Why You Should Still Talk to a Lender Even If You’re Not Ready to Buy a Home

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If you’re a first-time home buyer, you might think you’re not ready to purchase a house. Perhaps you’re concerned about your job situation, your previous credit history, or your high monthly expenses. Whatever the circumstances, every borrower and financial situation is unique.

Unless you’re a financial expert, it’s best not to self-diagnose your financial problems. You wouldn’t skip out on the dentist to fill your own cavities, so don’t try to solve your financial troubles yourself either. A loan officer can walk you through your options—and they won’t try to drill your teeth!

When you apply for home loans, mortgage loan officers look at your credit score, credit history, monthly liabilities, income, and assets. These officers see the entire financial picture, not just the investable funds. A reputable loan officer with experience can get you on the right track for buying a home.

Here are three common reasons people don’t want to apply for a mortgage and what you should do if you’re really serious about buying a home.

A less-than-ideal credit report

The reality is that mortgage companies are required to pull a copy of your credit report, which includes scores from all three credit reporting bureaus. Your credit report is the most accurate representation of your credit available. Don’t let your messy credit report keep you from talking to a lender. After looking at your credit report, the lender can actually tell you what debts are the biggest drain on your borrowing power so you can start making smart financial decisions to improve your score.

Not enough income

Let the mortgage company review your pay stubs, W-2s, and tax returns for the last two years. If you were self-employed, let the loan officer look at your tax returns and evaluate your credit to determine what down payment you can afford and what you can buy. The lender can give you an idea of what you need to do to qualify, including how much more money you need to make to offset a proposed mortgage payment. With an action plan and a strategy in place, it may just take you a matter of months to button up your financial picture to qualify.

Too much debt

Debt and liabilities definitely impact spending power. Every dollar of debt you have requires two dollars of income to offset it. So for example, if you have a car loan that’s $500 a month, you will need $1,000 a month of income to offset that monthly liability. If more than 15% of your income currently goes toward consumer debt, you’ll have to either pay off debt or get more income—perhaps via a cosigner—to qualify for mortgage financing. Again, let the lender look at your financial picture so they can tell you what it takes to make it work.

If you’re planning to buy a house in the future but aren’t financially ready, talk to a professional. Meet with them face-to-face, provide them with all of your financial documentation, let them run a copy of your credit report, and go through a pre-home buying consultation so they can either pre-approve you or tell you what to do to become pre-approved in the future.

Many times, potential buyers are not ready, but having a conversation with a professional—so you know where you stand and where you are going—can be tremendously beneficial. You can also take a look at your financial health with a free credit report from Credit.com.

 

Posted on realtor.com

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The Mortgage Process: What You Need to Know [INFOGRAPHIC]

Some Highlights:

  • Many buyers are purchasing a home with a down payment as little as 3%.
  • You may already qualify for a loan, even if you don’t have perfect credit.
  • Take advantage of the knowledge of your local professionals who are there to help you determine how much you can afford.

Posted by The KCM Crew

More Than Half of All Buyers Are Surprised by Closing Costs

According to a survey conducted by ClosingCorp, over half of all homebuyers are surprised by the closing costs required to obtain their mortgage.

After surveying 1,000 first-time and repeat homebuyers, the results revealed that 17% of homebuyers were surprised that closing costs were required at all, while another 35% were stunned by how much higher the fees were than expected.

“Homebuyers reported being most surprised by mortgage insurance, followed by bank fees and points, taxes, title insurance and appraisal fees.”

Bankrate.com gathered closing cost data from lenders in every state and Washington, D.C. in order to share the average costs in each state. The map below was created using the closing costs on a $200,000 mortgage with a 20% down payment.

Keep in mind that if you are in the market for a home above this price range, your costs could be significantly greater. According to Freddie Mac,

“Closing costs are typically between 2 and 5% of your purchase price.”

More Than Half of All Buyers Are Surprised by Closing Costs

More Than Half of All Buyers Are Surprised by Closing Costs | MyKCM

According to a survey conducted by ClosingCorp, over half of all homebuyers are surprised by the closing costs required to obtain their mortgage.

After surveying 1,000 first-time and repeat homebuyers, the results revealed that 17% of homebuyers were surprised that closing costs were required at all, while another 35% were stunned by how much higher the fees were than expected.

“Homebuyers reported being most surprised by mortgage insurance, followed by bank fees and points, taxes, title insurance and appraisal fees.”

Bankrate.com gathered closing cost data from lenders in every state and Washington, D.C. in order to share the average costs in each state. The map below was created using the closing costs on a $200,000 mortgage with a 20% down payment.

More Than Half of All Buyers Are Surprised by Closing Costs | MyKCM

Keep in mind that if you are in the market for a home above this price range, your costs could be significantly greater. According to Freddie Mac,

“Closing costs are typically between 2 and 5% of your purchase price.”

Bottom Line

Speak with your lender and agent early and often to determine how much you’ll be responsible for at closing. Finding out that you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.

Posted by The KCM Crew

Don’t Disqualify Yourself… 52% Of Approved Loans Have A FICO® Score Under 750

The results of countless studies have shown that potential home buyers, and even current homeowners, have an inflated view of what is really required to qualify for a mortgage in today’s market.

One such study by the Wharton School of Business at the University of Pennsylvania revealed that many millennials have not yet considered purchasing homes simply because they don’t believe they can qualify for a mortgage.

A recent article about millennials by Realtor.com explained that:

About 72% of aspiring millennial buyers said they’re waiting because they can’t afford to buy…

The article also explained that 29% of millennials believe their credit scores are too low to buy. The problem here is the fact that they think they will be denied a mortgage is keeping them from even attempting to apply.

Ellie Mae’s Vice President Jonas Moe encouraged buyers to know their options before assuming that they won’t qualify for a mortgage:

“Many potential home buyers are ‘disqualifying’ themselves. You don’t need a 750 FICO® Score and a 20% down payment to buy.”

So, what credit score is necessary?

Below is a breakdown of the FICO® Score distribution of all closed (approved) loans in July from Ellie Mae’s latest Origination Report.

Over 52% of all approved loans had a FICO® Score under 750. Many potential home buyers believe that they need a score over 780 to qualify.

Bottom Line

If owning a home of your own has always been your dream and you are ready and willing to buy, or if you are a homeowner who wants to move up, find out if you are able to! Meet with a local real estate professional who can help you determine if your dreams can become a reality sooner than you thought!

Posted by The KCM Crew

Get All the Facts about PMI

When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase a home with a down payment below 20%, you can never have too much information about Private Mortgage Insurance (PMI).

What is PMI?

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 6%, while repeat buyers put down 14% (no doubt aided by the sale of their home). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and to help you make the best decision for you and your family.

 

Posted by The KCM Crew

Why Pre-Approval Should Be Your First Step

In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the amount of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, knowing your budget will give you the confidence of knowing if your dream home is within your reach. 

Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.” 

Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.

 

Posted by The KCM Crew

The No. 1 Tip To Pay Off Your Mortgage Early

Your home is a great source of pride. By implementing this tactic, you can call it all yours even sooner.

Your loan term might be fixed, but it doesn’t have to dictate when you’ll be mortgage-free. Find out how to speed up the process.

A lot can happen in 30 years. Kids become adults, jobs change, and life goals are accomplished and reset. Change during such a lengthy period is inevitable. But if you’re a homeowner, there’s one thing that won’t change: Your obligation to make a monthly mortgage payment.

The good news? A loan term doesn’t have to dictate when you free yourself from this financial commitment. There are a few tried-and-true ways to cut the ties early while lowering the total amount paid in the process. Follow these recommendations, including the No. 1 tip to pay off your mortgage early on your home, whether it’s in Seattle, WA, or Boston, MA.

5. Refinance into a 15-year mortgage

Cutting your loan term in half is a big financial step, but the benefits are substantial. Not only will you shorten the payoff time, but you’ll also be rewarded with a lower rate and pay significantly less in interest over the life of the loan.

The key here is determining whether you can shoulder the larger monthly cost that comes with a 15-year mortgage. Pamela Capalad, CFP and founder of Brunch and Budget, explains, “The downside is, you’ve locked in a much higher monthly payment. Make sure you have the cash flow to afford this new monthly payment on a regular basis.”

Not completely confident in your ability to commit to a higher monthly payment? Fake a 15-year mortgage by challenging yourself to make the payments you would be making if you had locked into a 15-year mortgage. Then, if financial circumstances change, you still have the flexibility to return to a lower monthly payment.

4. Refinance into a lower rate but keep payments the same

The benefits of refinancing your loan but sticking to the same payments are twofold: You will pay less in interest over the life of the loan and create a shorter path to mortgage freedom. Plus, it’s not as drastic as jumping from a 30-year mortgage to a 15-year mortgage.

However, it’s important to do a bit of research before you refinance. Closing costs for refinancing are generally lower than if you were to purchase a new home, but they’re still an added expense. Your new interest rate should be low enough to negate the cost of refinancing, or you should be planning on staying put long enough to reap the benefits of a smaller rate. (Use the Trulia refinance calculator to see if this is a good choice for you.)

3. Get rid of private mortgage insurance (PMI)

If you financed more than 80% of your conventional mortgage, chances are, you are paying private mortgage insurance to protect the lender in case of default. Redirecting this amount — usually 0.05%–1% of the loan amount annually — to the principal on your mortgage can have a big impact over time.

You can request to get rid of PMI once you reach an 80% loan-to-value ratio, but the lender is required to remove it after you’ve reached a 78% loan-to-value ratio. You can speed up the process by increasing your equity through home upgrades, or, if the home has already increased in value for other reasons, you can opt to refinance. Some lenders may even allow you to get an appraisal to show the new value and your increased equity — without paying for a refinance.

2. Put those windfalls to work

Maybe your monthly budget doesn’t have wiggle room and paying the costs to refinance isn’t in the cards. There’s another option.

Tax returns, bonus checks, and inheritance payments present the opportunity to pay off a chunk of your mortgage without feeling the pain in your monthly budget. This could mean thousands of additional dollars chipping away at this massive financial responsibility each year. Sometimes your money could be better spent elsewhere — like paying off high-interest debt — but if wiping out your mortgage early is a priority, this is a great place to start.

1. Make extra or higher principal payments

Jennifer Harper, CFP and director of Bridge Financial Planning, says one small change can make a world of difference. “Even small [additional] principal payments add up over time! On a $150,000 loan for 30 years at 3.75%, with no additional payments, more than $100,000 will be paid in interest over the course of the loan. By adding just $100 per month in principal payments, the total interest paid is reduced by nearly $25,000 and the loan will be paid off more than six years sooner!”

Another way to do this is by making biweekly mortgage payments. Instead of making 12 monthly payments, this equals out to 26 half-payments — or 13 full payments — per year. But beware, explains Harper, not all loan servicers make it easy to apply these extra payments to the principal. Make sure to speak to yours and ensure they aren’t simply holding on to the extra money and applying it toward the interest.

The bottom line: Choose what works for you

Which method should you choose to pay down your mortgage faster? That depends, explains Pamela Capalad.

“Choose the option that resonates the most with you based on your current financial situation and any possible changes you foresee. If you have a steady job or career that you feel confident will last in the long term, it might make sense to refinance to a shorter term. If your income is a bit less consistent, you may want the flexibility of making additional payments when you can.”

Posted by Kayla Albert on Trulia

 

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