, 5/1, 7/1 And 10/1 Mortgages | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

ARMS Can Open Doors

As rates climb, the adjustable rate mortgage is more important than ever. Often this product is misunderstood, so knowing exactly how ARMS work, and when they can actually benefit your client, is important. The right ARM can actually increase the buyers qualified amount. Lower rate ARMS often allow buyers to qualify for a bigger loan.

Realtors should choose lenders that are able to articulate the benefits of different products to their clients. If clients are educated about their purchasing power, they have a better chance of finding a home mortgage that helps them to achieve their goals.

Educating Your Buyer Increases Their Purchasing Power

Because ARMS work differently than a fixed rate loan, realtors and lenders should work together to help buyers navigate the benefits that come with an ARM’s low interest rate. The borrower must also be educated as to what happens to the rate as the loan matures. Keep in mind that in a rising rate environment, an ARM can be a very smart move. If your buyer hits the cap and the rate continues to climb, they are in the advantage.

Let’s Talk

If you are interested, please do reach out to talk in further detail about the mortgage products and how to expand your market base. I look forward to partnering with agents ready to take on the challenge of the change in interest rates, by offering products tailored to today’s economy.

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

6 Ways Mortgage Shoppers Are Saving On Closing Costs

March 6, 2017 / Tom Bonetto

It is not uncommon for buyers to find the perfect home right at the top of the their budget. While it is our job as realtors and lenders to always find the most competitive rates, these clients need our expertise more than most.

If getting into a home is contingent on affordable closing costs, there are things that can be done to make this process less stressful.

Source: 6 Ways Mortgage Shoppers Are Saving On Closing Costs | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

Lower Your Closing Cost Bill

Depending on the loan amount and the location of the home, loan applicants can pay anywhere from 3% up to about 6% of their home price, in closing costs. While some costs associated with the location of the property cannot be controlled, other steps can be taken to cut costs incurred by the buyer.

Closing costs can accumulate rather quickly as lenders pay for credit reports, attorney services, title services and more.

Those costs are covered by either the borrower, the seller, the lender, or a combination of the three.

It is important to understand what motivates a lender or a seller to cover these costs, as you strategize with your buyers.

Be Aware of the Other Costs that come with a Mortgage Loan

In addition to standard closing costs, buyers should be made aware of other fees associated with a mortgage loan.

Getting buyers ready to hear terms like prepaid interest, homeowner’s insurance, property taxes, escrow deposit for taxes and insurance, and loan discount points, will help the process not seem so daunting, especially to a first time buyer

What Are a Buyer’s Options?

While most people evaluate loans by rate shopping, that is not always the most effective way to choose a loan.

Buyers should know how to compare lender’s charges, and should understand how to avoid paying too many points on a loan.

When possible, advise buyers to close near the end of the month to help save on prepaid interest.

For some buyers, choosing to buy up the interest rate, and not buy it down with loan discount points, can motivate a lender to pay a part or all the closing costs.

Finally, it is always an option to ask a motivated seller to help with closing costs.

Understanding the costs associated with a loan is important for all the parties involved, as a good deal for a buyer benefits all of us.

Please schedule a time to talk if you are interested in more ways to qualify your buyers. I look forward to getting your clients into the home of their dreams.

The Lending Coach