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How to's and money-saving tips from resident homeowner and mortgage professional, Cathy West

Category Archives: The Mortgage Process

Why pre-approval is important

Why pre-approval for a first-time homebuyer is important

Deciding that you're ready to stop renting and finally purchase your first home is exhilarating, and can be a little scary. From mortgages to homeowners associations, first time home buyers have a lot to consider before making that big purchase. In a competitive housing market, it's important that your mortgage application be one of your top concerns. This will impact how you can make your offer as good as possible so that you can buy your dream home.

The best way to do that is by getting pre-approval for a home loan, which tells sellers that you're serious about home shopping. Just why is pre-approval so important? There are a couple of reasons in particular. 

What is pre-approval?
In order to understand why you should get pre-approved before going to open houses, you need to know exactly what a pre-approval is. Basically, getting pre-approved for a home loan is a process in which you submit all of the documentation you would submit if you were actually applying for a loan – things like W-2s, bank statements and credit reports, according to Credit.com. An experienced lender then reviews your information and makes a calculated offer on the amount of a loan you would be eligible for.

This is different from a prequalification, which is a suggested loan amount provided by an expert lender solely on the basis of the information and estimates you provide, which are not verified, according to Bankrate. Instead, pre-approval requires you to submit past tax documents and written income information that will provide more accurate information and help the lender make a proper estimate for preapproval possible.

Why do you need to be pre-approved?
The housing market is competitive, and any homebuyer who is serious about their offer on a home will already be pre-approved for the amount of the offer. This shows the realtor showing the house that you're serious about purchasing, and that you're able to follow through on it.

Think about it: without a pre-approval, you could offer any amount for a home. If you were to suggest twice the selling value of the home, and have your offer accepted, would you be able to follow through? Chances are, you wouldn't. Having a pre-approval, though, means you know exactly what you can and can't offer on a home, and shows the seller that you're prepared to pay that amount.

This helps you as well. Once you know the amount of your pre-approval, you'll be better prepared to search specific neighborhoods, housing features, and locations. Without a clear guideline for the amount of money you're prepared to spend on a home, shopping can be overwhelming and frustrating. Having a clear plan in place, though, allows you to be organized and efficient in your home search, looking only at those homes that you're prepared to put an offer on, and staying clear of the homes you'll definitely fall in love with but don't have the budget for.

For more information about this article, call 866-614-5959.

How to improve your mortgage applications

How to improve your mortgage applications

When consumers are approaching the mortgage process – especially when they're doing so for the first time – they may need to put in plenty of legwork to make sure they're able to qualify. That often means doing plenty of homework and putting in a few months' worth of effort to improve credit standings and other aspects of their personal finances.

Perhaps the most important thing for people to keep in mind about the mortgage process, though, is that they should be prepared to go to a number of different lenders rather than just working with the first one that approves their applications, according to Money Saving Expert. Even people with strong qualifications may find that not all lenders will approve their applications, and the deals they may be able to get from each of these financial institutions may vary significantly.

Where to begin
When trying to boost the quality of a mortgage application, however, would-be borrowers need to consider the role debt plays in their lives overall, the report said. The way people interact with debt – and the amount of it they carry at any given time – make up pretty much the entirety of many lenders' considerations, taking into account everything from credit scoring to verifiable debt-to-income ratios. That can even include some issues that might show up on a credit report but not directly on a credit score, such as a bankruptcy filing years in the past.

This means would-be buyers will likely have to reduce the number or value of their monthly debt payments to make sure they can qualify for a new mortgage, which would obviously increase their outstanding balances significantly.

Other things to keep in mind
In addition, when buyers are pre-approved for a mortgage, they can still face difficulty actually qualifying in certain instances because the closer they get to the maximum approved value, the more reticent lenders might be to actually extend them that much money, according to Credit.com. This is the case because when dealing with thin margins at the upper limits of a pre-approved mortgage, even small issues like minor fluctuations in outstanding debt can endanger the approval.

Along similar lines, borrowers should try to avoid running into issues with financial instability whenever possible, according to Zillow. While some financial emergencies may be unavoidable, lenders don't like to see consumers take out new lines of credit or quickly rack up more debt on existing accounts.

Of course, one of the best ways to have a mortgage application approved is for borrowers to come to the table with significant amounts of money in place for a down payment, the report said. When buyers can make down payments in excess of 20 percent, their chances of having their applications approved are likely to be strong.

Working with a financial professional or real estate agent to determine the best path forward on a home loan application is always a good idea, as is doing plenty of research beforehand. That way, shoppers won't run into any unexpected issues throughout the mortgage process.

For more information about this article, call 866-614-5959.

The benefit of VA loans and how to qualify

The benefits of VA loans and how to qualify

When consumers are looking for ways to apply for and find an affordable mortgage, one type of home loan they may come across comes from the U.S. Department of Veterans Affairs. Often referred to as VA loans, they can provide borrowers with significant benefits – such as no down payment requirement – as long as consumers meet a number of qualification standards.

First and most obviously, the vast majority of military members past and present – including reservists and those in the National Guard – are able to get loans through the VA, according to Bankrate. This allowance is also extended to spouses of military members who died on active duty or due to disabilities they received at that time. However, VA loans are only open to people who were in the military for at least 181 of service; that means about six months for most military members, but the number rises to to as much as six months for reservists and National Guard members.

However, that time requirement drops to just 90 days if they serve on foreign soil, the report said,.

A look at the benefits
Above and beyond the lack of down payment requirement, people obtaining VA loans also don't have to pay for private mortgage insurance, which is typically required for any home loan with a down payment of less than 20 percent, according to VAloans.com. About 90 percent of all people who obtain VA loans take advantage of the no-down-payment requirement, but experts recommend making a down payment of at least 5 percent, as a means of reducing fees.

For instance, the VA Funding Fee charges people making small down payments 2.15 percent of the value of the mortgage, but with a 5 percent down payment or more, that fee drops to 1.5 percent, the report said. After that, a down payment of at least 10 percent will further reduce the funding fee.

In addition, like many other types of mortgage, people using VA loans are allowed to put financial gifts from those close to them toward that down payment as a means of reducing their own costs, the report said.

Understanding the issue
It's important to note that VA loans are obtained through private lenders, not the VA itself, according to the Veterans United Network. This makes them similar to loans backed by the Federal Housing Administration or the U.S. Department of Agriculture: They are simply backed by the federal government in a way that insulates lenders from risk to the point that they can be offered for little or no down payment.

However, the "guaranty" from the VA is often capped at a certain amount, meaning a veteran typically wouldn't be able to use a VA loan on a mansion, the report said. The maximum amount the VA will back varies by region, so would-be borrowers will have to look into what that limit is based on where they're looking to buy

When military members – or anyone else – are looking for ways to make their mortgages affordable, it's vital that they do as much research as possible to find a deal that works for them.

For more information about this article, call 866-614-5959.

Speed up your mortgage application

Speed up your mortgage application

When people want to buy a home, they should typically start by applying for a mortgage so they can pre-qualify and get a sale completed as quickly as possible. But in today's busy market, waiting even a little while to get a deal locked in can create serious issues when it comes to people being able to buy they homes they really want.

This issue may be especially important for those who are self-employed, because their mortgage application process can be a little more muddled if they're not fully prepared, according to Mortgage 101. So what can they do to make sure they're adequately prepared to not only qualify for a mortgage, but do it quickly? The process should start in much the same way as any other consumer seeking a home loan, according to Mortgage 101. Would-be buyers will have to ensure they can make a sizable down payment and have a strong credit score that will allow them to lock in the best deal possible.

What comes next?
Once self-employed applicants have made sure their credit is in great shape and they can make down payments of as much as tens of thousands of dollars, it's important for them to to make sure they have all the documentation they're going to need, the report said. For the self-employed, it can be a lot more difficult to assure a bank that their income is sufficient and job situation stable enough to be deserving of mortgage credit, which means they will probably need more than the standard amount of tax returns, pay stubs, bank statements and so on.

For this reason it may be important to talk to a financial professional about the best strategies for maximizing take-home pay when self-employed, according to Mortgage Required. Many small business owners, for instance, may choose to keep their take-home pay low for tax purposes, but that's not something mortgage lenders are going to want to see from an applicant. Finding the right strategy to strike a balance between keeping taxable income low but also meeting lenders' demands for high enough salaries will be vital during this process.

However, it will also be important to get all those financial documents in order as well, because lenders are likely to want to see those as well, the report said.

Avoiding missteps
Once preapproval has been obtained, there's still a home buying and closing process to go through, and it's vital to be cognizant of the issues that can arise in the time between the mortgage process began and when a sale is coming to a close, according to Forbes. Credit situations can fluctuate, for instance, and would-be buyers will have to stay on top of that issue to ensure they're getting the level of affordability they're looking for or have been counting on.

The more potential buyers can do to make sure they're getting top-notch deals and are able to navigate the mortgage process easily, especially when they're self-employed, the better off they're likely to be for years to come.

For more information about this article, call 866-614-5959.

What do I need to know about a cash-out refinance?

What do I need to know about a cash-out refinance?

These days, there are still plenty of homeowners who can benefit from refinancing their existing mortgage, even after rates have risen sharply over the past several months and millions already sought to refinance when rates were at or near their lowest points. Many who did so may have also taken advantage of the sky-high affordability at the time to engage in a cash-out refinance, but those who have yet to go through the process might not know what their options are here.

First and foremost, it's vital to understand what a cash-out refinance actually is. Simply put, it's a refinance that gives owners more money than they owe on their existing mortgage, which allows them to put the extra cash – usually at least a few thousand dollars, but often more than that – toward other financial concerns, such as home improvement efforts, funding a child's college education or paying down debt with higher interest rates.

Growing in popularity
Many homeowners are now choosing to use cash-out refinances as a way of tapping their existing equity, according to new research from MarketWatch. Today, more than 60 percent of all refinances are cash-out, in line with the levels seen a few years before the housing market crash. This is hardly a surprise, because while many homeowners can still cut their costs despite rising rates, the primary financial benefit comes from getting more money than the existing mortgage balance.

"As people stay in their homes longer we see people reinvesting in their homes by using equity to update their homes and do repair work," Rick Sharga, executive vice president for Carrington Mortgage Holdings and an industry veteran, told MarketWatch.

Weighing the options
As with any other major financial decision, consumers need to understand all the implications of a cash-out refinance before taking the leap, according to Student Loan Hero. For instance, they will need to assess whether tapping their existing equity could put them at greater risk for falling behind on their payments (which would necessarily rise with a cash-out refinance), or affect their future finances in other ways.

Paying off unsecured debts – that is, debts like credit card balances not tied to any particular asset – with secured debts – like a mortgage – can put them at risk for losing their homes if they can't deal with the additional cost. With that said, if a cash-out refinance is used to fund home improvements that could significantly increase the value of a home, there's an opportunity for a good return on investment here.

Finally, it's important for consumers to shop around for a cash-out refinance, as they could face some surprising loan terms that may not always be favorable, according to Bankrate. This is important because cash-out refinances will typically carry a higher rate than a traditional refinance, and that added cost may need to be further accounted for to ensure owners can truly afford them.

When homeowners do all the necessary research, they will typically be in a good position to make sure their mortgage terms work for them given their unique financial situations.

For more information about this article, call 866-614-5959.

Proving your income while self-employed

Proving your income while self-employed

A critical part of the mortgage process comes in the form of consumers being able to prove they are financially ready to make a home purchase. Certainly, that effort includes being able to build a sizable down payment – preferably in the tens of thousands of dollars – and a strong credit score. But at the same time, would-be buyers will also be required to prove they can afford their mortgage payments on an ongoing basis, and for self-employed people, it isn't always easy to provide definitive proof of their incomes.

As with any other part of the mortgage process, documentation here is key; those who are self-employed will have to follow some of the same steps as those who work for someone else, according to the Houston Chronicle. They will probably have to bring in at least two years' worth of tax returns, where traditionally employed borrowers might only have to provide one.

However, the self-employed – whether they freelance or own their own businesses – will also have to provide other financial data, such as whatever outstanding debts and assets they might have related to their businesses, the report said. Those who run their own companies will likely also have to provide details about that enterprise, such as profit and loss statements.

Potential hurdles
Meanwhile, some of the strategic moves small-business owners or the self-employed might have made to reduce their taxable incomes in certain ways could be seen as problematic in the mortgage process, according to Bankrate. Often, lenders will only consider income claimed after all deductions (in part because the things that can be deducted tend to change over the course of time), so in certain cases owners may actually be doing themselves a disservice by maxing out their deductions if they plan to buy a home within the next few years. Likewise, some small-business owners often choose to leave excess profits within a company rather than withdrawing them as salary, which could also affect their income situations.

"The hardest part can be to show that income," Annette Dougherty, a branch manager for a regional mortgage lender in Pennsylvania, told the site. "It's a real fine line. A lot of the time [potential borrowers] are trying to maximize all of their deductions. It's a lot of paperwork."

“Self-employed borrowers, like everyone else, are required to prove income” Joe Stadler, SVP at CapWest recently told an audience of clients. “Where it gets tricky is when our successful clients have several business deductions on their tax return that offset their income.”

What to do
With these issues in mind, it's vital for self-employed people seeking a mortgage to do as much research as possible, and potentially consult with an accountant, if they have one, to figure out the best way to approach the application process, according to Totally Money. It may also be wise to speak with a mortgage professional about what issues could arise as part of this process.

Generally speaking, the more consumers can do to educate themselves about every aspect of the mortgage process, the better off they will be when it comes to navigating it successfully. That, in turn, will help them unlock the most beneficial loan terms that are likely to be available to them, potentially helping them save tens of thousands of dollars over the lives of their loans.

For more information about this article, call 866-614-5959.

Does a spouse's credit impact the ability to get a mortgage?

Can we still buy a house if my spouse has bad credit?

One of the most important factors in getting approval for a mortgage is an applicant's credit score. When applying jointly with a spouse, both FICO scores will be evaluated. The major determining factors in a score are payment history, amount owed and length of history, according to the Fair Isaac Corporation.

Make sure to check the credit score for all buyers before submitting an application. Verify the accuracy of all accounts and pay off any balances in collection so you're starting in the best position possible. 

If your partner's score is still lower than desirable, here are some things to consider:

Buy it alone 
A low credit score could lead to having a mortgage denied or cause an increase in rates. There's no reason you have to list your spouse on the mortgage application and in some states, a legal partner will have inheritance rights even without being listed as a co-owner or having a will. If you apply alone, as pointed out by Zillow, the only income that factors in will be your personal income which could work against you.

Another solution is to ask a person with a higher score to co-sign for you and your spouse. That way, both parties will be listed as owners on the home and all incomes will be accounted for. Having a co-signer can improve your debt-to-income ratio, credit score, and income levels which will help with the approval process, according to Forbes.  

Fix score 
If a low credit score is due to outstanding balances or accounts that have been defaulted on, the best option may be to wait to apply for a home loan until your spouse's score has been repaired. The first thing to do is to settle any accounts that are in collections. Call the organizations in charge of the debt and attempt to negotiate for a lower rate. The other major factor is debt-to-income ratio.

By accepting a second job or applying for a higher-paid position, an individual can increase their income. Pay down credit cards and personal loans to decrease debt. It may take several months for the changes to be reflected, so consider using a credit monitoring service to keep track of score increases or decreases. 

No matter what option you choose, it's important to consider both you and your partner's financial health. 

For more information about this article, call 866-614-5959.

What you should know before buying a foreclosed home

What you should know before buying a foreclosed home

When consumers have the opportunity to buy a foreclosed home, they often jump at the chance. These properties are typically marked down so far in comparison with similar properties in their area that the price may seem "too good to be true." Often, these homes are in great condition and represent a huge deal, but there are plenty of issues for buyers to keep in mind when making such a purchase as well.

One thing for bargain hunters to remember if they have their sights set on buying a foreclosed property is that demand in the broader housing market is white-hot, according to the financial advice site Wise Bread. That also comes at a time when the number of foreclosures nationwide is starting to dry up quickly, meaning that if any such properties do hit the market, they're scooped up in short order thanks to extreme competition. As such, it might not be wise for people to set a foreclosure purchase as a specific goal, despite the potential savings.

Understanding the process
There are two primary methods by which foreclosed homes are sold: at auction or as a bank-owned sale, the report said. In the former case, homes are sold relatively inexpensively, but buyers also don't have the benefit of actually seeing the property in person beforehand, meaning they might not know what they're getting, and the house could be in just about any condition.

In the case of bank-owned properties, the prices are likely to be a little higher because they go through a more traditional sales process, often involving a realtor, the report said. That means there is a chance multiple people will bid on those homes, potentially driving up the price, but also ensuring everyone gets a good look at the property.

What to expect
Experts also caution that despite what some potential buyers might expect, the process of buying a foreclosed home isn't always easy, according to Bankrate. Sellers – i.e. banks – aren't going to do much negotiating on the price, and any repair costs that may be needed won't be covered either. In addition, most lenders are going to require that would-be buyers have a mortgage pre-approval in hand before accepting a bid.

Furthermore, it's worth noting that some lenders may be hesitant to extend mortgage credit on distressed properties at all, meaning buyers may have to do more shopping around than they might have expected to lock in a home loan, according to Home Finder. Moreover, they could also need to make sure their finances are in even better shape than they otherwise may have needed, potentially requiring more saving or work to improve a credit score.

As with any other type of home purchase strategy, it's important for those looking to buy a foreclosed property to do all their homework and due diligence before they enter the mortgage application process. Doing so will help them more fully understand all that is expected of them, and any issues they might encounter.

For more information about this article, call 866-614-5959.

Understanding earnest money and down payments

Understanding down payments, earnest money, and their utility

Buyers should anticipate a competitive market this spring. With this in mind, it's important for them to understand how they can leverage down payments and earnest money during the homebuying process. 

Understanding down payments
A down payment is the amount of money a buyer produces upfront when purchasing a property. Generally, larger down payments benefit both the buyer and seller. 

The Consumer Finance Protection Bureau explains that a large down payment — usually around 20 percent of the home price — saves buyers money in the long run. Larger payments yield lower interest rates and could remove costs such as fees and mortgage insurance. 

Large down payments are also attractive to sellers. Daren Blomquist, senior vice president at ATTOM Data solutions, noted that fortune favors buyers who offer the most up-front to sellers. "Buying a home has become a full-contact sport in many markets across the country, and buyers with the beefiest down payments — not to mention all-cash buyers — are often able to muscle out those with scrawnier savings," he said. 

While a 20 percent down payment might be ideal for purchasing a home, there are many other options for buyers looking to achieve home ownership with less than 20 percent down. Buyers can secure a conventional or Federal Housing Administration loan with as little as 3.5 percent down, and some special government programs offer loans with no money down at all.

The role of earnest money
Similar to a down payment, earnest money is a payment a buyer makes out of pocket to a seller.

When the negotiation phase between a buyer and a seller ends and the closing phase begins, the buyer transfers earnest money into an escrow account. This money serves as a symbol of "good faith" between the buyer and the seller. The earnest money remains in the escrow account until the closing process concludes and possession of the house is transferred to the buyer. At this point, the seller receives the earnest money from the escrow. 

Redfin notes that the typical earnest money deposit is usually 1 percent to 3 percent of the house value. In a competitive market, however, buyers can use a larger earnest deposit to make an aggressive bid on a house. A larger deposit indicates to the seller that the buyer is serious about purchasing the home, and could sway the seller to accept their bid over other bids with lesser deposits. 

Getting earnest money back
If problems arise during the closing process (say, they find termites during the home inspection), the buyer might be able to get their earnest deposit back, or they might not. That is dependent on the contingencies laid out in the purchase and sale agreement.

Down payments and earnest money are not mere headaches that accompany the mortgage process. Buyers should give them careful consideration, and be aware of ways they can use them to their advantage while pursuing a new home. For more information regarding earnest money, down payments, or the homebuying process in general, please don't hesitate to contact CapWest Mortgage.

What you should know about closing costs

What to expect from closing costs

When a buyer and seller sign a purchase and sale agreement, the seller takes the home off the market and the closing process begins. Closing on a home takes around fifty days to complete, and has certain costs that accompany it. Depending on what negotiations took place at the time of the purchase and sale agreement, the buyer or seller is going to have to cover these expenses.

Closing Costs
A wide range of professionals are needed to complete the necessary tasks to close on a home. It is typical for the buyer to pay for the majority of them, while the seller only has to pay for a few.

The total closing costs for a home are listed on the closing disclosure form. This is a universal, five-page document a buyer receives from the lender. It lists the total closing costs for the home on the first page and provides a detailed list of each cost on the following four.

Zillow estimates that buyers can typically expect to spend about 3 percent to 5 percent of the home's value on closing costs. These payments cover expenses for inspections, lawyers, mortgage fees, insurance premiums, title charges and more.

The seller traditionally only pays the commission of the buyer's and seller's agents, pest inspections, and sometimes the loan origination fee, according to Zillow.

How to save
There are various ways buyers can try to save money on closing costs. The same way a person might look for the cheapest mechanic to fix their car, buyers can find inexpensive closing service providers. The Consumer Financial Protection Bureau notes that buyers can shop for mortgage closing services other than the ones listed from the lender on the loan estimate. Buyers can use more economical providers so long as the lender agrees to work with them.

Buyers also don't necessarily have to cover all of the closing costs. Redfin recommends that buyers negotiate with the seller to see if they would be willing to pay for some of the expenses. If the seller agrees, they can choose to pay for certain items, or simply contribute a certain amount of money to the buyer.

Closing costs are a necessary part of the mortgage process. Without the help of service providers, the buyer and seller would be unable to complete their transaction and turn over possession of the home. Have questions about closing costs, the closing processes or homeownership in general? Contact CapWest Mortgage.