Category: Mortgage (Page 43 of 60)

The Top 7 First-Time Homebuyer Mistakes

November 27, 2017 / Tom Bonetto

Not Knowing Your Credit Score

The importance of your credit score in the mortgage process is super important. In most cases, this distinction will draw the line between owning a house and renting one.

Even if you have a near perfect sense of financial responsibility today, your credit past can come back to bite you. You will have a hard time getting a home loan if your recent record shows problems with on-time payments, or if there’s an error in your credit report.

It’s truly best to perform a credit check with your chosen lender before you move forward.

If you go ahead and apply for a mortgage without checking your credit score, you could end up doing a lot of searching for nothing and/or paying a lot more than you expected.

Not Obtaining Mortgage Pre-Qualification

Some people are anxious to shop for a house and want to do it quickly, before they are financially able to afford it.

If you have already started talking to sellers before sitting down with your mortgage lender, you are making a mistake. In fact, not many sellers will want to work with you if you promise them a certain amount and then can’t fulfill that promise.

To avoid any disappointments, it’s wise to have your home loan pre-approved first, then go ahead and look for a house to buy.

Failing to Budget for a Home Loan

As most people know, home ownership is almost always a cheaper alternative to renting in the long run. There are just so many benefits of owning a home, from historical appreciation to the tax benefits. With that said, in the beginning, it can be a bit pricier.

Therefore, it is important to budget for a home loan, beforehand. You need to determine whether your income can accommodate this expense or not.

If you find yourself unable to afford making monthly payments on your home loan, it would be a mistake to try to own a house at this time.

Overlooking the Home Resale Value

Remember, this home you are purchasing is considered an asset, and real estate has historically appreciated over time.

You should never overlook the resale value of the home you intend to purchase.

What you need to do is to ask yourself several questions such as: Will it be easy to sell this house? Might I be able to keep it and rent it if I want to upgrade later? Will this house appreciate over time if I decide to buy another one? Is it situated in a preferred neighborhood?

Settling on a Verbal Agreement

Many first time buyers can be a little too trusting. Just because you met the sellers and/or their agent and came to a verbal understanding does not mean a deal is in place. Misunderstandings are guaranteed to happen when agreements are made verbally.

With that said, make sure that you and the seller get everything down in writing to avoid future miscommunications and utilize a standard contract.

This way, you will have the legal high-ground should the seller fail to keep their word.

Indecision

As much as it is unwise to rush into making a purchase, it is equally imprudent to take too long to decide if a particular property is right for you.

If you take too long to make a decision, another homebuyer will take advantage of your indecisiveness and buy that home that you’ve had your eye on, but didn’t make an offer.

Since market trends change from time to time, you could also find out that the house you took too long to buy has a new (and higher) price tag attached to it.

Forgetting the Costs Associated with Owning a Home

Remember, a home requires money to maintain. Its important to know that upkeep and maintenance costs don’t end on the day you finish your last mortgage payment.

It’s important that you prepare for other costs for maintaining a safe, comfortable, and secure home.

Also, there are other ancillary costs to plan for – such as association fees, insurance, taxes, utilities, maintenance and major/minor repairs, etc.

So, If you can avoid these pitfalls commonly made by first-time buyers, the home buying journey will be much, much easier and enjoyable. Don’t hesitate to reach out to me for help, as I’ve helped countless first time buyers navigate this process!

Photo Credit: Cafe Credit via Flickr, under the Creative Commons License

Right Now Is A Bad Time To Be A Renter

November 13, 2017 / Tom Bonetto

I know this isn’t great news if you are not a homeowner, but this might be the worst time to be renting in the last 40 years.

The average monthly cost of rent nationwide takes up over 35% percent of American income, the highest cost burden recorded since the late 1970s.

As a matter of fact, the number of renters dedicating at least half of their income toward housing hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University.

2015 and 2016 saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people — or about 36% of households.

Unfortunately, there’s still more bad news. Apartment vacancy rates have dropped so low that forecasters are predicting that rents could rise, on average, 4 to 6 percent this year. Interestingly, rents are rising faster than that in many metro areas even as overall inflation is running at little less than 2% annually.

The nationwide problem threatens to get worse before it gets better. Apartment builders are building more units, potentially creating supply that is beginning to crest. With that said, demand still exceeds the supply, especially for affordable housing.

The Solution

One of the great underlying opportunities here is that buying a home is considerably cheaper than renting. Renters interested in reducing expenses and collecting tax benefits should absolutely talk to a mortgage lender prior to signing that rental contract.

Mortgage underwriting guidelines have been slowly loosening and those that were denied for a mortgage last year may qualify this year.

At the very least, your mortgage lender can provide the guidance needed to make this your last year as a tenant. Whether your issue be credit score, how your income is calculated, student loan debt or other debt-to-income ratio issues, your lender can layout a roadmap for you to follow.

Here is a link for Advice for First Time Home Buyers. Read it over when you have a minute and see what’s in store!

Stick to the plan, the road-map, they provide and chances are you will be a homeowner by 2018. Your actions and commitment right now might just save you thousands every year.

The New Refinance Movement

November 12, 2017 / Tom Bonetto

Tapping into home equity by refinancing is more of a possibility today and becoming very popular for many borrowers.

As housing values across the country continue to steadily increase, homeowners now have access to a much larger source of equity.

With current mortgage rates low and home equity on the rise, many think it’s a perfect time to refinance your mortgage to save not only on your overall monthly payments, but your overall interest costs as well.

It’s really about managing the overall assets that you have in order to maximize the returns. Make sure you are working with the right mortgage lender to help in figuring out which product is best.

Cash-out refinance – what is it?

A mortgage refinance happens when the homeowner gets a new loan to replace the current mortgage. A cash-out refinance happens when the borrower refinances for more than the amount owed on their existing home loan. The borrower takes the difference in cash.

Home Equity is on the Rise

Since rising home values are returning lost equity to many homeowners, refinancing can make a good deal of sense with even a small difference in your interest rate. Homeowners now have options to do many things with the difference.

More home equity also means you won’t need to bring cash to the table to refinance. Furthermore, interest rates can be slightly lower when your loan-to-value ratio drops below 80 percent.

Here’s what many of my customers are doing with that equity:

Purchase a 2^nd Home or Investment Property (or a combination of both)
Home Improvement – upgrades to kitchen, roof, or pool
Consolidate higher interest debt
Eliminate Mortgage Insurance

Benefits of Cash-out Refinances

Free Up Cash – A cash-out refi is a way to access money you already have in an illiquid asset to pay off big bills such as college tuition, medical expenses, new business funding or home improvements. It often comes at a more attractive interest rate than those on unsecured personal loans, student loans or credit cards.

2^nd Home or Investment Property – many borrowers are utilizing the value of the cash in their home to purchase rental properties that cash flow better then the monthly payments of the new loan.

Improve your debt profile – Using a refinance to reduce or consolidate credit card debt is also a great reason for a cash-out refinance. We can look at the weighted average interest rate on a borrower’s credit cards and other liabilities to determine whether moving the debt to a mortgage will get them a lower rate. Some borrowers are saving thousands per month by consolidating their debt through their mortgage.

More stable rate – Many borrowers choose to do a cash-out refinance for home improvement projects because they want a steady interest rate instead of an adjustable rate that comes with home equity lines of credit, or HELOCs.

Tax deductions – Unlike credit card interest, mortgage interest payments are tax deductible. That means a cash-out refinance could reduce your taxable income and land you a bigger tax refund.

Reasons NOT to Refinance

Terms and costs – While you may get a lower interest rate than your current mortgage, your cash-out refi rate will be higher than a regular rate-and-term refinance at market rate. Even if your credit score is 800, you will pay a little bit more, usually an eighth of a percentage point higher, than a purchase mortgage. Generally, closing costs are added to the balance of the new loan, as well.

Paperwork headache – Borrowers need to gather many of the same documents they did when they first got their home loan. Lenders will generally require the past 2 years of tax returns, past 2 years of W-2 forms, 30 days’ worth of pay stubs, and possibly more, depending on your situation.

Enabling bad habits – If you’re doing a cash-out refinance to pay off credit card debt, you’re freeing up your credit limit. Avoid falling back into bad habits and running up your cards again.

The Bottom Line

A cash-out refinance can make sense if you can get a good interest rate on the new loan and have a good use for the money. But seeking a refinance to fund vacations or a new car isn’t a good idea, because you’ll have little to no return on your money.

On the other hand, using the money to purchase a rental property, fund a home renovation or consolidate debt can rebuild the equity you’re taking out or help you get in a better financial position. It would be my pleasure to see if this type of plan might be a good one for you.

Just remember that you’re using your home as collateral for a cash-out refinance — so it’s important to make payments on your new loan on time and in full.

Conquering Credit Trouble – A Case Study

November 7, 2017 / Tom Bonetto

There are some that are able to pay cash for a new home with savings or inheritance.

For the most of us, however, we need a mortgage to buy a home. The qualification process isn’t that intuitive (work with a reputable mortgage lender for that type of help) and qualification requires adequate income and a solid credit profile.

A few investors will approve borrowers with sub par credit, but there’s a limit to low they’re willing to go.

If you’ve been turned down for a mortgage due to credit problems, here’s some good news: You can make your credit better, and faster than you might think!

I’m linking here to an article from NerdWallet – and I highly recommend that you take a look!

The author spoke to three consumers who had credit problems, did their research and made their calls – and then were able to successfully buy homes. Here’s one of those success stories….

Credit Report Cleanup

At the beginning of the year, this potential borrower’s credit score was 535 and had more than $20,000 of debt. On top of that, he had multiple 3 of his accounts were delinquent accounts. The consumer had to stop the collectors and find a way out of debt.

First Step – CHECKING CREDIT

First off, the consumer made a plan. He visited annualcreditreport.com and collected his credit reports from all three bureaus. He then outlined each debt, the date each account went delinquent and the date the last payment had been made, his account numbers, the collection notices and any other pertinent details.

Second Step – VERIFYING DEBTS

Unfortunately, the cutomer hadn’t kept great records, but he saw some debts on his credit report that he didn’t recognize. So he took action.

“Next, I challenged every single item, ensuring that each collector could verify the debt and had the proper paperwork to validate their collection efforts,” he says. “This resulted in four or five items being dropped.”

Third Step – NEGOTIATING BALANCES

His next step was to reduce each verified debt. “I went bottom-up, calling each debt collector starting with the lowest value, making offers by telling them exactly how much I could budget as an offer to settle,” he says. He also asked each if it would remove the delinquent account from his credit report entirely. He says it’s not common for creditors to do this, but some did.

“Across the board, I settled for less than half of what I owed in every case,” he says.

Fourth Step – TRANSFORMING CREDIT

Last, the consumer began restoring his credit. He was taking college courses on a tuition reimbursement program, but he applied for a student loan anyway.

This helped him establish enough credit to qualify for a basic credit card.

He also began monitoring his score monthly and stuck to smart financial habits, such as paying his bills on time. About a year later, his credit score hit 640 — the minimum required for him to get an FHA loan at the time.

Just 26 months after beginning his efforts, his credit score skyrocketed from 535 to 733. Nowadays, it hovers around 800.

His words….“Through disputing, negotiatingg, settling and rebuilding, I was able to go from needing a large deposit for an apartment to buying a home of my own,”

“As rent continues to rise, this investment has paid off several times over, and I have built equity in the house itself. I couldn’t have done this without learning how to [restore] my credit.”

Conclusion

This borrower’s story can be of great hope to those who are intent on home ownership. As you can see, it took time and effort, but it really paid off for this particular buyer.

It would be my pleasure to help you through this process in and into a new home, as well!

Photo Credit: Cafe Credit via Flickr, under the Creative Commons License

The Mortgage Lenders That Are Changing Home Buying

October 30, 2017 / Tom Bonetto

If you’re looking for a mortgage, there’s one less reason to walk into a bank these days.

Alternative mortgage lenders — non-bank companies without customer deposits — have been transforming the mortgage industry.

The buyer-focused lender’s goal is to offer rate transparency, multiple options, and help coach the buyer through the home loan process quickly and efficiently.

Source: Nerdwallet and Hal Bundrick

The biggest banks, once major players in the $1.5 trillion mortgage industry, have backed away from a large portion of the business, citing low profit margins and high legal risks. It’s a result of the enhanced regulatory environment that followed the 2008 housing meltdown.

A number of new players jumped into the void — alternative lenders testing new business models and leveraging technology to improve the process of getting a home loan or refinance.

Online mortgage lenders seek to shorten the home loan process.
Marketplaces and brokers assist potential borrowers shopping for mortgages and the best interest rates
Non-bank lenders offer solutions to credit-challenged consumers.

Interestingly, the structure and capabilities of these alternative lenders vary widely.

Next Generation Mortgage Lenders Streamline the Process

Alternative lenders, for example, are online mortgage originators – and they are becoming more of a force in the industry. These next generation lenders strip away layers of delays built into the old system by using automated loan-decision algorithms, electronic document gathering and secure online communications.

The good lenders with an online presence offer another twist on the process. Some companies provide a concierge service, with advisors guiding you through the home loan selection process. It’s more of a hands-on process, in which the broker works closely with you and the lender to complete your loan package.

The most successful lenders also help teach and guide the borrower through the complex waters of the process.

Non-bank Alternative Lenders Can Actually Help Those with Less-than-Perfect Credit

In some ways, the mortgage industry is coming full circle, back to where it started. Wells Fargo, JPMorgan Chase, Bank of America and other huge lenders — battered by Justice Department fines, federal lawsuits and growing regulation as a result of the housing crisis — are shying away from mortgage lending, especially FHA loans, which have long catered to first-time homebuyers and borrowers with lower credit scores.

As more of the large, national banks move to lending only to the most-qualified borrowers, community home lenders are filling the void.

Non-bank lenders are much like the original mortgage bankers; many are locally owned and family-run businesses serving their hometowns. These smaller lenders often face fewer federal regulations and still welcome borrowers with less-than-perfect credit, and they have bolstered the FHA-backed lending that big banks have been avoiding.

You have more mortgage options than ever

Alternative mortgage lenders now account for almost half (45%) of all home loans, according to the Federal Reserve — the largest share in 20 years. These originators are transforming the mortgage loan process with faster approvals plus online application and document processing, and they are powering a more competitive market.

Choosing whether to go with a big bank or a direct lender is a personal choice, based on your comfort and familiarity with the home loan process and how much guidance and advice you prefer.

But it’s empowering to know that when it comes to financing a home, you have more options than ever. It would be my pleasure to help you when the time is right!