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The Mortgage Pre-Qualification | What’s Needed…and Why All The Paperwork?

April 29, 2024 / Tom Bonetto

So, you are thinking about buying a house? Good for you!! Now, let’s get to work on a mortgage pre-qualification.

Many potential home buyers begin looking at homes without understanding the steps involved prior to engaging a Real Estate Professional. It’s essentially a matter of making sure the horse is in front of the cart!

Being prepared with the documents needed for mortgage pre-qualification will help make the process go more smoothly and quickly. Here’s what you will need to provide…

When buying a property, getting pre-qualified is a crucial step in the process of getting a mortgage. Before you can get there, though, your lender will need to review and verify information about your assets, income, and credit.

Standard Buyers

For borrowers who are regular employees (hourly or salaried) and are not self-employed here’s what your lender will need:

Pay stubs from at least the past 30 days
Tax returns (including W-2s) from the past two years
Bank statements from the past two months to three months – checking, savings, money market accounts
Employment information – contact information of employers in the past two years (some employers have an employment verification phone number lenders can call)
Other income sources – bonuses, child and/or spousal support, disability or VA benefits, pension, Social Security or other sources
Account statements from the past two months to three months – 401(k)s and/or IRAs, CDs, mutual funds or other investment or retirement vehicles
Driver’s license, Social Security card or other form of ID
2 years of residential history
Down payment gift letter, if applicable

A few caveats…if you are planning on using part-time employment income to qualify, you will need to have had that job for 2+ years.

Secondly, if you are commissioned or are using bonus income for qualification purposes, you will need to show a 2 year history of receiving those.

Self Employed Borrowers

If you are considered self-employed (or a 25% or more owner of any company from which you derive income), here’s what else will be required, in addition to the list above:

2 years Federal tax returns, business and personal
Year-to-date profit and loss
Copy of business license

A few other consideration for self-employed borrowers…lenders will require that you’ve been in business for yourself for 2 years, minimum.

Also, qualification income will be based on net profit from your tax returns, not gross sales receipts.

Investment Property/2^nd Home Buyers

If you already own a home and are looking to purchase an investment property, your lender will require a few more things:

Schedule of Real Estate Owned – information about the home’s value, occupancy status and purpose, as well as the property’s monthly expenses. You will also need to provide information about your current mortgage, including the lender’s name and account number, loan type, monthly payment amount, outstanding balance and credit limit.
The Schedule E from your 1040 tax return that shows owned properties that are currently rented.
Any investment properties that do not show on your Schedule E will require a copy of the lease of that property.
If you are moving to a new primary residence and will be leasing the home you are in now, the lender will require a signed lease agreement AND a copy of the deposited first month’s rent and security deposit.

Why So Much Documentation?

In today’s regulatory environment, the paperwork requirements can seem quite intrusive.

It seems like they need to know everything about you, including your blood type!

Many of today’s buyers are told by friends and family that the process was much, much easier when they bought their home ten to twenty years ago…and they were right!

There is one main reason that the loan process is much more burdensome for today’s buyer than in prior years…

It’s that the federal government has set new guidelines that now demand that lenders prove beyond a doubt that borrowers are capable of paying the mortgage regularly.

During the run-up to the housing crisis years ago, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home, so new protections were put in place to make sure this can’t happen again.

In Conclusion

Although the process can be cumbersome, if you partner with the right lender, things should work out just fine. Do reach out to me, as it would be my pleasure to be your “Lending Coach” through the purchase process.

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

Why Mortgage Rates Are Staying Stubbornly High…and What Does The Future Hold?

April 22, 2024 / Tom Bonetto

Mortgage interest rates are staying higher than initially anticipated, due to the staying power of inflation today.

Inflation is a terrible thing for prosperous, economic growth…and it significantly impacts mortgage rates for the worst.

Today, we are seeing the impact of stubbornly sticky inflation in the mortgage marketplace – and relief doesn’t appear to be coming in the near term.

The most recent inflation data showed prices rising by 3.5% year-over-year in March, which exceeds the Federal Reserve’s 2% target.

Why Does This Happen?

Rising inflation shrinks buying power as prices of goods and services increase. Higher prices can then influence the Federal Reserve’s interest rate policy, affecting the cost of borrowing for lending products like mortgages.

inflation erodes the purchasing power of money over time. As the cost of living rises, the value of each dollar decreases, leading to a decline in the real value of mortgage payments. Hence, mortgage lenders must charge more in interest to make the same profit.

Then, as inflation cools, mortgage interest rates can be expected to ease as well.

The Federal Reserve and the 10-Year Treasury Note

When inflation rises, the Federal Reserve banks has respond by tightening monetary policy to control inflationary pressures. This involves raising the federal funds rates to reduce borrowing and spending, thereby slowing down economic growth and inflation.

At this point, this strategy hasn’t worked nearly as well as expected.

More importantly, the Federal Reserve does not set mortgage rates. Instead, the central bank sets the federal funds rate target, the interest rate that banks lend money to one another overnight. A Fed increase in this short-term interest rate often pushes up long-term interest rates for U.S. Treasuries.

Fixed-rate mortgages are tied to the yield on 10-year U.S. Treasury notes, which are government-issued bonds that mature in a decade. When the 10-year Treasury yield increases, the 30-year mortgage rate tends to do the same.

Short Term Outlook

The average mortgage rate for a 30-year fixed is 7.12%, nearly double its 3.22% level in early 2022.

“There is some optimism for rate cuts, however, we were forecasting three to four rate cuts in 2024 at the beginning of the year, and it now is unlikely. People are now adjusting those expectations down to two,” says Ali Nassirian, vice president of consumer & home lending at Travis Credit Union.

“Looking at the current data, there’s roughly a 50% chance we’ll see a rate cut in June,” Nassirian adds.

As little as two weeks ago, there was generally a greater optimism that the Fed would start rate cuts in June. However, that now seems to many like a hopeful start date.

There’s also a good chance that mortgage rates will remain relatively unchanged for the remainder of 2024.

“I don’t see a rate cut at the next Fed meeting. I think June would be the soonest cut we see. Even if they cut rates two or three times this year, I don’t think we will see many moves in the mortgage market from those,” says Brian Durham, vice president of risk management and managing broker at Realty Group LLC.

“The things that will have a bigger impact on the mortgage markets will be things like the Fed’s quantitative tightening policy, job numbers, and other inflationary or deflationary variables like the cost of oil,” Durham adds.

You can find out more here from Jake Safane at MoneyWatch…

In Conclusion

Mortgage rate forecasts vary depending on the expert you ask, but the overall consensus seems to be that there won’t be significant decreases in the near future. With that said, conditions can change, as recent expectations of rate cuts so far in 2024 have not come to to pass.

It’s actually possible that we’ll even see mortgage interest rates rise if inflation persists.

So, some buyers might prefer to act now, rather than waiting for however long it might take for mortgage rates to become more favorable, if at all.

Please do reach out to me to discuss how to make the best mortgage and purchasing decisions in today’s environment.

Dave Ramsey | Spot-On Regarding Housing

April 8, 2024 / Tom Bonetto

Many know Dave Ramsey from his radio show and his w ebsite where he offers some of the best financial advice around.

Recently, he took a bit of a ‘victory lap’ regarding his real estate market predictions.

Relatively steady home prices, despite higher interest rates, seem to have vindicated Ramsey’s bet. “You were wrong!” he said of his critics, adding, “I freaking know what I’m talking about.”

No Housing “Bubble” – Appreciation to Continue

When the Federal Reserve started raising interest rates in 2022, many were concerned that higher borrowing costs would reduce home sales and prices.

However, Ramsey claims he was skeptical of these concerns and was instead expecting home prices to remain steady or rise modestly. His thesis was based on simple supply-demand dynamics.

“When there is a shortage of an item … prices go up,” he said. “That’s basic economics.”

This theory seems to be vindicated by a report from the National Association of Realtors. Home prices climbed 5.7% over the past year as of February, with the median American home being worth $384,500.

Dave’s Latest Prediction

“Prices will go up,” Ramsey predicts. “This is what’s happening with real estate. I promise you, you can look up this [episode] five years from now and you’re going to go ‘god, that old fart was right again.’”

As for interest rates, Ramsey doesn’t make a firm prediction but advises buyers to focus on prices instead and refinance when borrowing rates go down.

“Marry the house, date the rate,” he said.

Who Is Dave Ramsey

Ramsey also makes efforts to educate people on the ways of using monetary resources judiciously, through his ‘F inancial Peace University,’ speaking in churches and community centers.

Ramsey advises everyone to follow his prime mantra, “Avoid debt at all costs.”

Dave’s 7 “Baby Steps”

One of Dave Ramsey’s financial literacy campaigns features seven “baby steps” that individuals and households should pursue in order to gain financial freedom. Each step should proceed when the previous one has been completed or is near completion. These include:

Establish an emergency savings fund of at least $1,000
Pay off all non-housing debts ASAP starting with those with the smallest outstanding balances (known as the debt snowball method)
Increase your emergency fund to 3-6 months’ income
Invest 15% or more of your gross monthly income into a retirement account like a 401(k) or IRA
Start college funds (if you have children) in qualified accounts like 592 plans and ESAs
Pay off your mortgage as early as possible
Build wealth

In Conclusion

If buyers are waiting to purchase thinking that home prices are going to move lower, that is most likely a bad idea. Instead, Ma rry the House but Date the Rate – purchase today and gain appreciation and refinance later if rates go down. Reach out to me for more, as it would be my pleasure to put a home-purchase plan in place!

Special Round-Table Podcast | The State of Today’s Real Estate Market

March 18, 2024 / Tom Bonetto

I was invited to join a panel of industry experts and discuss the state of today’s real estate market.

We discuss the industry challenges, mortgage rates, and have some thoughts about what might happen in the future, as well.

Here’s the link:

Do check it out, as I think you will gain a few insights and enjoy it!

Owning vs. Renting | The Hard Facts

March 4, 2024 / Tom Bonetto

Imagine turning your monthly expenses into a growing investment, something that could multiply your net worth exponentially.

Not a lot of people know this, but the average homeowner’s net worth is 40 times that of a renter.

Owning a home offers numerous advantages over renting, making it a seriously smarter long-term financial decision for many.

Building Equity

Firstly, homeownership builds equity, whereas renting does not. Each mortgage payment contributes to ownership of the property, gradually increasing the homeowner’s stake in the home.

Over time, this equity can be leveraged for various purposes, such as home improvements, education expenses, or retirement funding.

In contrast, renting provides no return on investment, with monthly payments essentially going towards the landlord’s profit.

Stability and Security

Secondly, owning a home provides homeowners with fantastic stability and security.

Renters, on the other hand, are subject to the whims of landlords and rental market fluctuations, with the risk of rent increases, lease terminations, or changes in rental terms.

Homeownership offers predictability and control over housing costs, particularly with a fixed-rate mortgage where monthly payments remain constant over the loan term.

Furthermore, homeownership helps people to establish roots within a community and create a space that reflects their personal preferences and lifestyle.

Tax Benefits

Another serious advantage of owning a home is the potential for tax benefits.

Homeowners can deduct mortgage interest, property taxes, and certain home-related expenses from their taxable income, reducing their overall tax burden.

Renters do not enjoy these tax advantages, missing out on opportunities to reduce their tax liabilities through housing-related deductions.

Building Long-Term Wealth

Finally, homeownership provides a unique pathway to long-term wealth accumulation and financial security. As mentioned earlier, the average homeowner’s net worth is 40 times that of a renter!

Real estate historically appreciates in value over time, building equity and wealth for homeowners. More on that here…

For example, Case-Shiller recently reported that home prices rose 5.5% last year, with national home values 46% higher since 2019! And prices are forecasted to rise this year due to ongoing high demand and tight supply.

In contrast, renting does not offer the opportunity to build wealth through property appreciation, leaving renters without a tangible asset to show for their housing expenses.

In Conclusion

Switching from renter to homeowner is simpler than you might think. It’s a strategic move towards securing your financial future, as owning a home offers numerous advantages over renting!

Do reach out to me for more, as it would be my pleasure to help you put together a plan to become a homeowner as well as long-term wealth-building strategy.

The Lending Coach

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