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

Category Archives: The Mortgage Process

When seeking a mortgage, you might need to fall under certain credit score requirements.

Getting your credit score into the “excellent” range

One of the most significant factors lenders look into when considering people for loans is their credit scores. For those whose credit card falls below the average range, it can be tricky to get a mortgage.

Typically, credit scores range from 300 to 850. Lenders have different ideas of what they consider to be a "good" or "bad" credit score. However, ValuePenguin reported an approximation of the categories of credit scores as follows:

  • Excellent: 800-850
  • Very good: 750-799
  • Good: 700-749
  • Average: 650-699
  • Poor: 600-649
  • Very poor: 550-599
  • Bad: Below 550

Over 53 percent of the population has a credit score that is above the "good" range. Only 18.4 percent has an "excellent" credit score. Why exactly does a good score matter? Why do people strive for an "excellent" score?

The benefits of an excellent credit score
When people work hard at attaining and maintaining an excellent credit score, they can reap plenty of benefits. Some of these perks include:

  • Great credit card options, such as rewards cards and 0% balance transfer cards.
  • Low interest rates when taking out loans.
  • Better car insurance rates.
  • Approval for leases on rental properties.

How to improve your credit score
The best way to maintain and improve one's credit score is to monitor this number over time. Lexington Law reported that, of the 1,000 people they surveyed, 54 percent of Americans do not check their credit score. Checking this score on a daily basis is not at all necessary, but for someone trying to improve their score, checking on a monthly basis can help keep them on track.

Additionally, individuals should understand what factors are detrimental to their credit scores. Knowing what these risk factors are can help them plan to negate this undesirable activity.

To get their credit score into the "good" or "excellent" zones, individuals should make sure the debt they owe stays below 10 percent of their total credit limits. They should also make all of their mortgage or student loan payments on time.

Getting an excellent credit score involves a nearly perfect record, with no delinquent payments on loans or taxes. Just as important as preventing debt is maintaining the strong record. Particularly if someone has a blemish or two on their credit history, they can still get an excellent score, but they will need to work harder for a longer time to do so.

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

A fixed rate mortgage can help buyers afford their next home.

What is a fixed-rate mortgage?

When purchasing a home, buyers have plenty of options in the house hunting process. Once they make their decision, they face an important course of action: financing the home. Homebuyers have plenty of choices on what type of loan to buy. A common type of home loan, a fixed-rate mortgage, can help homebuyers afford their new space.

A fixed-rate mortgage has a static interest percentage throughout the whole term of the loan. Even if buyers face difficult times, like divorce, losing their jobs or a rocky economy, these loans stay the same. Because homebuyers like this stability, fixed-rate mortgages are the most popular type of home loan. Fixed interest rates can make it easier for buyers to budget their money than less predictable adjustable rates might.

Fixed- vs. adjustable-rate mortgages
When homebuyers first take out fixed-rate mortgages, they might pay more in interest than they would on an adjustable-rate mortgage. However, ARMs' interest rates rise after three, five or seven years, according to Bankrate. After this initial increase, these costs can fluctuate throughout the mortgage term.

Buyers typically pay off fixed-rate mortgages at a slower rate than they would pay off an adjustable-rate loan. Since the first few years of payment typically go toward interest, fixed-rate mortgages might not be a smart investment for buyers who might sell their home again in five years or less.

Fixed-rate mortgage terms
Homebuyers can choose the amount of years they can take to repay their home loans. Typically, individuals can take out fixed rate mortgages of 15- and 30-year terms. Both amount of time have different perks and downsides. Understanding these factors is crucial in deciding which mortgage term are the best fit for homebuyers.

30-year terms typically have a higher interest rate than 15-year terms, but longer terms have lower monthly payments. These lower monthly payments are appealing to buyers who want extra cash in their pocket for emergency spending. Freddie Mac said that over 90 percent of today's homebuyers get a 30-year fixed-rate mortgage.

15-year loans usually also require homebuyers to pay a lesser amount of interest over the loan's term. These mortgages are ideal for individuals who don't mind paying a higher monthly cost but who want to pay their home off faster.

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

Documents like good faith estimates and Loan Estimates encourage borrowers to seek multiple loan rates.

What is a good faith estimate?

A good faith estimate is a three-page document that breaks down the costs owed when closing on a mortgage loan. This paperwork allows homebuyers to understand the full costs involved with taking out a mortgage loan. Zillow lists the terms included in a GFE:

  • Loan amount.
  • Interest rate.
  • Term.
  • Prepayment penalty (if applicable).
  • Origination charge.

GFEs don't include the costs of homeowners insurance or property taxes.

Good faith estimate vs. loan estimate
According to the Consumer Financial Protection Bureau, buyers applying for a mortgage after October 3, 2015 receive a loan estimate instead of a GFE. If they applied for a mortgage before this time, they will obtain a GFE. Homeowners requesting a reverse mortgage will also receive a GFE.

The CFPB initiated this mortgage disclosure act to improve borrowers' experiences in obtaining valuations. Loan estimates are considerably easier to understand than GFEs and highlight more information, such as the short- and long-term costs of a loan. In addition, loan estimates allow borrowers to compare their approximations with their closing disclosures for several days leading up to the closing agreement.

How lenders determine their estimates
Lenders mostly use general information, including tax costs and their processing fees, to generate estimates. A lender can also take a borrower's credit score into account when forming an evaluation.

Some homeowners are surprised when their estimates are slightly lower than the actual fees. Third-party services, like attorneys, can increase the closing cost above the estimated number because lenders do not handle these expenses. Although lenders try to make these numbers as accurate as possible, it's important to understand that these are simply estimates. Fortunately, the final number borrowers would pay for a mortgage loan is typically only slightly higher.

The waiting period
Homeowners and buyers applying for a good faith estimate do not have to wait long. Lenders are legally required to send this form within three days after a loan application is submitted.

How buyers can use GFEs and loan estimates to their advantage
When homebuyers and homeowners apply for mortgages, they are not binding themselves to a lender; they have the right to decline moving forward without justification. Buyers looking for a mortgage, or homeowners seeking a reverse mortgage, might apply for loans through multiple lenders to compare their estimates. Realtor.com suggested shopping around for two or three GFEs or loan estimates before deciding on a lender. Homebuyers seeking mortgage estimates can apply for loans through CapWest's user-friendly online form.

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

Foreclosures and short sales seem similar, but they have noteworthy differences.

Foreclosure vs. short sale

No homeowners want to experience the financial burden of losing their property. As a precaution, homeowners should know the differences between foreclosures and short sales in case they face either hardship.

First, it is important to note their similarities. Foreclosures and short sales occur when homeowners fall behind on their mortgage payments. Under both circumstances, the owners can no longer occupy them, so the homes typically go on the market with low listing prices. These similarities might prompt people to use the terms "foreclosure" and "short sale" interchangeably. However, these two options have far more differences than resemblances.

What is a foreclosure?
When homeowners face foreclosure, they can't pay their mortgages for an extended period of time. Thirty days after the missed payment, the lender will send an initial nonpayment to remind the homeowner to pay. If the homeowner continues to forgo payment, the lender will send an official notice of default, which warns of the risk of foreclosure. At this point, homeowners can settle their debt by paying what is owed or going forward with a short sale. If they do not take one of these routes, their lender will initiate the foreclosure process. This usually starts between three to six months after the first missed mortgage payment, as reported by the U.S. Department of Housing and Urban Development.

Once this process begins, the lender will schedule a foreclosure auction. This event might take place at the property or at a courthouse. Buyers must pay for the foreclosure with cash, sometimes without seeing the property or having a home inspection beforehand. They run the risk of buying a home with mold or foundation issues, which they will need to pay for on their own dime. For someone looking for a fixer-upper, a foreclosure can be a great investment. Sometimes, buyers are lucky enough to get a foreclosed property in perfect condition.

A foreclosure can harm a homeowner's future creditworthiness and ability to secure a mortgage. Zillow reported that a credit score can drop 200 to 400 points after a foreclosure. Affected individuals may have trouble buying new property because a foreclosure stays on a credit report for seven years. They may have to wait at least five years before buying a new house.

What is a short sale?
In a short sale, the homeowners owe more on their mortgages than their properties are worth. They can ask their lenders to lower their payments. If the lender approves, homeowners have settled their debts and are not liable for their homes once the short sale is in effect. People experiencing short sales typically do not face significant impacts to their credit scores and can buy a new house almost immediately.

Typically, short sales take between 90 and 120 days, according to Realtor.com. This procedure takes longer than the foreclosure process because the lender needs to negotiate some costs with the seller and the homebuyer. While most sellers pay for repairs, closing costs and wire transfers during a traditional sale, the lender takes on this responsibility during a short sale or may convince the buyer to cover these costs.

Unlike people buying foreclosed properties, short sale buyers can have a home inspection to make sure the dwelling is in good condition before closing the deal. They can also take out a mortgage on a short sale, though lenders typically give priority to cash buyers.

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

Rental mortgages differ from traditional mortgages in multiple ways.

How does a rental property mortgage differ from a traditional mortgage?

The idea of investing in a rental property is often an appealing idea for homeowners. Rental properties can be a great source of additional income and a smart financial investment. However, there are many differences between a mortgage for a rental property and a traditional home mortgage. Homebuyers should be aware of these important contrasts if they want to consider investing in rental property:

Steeper rates
The interest rates of rental property mortgages are slightly higher than those of home mortgages – about 0.25 to 0.75 percent higher than those of home mortgages, according to Mashvisor.

This is not a colossal difference in a vacuum, but when financing a house with a hefty price tag, this rate uptick will likely be noticeable. The reason that rental mortgage rates are higher is to increase lender security. From such a standpoint it's only logical, as investing in a rental property is not as necessary as purchasing a home to live in. However, despite the steeper rates, rental property mortgage expenses are tax-deductible. 

Credit requirements
Some of the greatest differences between rental and traditional mortgages are the requirements that lenders hold for those seeking mortgages. An especially important factor for lenders is credit score. In the case of rental property mortgages, lenders generally require a higher credit score. This is primarily due to the fact that with more pre-existing loans that someone already has, lenders become stricter about credit requirement, Money Under 30 described. Again, this has to do with lender security and risk minimization.

Though many buyers are unaware, there are two credit cutoffs declared by Fannie Mae when it comes to the number of property loans a buyer holds: The lower of these pertains to those owning one to four properties, while the higher refers to individuals who own between five and 10 homes or apartments for rent. 

Cash reserves
Another important difference in the financing of rental properties and traditional homes has to do with the amount of money a buyer already has in store. Mashvisor described that lenders always require buyers to have six months worth of cash reserves dedicated towards the first six mortgage payments. This means it is crucial for rental property buyers to begin financial planning ahead of time, so as to guarantee that they have access to this quantity of money when they approach a lender for financing. 

Down payments
Similar to the credit score requirements for rental property loans, down payments for these properties are dependent on the number of properties a buyer already holds, Mashvisor noted. In general, any down payment on a rental property will be equal to if not steeper than that for a traditional property, starting at 20 percent. This figure increases as the number of properties owned increased and is also affected by whether a rental property is single or multi-family.

The nuances of financing a rental property are important for any buyer to keep in mind, so as not to be blindsided by the differences between rental mortgages and traditional mortgages. Keeping these factors in mind will prepare buyers for making successful investments in rental property.

Bring your credit score from low to excellent with these quick tips for improvement.

Improving your credit score in just a few months

When considering buying a new home, it is important that homebuyers understand how significantly their credit score may affect mortgage rates. If potential homebuyers are in a bit of a pinch with credit as they look at committing to a new mortgage, it is important to be efficient and effective in improving their credit score as much as possible before committing to a rate.

These helpful tips can assist anyone in raising their credit score in a short period of time.

First thing's first: pay off those bills
The truth of the matter is that unpaid cards and bills are the most basic factor in anyone's credit score. Completing late payments and paying all outstanding bills should be the first step in working to improve credit score, as it is arguably the most obvious one. Credit.com noted that it is not absolutely necessary to entirely pay the bills off, at least make the minimum payment and do so on time. To maximize credit score, it is most effective for homebuyers to pay credit card balances down as close to zero as possible, while continuing to make timely monthly payments in the future.

Get rid of the negatives
Late payment records are especially hurtful to credit score. Along with checking for errors or incorrect information on credit reports, potential homebuyers can dispute negative information on their credit reports in an attempt to improve overall credit score. The Lenders Network outlined that the credit bureau has only a month from receipt of the dispute request to complete investigation; if there is no accurate verification of the account found by that point, the disputed record will be deleted. This can be done through an individual creditor or one of the Credit Bureaus.

Hard inquiries, made by any lenders whom you apply for a credit card with, remain on a credit report for two years and bring down the credit score. Along with limiting hard inquiries during the time of mortgage-searching, it is also possible to dispute credit inquiries. Though these tricks require some extra effort, they are highly effective if successful.

Associate with an exemplary credit score
Associating with a credit card account that has a positive history and great standing can be extremely helpful for any homebuyer, according to Credit.com. This means being added as an authorized user on such an account. Though authorization means a cardholder is allowed to use that account, simply being added to the account without using it in any way will help improve credit score. And not to worry, the original cardholder will not be impacted by associating with someone who has a lower credit score than them.

Credit scores are highly specific and highly sensitive. Understandably, they are a significant factor in determining the mortgage rate of any homebuyer. Thankfully, these quick tricks can be extremely effective for anyone who needs to improve their credit in a time crunch.

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.