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Category Archives: The Mortgage Process

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.

Whether or not your monthly payments fluctuate largely depends on the type of loan you have

Can my monthly mortgage payment change?

Whether or not your monthly payments fluctuate largely depends on the type of loan you have. If you have an adjustable-rate mortgage (ARM), you are likely to see your monthly payments rise and fall over the course of your loan. If you have a fixed-rate mortgage, your pay structure will be more stable than those with an ARM, but there is still potential for changes in your monthly payments. 

How do ARM payments change?
An ARM is a mortgage with an interest rate that your loan servicer adjusts. Most ARMs are "hybrid" mortgages, meaning the rate on the loan is fixed for a certain window of time, and is adjustable after that time frame.

When the interest rate on an ARM changes, your monthly payment will change. Let's say you have a 6 to 1 hybrid ARM. That means for six years, your mortgage rate will be fixed at a certain value. After the sixth year, the mortgage servicer will begin to adjust the rate annually. You could see a 1 percent interest rate increase year seven, and year eight you could see a two percent increase. Since the interest rate rose in years seven and eight, you would expect to have higher monthly payments during those two years.

How do lenders decide to change ARM rates?
Lenders rely on indexes and margins to calculate how much they should adjust your rate. The most commonly used index is LIBOR, the London Inter-Bank Offered Rate. Lenders decide on their own margins.

Each day, LIBOR determines the average interest rate banks are charging one another on loans. When it comes time for a lender to calculate how much they ought to adjust your rate, they will take the present rate determined by an index such as LIBOR and add their margin to it. The product of this becomes the new interest rate of your ARM. For example, if a lender with a margin of 4 percent is due to set a new rate for your mortgage, and LIBOR is at 4 percent, your new interest rate will be 8 percent.

Are all ARMs the same?
There are a wide variety of ARMs available to homebuyers. They feature different fixed-rate periods, as well as caps on how high your payments and interest rates can rise. Lenders also use different margins and utilize different indexes.

The details and provisions of an ARM agreement will reveal just how much your monthly payment might change. The Consumer Financial Protection Bureau recommends that you ask each potential lender calculated questions to understand exactly how much you can expect to be paying each month. 

What about fixed-rate mortgages?
If you have a fixed-rate mortgage, your lender won't change your interest rate as they would with an ARM. That rate is set in stone.  However, you could still see changes in your monthly payments.

The Federal Trade Commission notes that changes in taxes or insurance on your property can yield adjustments in your monthly payments if you have an escrow account with your loan servicer. This is simply because when taxes or insurance costs increase, your loan servicer requires a larger escrow balance. 

Buyers who handle such payments on their own and do not utilize an escrow should not see a change in monthly payments on a fixed-rate mortgage. 

If you have any questions about your loan payments, or are beginning the mortgage process and want to find out more about the range of loans available to you and the different monthly pay structures they entail, please reach out to CapWest Mortgage. 

The loan estimate form is an important part of the mortgage process.

The loan estimate and its role in securing the right mortgage

A key step on the journey toward homeownership is finding the mortgage that works for you. The loan estimate form is a vital tool that allows you to understand the loan a lender is offering you, and compare that loan with offers from other lenders. 

The loan estimate form
In October of 2015, the Consumer Financial Protection Bureau introduced a series of updates to the guidelines financial institutions must follow during the mortgage process. These changes were called the "Know Before You Owe" mortgage rule. One product of these updates was the introduction of the loan estimate form. The loan estimate form is a universal document all lenders must provide to you within three days of your application for a home loan.

The loan estimate consists of three pages that explain a potential loan offer from a lender. Some of the information within the estimate might be hard to understand. Luckily, the CFPB created the Loan Estimate Explainer, an interactive tool you can use to understand and the loan estimate form.

The website guides you through each specific section and provides tips for interpreting the information. For instance, they recommend you double-check that the rates and numbers on your estimate reflect the discussion you had with your lender prior to receiving the form and that you make sure the taxes on your property are calculated correctly. 

You should remember that a loan estimate form is not the final agreement between you and your lender. Some of the costs may change. What can change is dependent on a number of different variables. The CFPB provides a detailed list of what can change on your estimate, how much it can change by, and whether or not you are entitled to a refund.

Finding the best mortgage
The loan estimate form allows you to compare estimates from different lenders and decide which is best for you. The CFPB gestures to some key aspects of the loan estimate you should pay attention to when comparing different loans, such as cash needed at closing and lender credits. 

Page three of the loan estimate features a comparison section. This section gives you information that predicts where you will stand on your loan in five years, your annual percentage rate, and your total interest percentage. These numbers provide insights into how much the loan will cost you, and you should pay close attention to them when you look at your different loan estimates. 

Finding the best mortgage takes prudence and patience, but it shouldn't be difficult. The loan estimate form helps simplify securing a mortgage that works for you. For any questions about the loan estimate form or another aspect of the mortgage process, please reach out to CapWest Mortgage.

Buyers should consider a conforming loan.

A buyers’ guide to conforming loans

Any buyer looking to begin the mortgage process should be aware of the different types of loans available to them. One option worth looking into is the conforming loan.  

The conforming loan
The conforming loan is a loan that quite literally "conforms" with the annual guidelines set forth by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency. A benchmark of the conforming loan is it must have a principal balance that is beneath a certain threshold. This year the baseline threshold sits at $453,100. This was an increase from the $424,100 threshold set forth last year.

If a borrower lives in a county the federal government deems to be high-cost, they can have a principle loan balance that is higher than the baseline threshold and still qualify for a conforming loan. The highest principal balance a borrower can have and still qualify for the loan is $679,650. Buyers can consult this map to see how much they can borrow and still possess the proper qualifications.

Mortgages involving more than one unit can have a principal balance greater than $679,650. The FHFA provides a report that details the maximum loan limits on multi-unit property mortgages.    

Fannie Mae, Freddie Mac, and lower interest rates
Fannie Mae and Freddie Mac are government-sponsored entities that purchase home loans from lenders in the secondary mortgage market. When a lender creates a conforming loan, Fannie Mae and Freddie Mac purchase it.

Lenders can be confident that one of these two institutions will purchase their loans since each institution is backed by the government. This confidence allows lenders to offer lower interest rates on conforming loans than they otherwise could on different loans. Currently, the interest rates for a 30-year fixed-rate conforming loan stands at 4.5 percent, while the interest rate for a 30-year fixed-rate jumbo is 4.625 percent.

Qualifying for a conforming loan
Buyers looking to pursue a conforming loan should be aware that conforming loans require good credit scores. If this will be a problem, FICO provides some tips for increasing credit scores on their website. Two strategies they recommend are setting up payment reminders and paying off old debts.

A conforming loan is just one type of mortgage available to buyers. There are many other loans available to buyers if they feel a conforming loan isn't the right fit. For more information about the different types of loans available to buyers, or any other questions regarding the mortgage process, please reach out to CapWest mortgage. We'd love to help.

What is  an underwriter?

Who are underwriters and what do they do?

The most important person in the lending process is the one individual most buyers never think about: the underwriter. These professionals are responsible for reviewing documents and assessing a final mortgage application for risk before approving a loan. During this process, it's decided if a borrower will be approved or not. In some cases, an application may be returned to the purchaser to supply more information. 

What does an underwriter look for?
The first step in the underwriting process is to review all paperwork for accuracy and make sure all information is present. After 2008, the Dodd-Frank Wall Street Act enacted strict regulations on lenders that make it more difficult than ever to slide past an underwriter without proper paperwork, according to The Lenders Network. If it's determined you're missing items or need supplemental information to prove your financial history, the underwriter will pass your application back to a loan officer or broker to communicate with you directly. 

Once all paperwork is submitted, the person working on your account will investigate your credit history and determine how likely it is that you'll repay a mortgage. You may be asked to pay off debt or provide written explanations for accounts that have gone into collections before your application can be approved. 

All other aspects of your financial well-being are then reviewed by underwriters and they will verify things like home appraisals, title searches, and home surveys. Your debt-to-income ratio will also be determined at this time.

How can you speed up the process? 
It takes a little over a month for the average mortgage to be approved, explained the Lenders Network. The majority of that time is spent on underwriting. Before applying for a mortgage, make sure you have all your paperwork in order and check your credit report beforehand. Review all information to confirm accuracy. If possible, clear any accounts that you owe back payment on and pay down all other debt. 

If you have additional documents related to your income or payment history, make sure to send those with your mortgage application as well as including written agreements for any freelance work, leases for any rental properties on which you collect income, and explanations for any missed payments or accounts in collections.

Do not apply for other credit cards or loans while your application is being evaluated as that will complicate the process for the underwriter and may delay your application. If you find the process is taking longer than expected, call the lender directly for more information. 

Special considerations for FHA loans 
These types of loans are insured by the Federal Housing Administration, according to the FHA Handbook, and have lower requirements for down payments. FHA underwriters confirm the mortgage can be insured and that the loan itself meets all minimum lending requirements. Unlike traditional loans, borrowers will need to meet two separate sets of criteria to be approved including the government standards and the lender's. Because of that, it can take longer for owners to get final approval, so it's extra important to have everything in order before applying to this type of loan.