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What Could Affect Your Mortgage Interest Rate in St. Louis

The home-purchase process is one that many prospective home buyers find confusing. There are lots of details to keep straight when you’re looking at new homes, and soon all the particulars start to run together. It can be challenging to remember which house had the features you liked best, and after you’ve looked at several of them, it’s easy to feel overloaded. A good real estate agent can help you keep everything straight and help you make a list of the features you liked best in each home, which helps when it’s time to make your final decision.

Applying for a Mortgage Can Also Be Confusing

The same can happen when it’s time to apply for a mortgage. As you get into the loan application process, you suddenly realize that many things impact your future monthly house payment. The term of your loan and the down payment amount have an impact, but so does the mortgage interest rate. And to make matters more complicated, several factors can impact that interest rate. Working with one of the professional St. Louis mortgage lenders in town –  like Homestead Financial Mortgage – can help you navigate the minutiae involved in getting a home loan and help you get the best terms possible on your mortgage.

Here are a few of the factors that can have an impact on the interest rate for mortgage loans. Get familiar with these so that you can ask intelligent questions when working with your loan officer. An educated buyer is a smart buyer.

Factors that Influence Mortgage Interest Rates

Building type. The type of building you’re purchasing affects your interest rate. Many St. Louis mortgage lenders follow guidelines that set the interest rates on home loans based on the probability associated with the risk of default on that type of property loan. If you’re looking for a new home, you’ll be purchasing a single-family dwelling which has one of the lowest default rates of all mortgage loans. This works in your favor because it means lower interest rates, putting you at an advantage going into the home-buying process.

Down payment amount. The size of your down payment can also impact your mortgage interest rate. The more cash you can put down, the less money you have to borrow. And the less you borrow, the lower your loan-to-value ratio. This reduces the risk to your St. Louis mortgage lender, which means they’re more apt to loan you the money to buy your home at a lower interest rate. It’s kind of like they’re rewarding you for borrowing less by lending you the money at a lower rate.

Credit score. Credit scores also play a role in fluctuating interest rates when it comes to home loans. Generally, the higher your credit score, the lower the interest rate you’ll qualify for. A high credit score tells mortgage lenders that you’re a reasonable risk, and they can be fairly certain that if they loan you money to buy a house, you’ll pay it back according to the loan contract. Those with lower credit scores are assumed to be a higher risk, so they end up paying more in interest. Before you start the mortgage loan application process, get a copy of your credit report, and make sure it includes your credit score. Lenders like to see scores in the 600 – 700 range. These are the customers who usually qualify for the lowest mortgage interest rates.

Amount of the loan. The amount of money you’re borrowing has an impact on your mortgage interest rate, too. Larger loans are considered riskier because they’re well…larger. There’s more money involved, so mortgage lenders have to put a premium on it in the form of higher interest rates. The more you need to borrow for your new home, the higher the interest rate is likely to be, unless you can put down a sizable down payment. Save up your money, and make as big a down payment as possible. You’ll thank yourself for it later.

Points or no points. When you go to close your loan, you’ll probably pay points. Points are also called discount points. These points give you a way to lower your monthly mortgage payment by paying more in closing costs upfront. One mortgage point typically costs 1% of the loan amount and reduces your interest rate by 0.25%. So the more you pay in points, the less you pay in interest.

Here’s a quick example:

Let’s say you’re borrowing $300,000 to buy a home. The loan is quoted to you at 4% interest. If you want to lower your interest rate (and, ultimately, the total you pay over the life of the loan), you can buy down your interest rate by paying $3,000 extra at closing. This would result in a mortgage interest rate of 3.75% instead of 4%. While this would result in lowering your monthly payment by only $43, over the life of the loan, you’d save $15,444 in interest.

Other Factors

Of course, there are other factors that may impact the mortgage interest rate on home loans. The state of the economy has a significant impact, as does the political climate. The actions of the Federal Reserve from one day to the next can also impact interest rates. The best thing to do is to lock in your interest rate as soon as you can. That will protect you from some of the ups and downs caused by outside influences.

Confused Yet?

If all these numbers make your head spin, it’s probably time to get St. Louis mortgage experts involved to help out. Homestead Financial Mortgage is a St. Louis mortgage lender with the knowledge and experience to help you work through the confusion of getting a home loan. We have a branch in St. Louis for your convenience, but we also have branches in Overland Park, Kansas, and Glen Carbon and Godfrey, Illinois. We’re happy to answer any questions you may have about the home-buying process or fluctuating interest rates. Stop in and see us today!

To learn more, please reach out!

As a new home owner, you probably have a few questions on the how the purchase of your new home will impact the 2019 tax filings.  A lot has changed in the past few years with the 2018 tax act (TCJA). First be on the lookout for a Form 1098 from you loan servicer; they are usually mailed the last two weeks of January and will report the real estate taxes paid, interest paid and potentially any points paid related your loan.  

Documents you will need to file:

  • 1098 From Your Mortgage Lender
  • Property Tax Bill for 2019
  • Personal Property Tax Bill for 2019

Below are the highlighted areas that owning a home will affect on your return.

State withheld, property taxes deduction has been limited to how much can be deducted.  It caps out at $10,000 under the terms of the TCJA. For example  If you pay $6,500 in real estate/personal property taxes and $5,000 in state income taxes withholding from your paycheck for a total of $11,500, as of December 2019, you’ll lose $1,500 of that deduction. You can either claim $5,000 in property taxes and  $5,000 in income taxes, but that other $1,500 for the full $11,500 you paid is no longer available.

Deduction for Home Mortgage Interest.  This deduction has certainly changed, It’s more restricted now, but most taxpayers won’t feel the reduction. Only those who can afford rather large mortgages will be affected. You can now deduct  interest  acquisition loans topping out at $750,000, and you can no longer deduct interest on home equity loans.

The most significant change is the standard deduction vs. itemized deductions.

Taxpayers lost a handful of itemized deductions and other deductions have been limited. But the TCJA almost doubled the standard deduction for all filing statuses. It was changed from $6,350 to $12,000 for single taxpayers, from $12,700 to $24,000 for married taxpayers who file jointly, and from $9,350 to $18,000 for those who qualify to file as head of household. So while your available itemized deductions might shrink, your available standard deduction will mushroom, potentially offsetting these lost deductions.

To learn more, please reach out!

It’s a glorious day when the home mortgage is paid off. No longer does the bank have a claim on your home. You are the sole owner. Getting to that point takes time and payment after payment. Many people don’t live long enough to see that day, and others see it quite often as they pay off the mortgage every time they refinance the home. Continue reading “How to Calculate Your Mortgage Payoff”

It’s a question that weighs on many homeowners’ minds these days. Is it wise to pay off your mortgage early? The answer depends on your financial situation and there are good arguments that can be made either way. Here are several reasons why you should and shouldn’t pay off your mortgage early. Continue reading “Is Paying Off Your Mortgage Early a Good Idea?”

So you have some extra dollars and want to know what to do with it? For the purposes of this article, lets assume “spending it” isn’t an option. What are the benefits if I pay down my mortgage vs investing the extra money? When you evaluate the numbers, it boils down to emotion vs logic. Continue reading “Should I Pay Down My Mortgage with Extra Money or Invest?”

For any of us interested in qualifying for a mortgage in the near future you should also pay attention to how we are required to file our tax returns. With April 15th fast approaching, here a some tax return pointers to make sure your return doesn’t keep you from qualifying for a mortgage. Continue reading “5 Tax Return Pointers to Help You Qualify for a Mortgage”

Many people have enrolled in a bi-weekly payments program as a means to pay off their mortgage faster. Paying your mortgage payment every 2 weeks as opposed to each month does save you money. Over the life of a 30 year $150,000 mortgage at 4%, it will pay off your mortgage 4 years faster, saving approximately $17,000 in the process. Continue reading “Bi-Weekly Payments: Does it Save on My Mortgage?”

Young Couple and BankrupstcyAfter the Great Recession, many have been trying to pick up the pieces and move on with their lives, or just get back to where they were. Today we’ll talk about how to qualify for a mortgage after bankruptcy. How to manage your credit afterward, how to manage your finances, and when you can expect to be able to qualify for a mortgage.

Qualifying for a mortgage after bankruptcy isn’t a forever wait. In fact, you can qualify for a mortgage as soon as 2 years after a bankruptcy.

If you’re one of the unfortunate many who have filed for bankruptcy(bk), the road back to credit health starts with which type of bankruptcy you filed. A Chapter 13 bk is easier to work with in that the payback plans helps re-establish credit history, but the 3-5 year payback plan takes your timeline out longer. A chapter 7 is over faster, but it can be more problematic especially if the borrower didn’t reaffirm on any trade lines(or keep any accounts open) after their filing

What do I need to do?Bankruptcy - Recovery

  1. Re-Establish credit. Get your credit score above 640
  2. Do not miss any payments
  3. Pay your rent and other bills by check
  4. Check your score before your 2 year window opens.
  5. Clean up any outstanding inaccuracies

Re-Establish Credit

This can be easier said than done. Getting a secured credit card will help. A secured credit card is when you put a deposit down on a credit card to secure the amount of your credit limit. Capital One has a secured credit card program. Other department stores have on the spot approvals with low credit score requirements that can get you started. Their interest rates may be higher, but so long as you pay off your balance at month end, you should be safe. The goal is to have 3 trade lines, plus the payments for where you live reporting for at least 12 months before you apply.

 

Get your score above 640

FHA will approve most borrowers 2 years after a BK, but participating banks have established a market where the minimum credit score to qualify is 640.

Do not miss any payments

In order to qualify for a mortgage 2 years and 1 day after your BK, you must have re-established credit and can not have missed any payments since the discharge. So, from the time of your discharge, you must be squeaky clean!

Pay your rent and other bills by check

Do you best to pay any monthly obligations by check and not by cash. For borrower’s who are borderline, being able to produce cancelled checks to show payment history can be the deciding factor for approval or denial of your mortgage application. If you’ve always paid by cash, there is no objective proof the payments were actually made.

Check your credit score before your 2 year window opens.

If you want to qualify for a mortgage as soon as you can after a bankruptcy, then the time to pull your credit is not at 2 years. You should pull your credit 6 months after your bankruptcy to make sure all of the trade lines that were discharged in BK report that way and not as collections and any new trade lines you have re-established are now reporting correctly in your favor.

Clean up any outstanding inaccuracies

In many cases after a BK, accounts that were supposed to be reporting as discharged, don’t report correctly, many times they report as collections or write offs. If you pull your credit early enough, you have plenty of time to correct them. The longer you wait to correct in-accuracies, the harder it is due to lack of documentation and support for the new action.

To conclude, it is possible to qualify for a mortgage as soon as 2 years after a bankruptcy will a good amount of discipline, planning and effort.

Take a look at when you can get a mortgage again after bankruptcy,

Qualifying for a mortgage can be a stressful experience, especially if you’re a first-time homebuyer. Many questions have to be answered about income, debts, and other potentially sensitive subjects. While all the questions may seem invasive, there’s no other way for a lender to get the information they need to determine whether you’re a good candidate for a loan. It helps to keep in mind that mortgage lenders have to follow certain lending guidelines that may not make sense to you as a consumer. But these guidelines often help you in the long run.

Determining Household Income

Many couples assume that both incomes have to be included when applying for a mortgage on a home that’s being jointly purchased. However, that’s not the case. There are times when it makes sense to try to qualify using only one person’s income. Here are a few scenarios to consider.

One of you freelances. If one member of the household is a freelancer or does work for clients on a contract basis, it may make sense to exclude that person’s income from the equation. The main reason is that this income is hard to quantify to someone who’s looking for steady paychecks–someone like a mortgage loan officer, for instance. Mortgage lenders need to see regular, predictable income, and most freelancers aren’t able to meet that requirement.

One of you has been laid off. It could be that you started down the path of homeownership, and then one of you was suddenly laid off. This scenario could impact your ability to get a mortgage because one of you no longer has a steady income. In this case, trying to qualify using only the income from the employed spouse is a good choice.

One of you is between jobs. Maybe one of you decided to leave an unfulfilling job for a better situation that hasn’t yet materialized. Or perhaps you have a new job lined up, but it hasn’t started yet. If now is the time that you’ve determined is right to buy a new home, you may need to try qualifying for a mortgage using only the salary of your currently-employed spouse or partner.

One of you has a low credit score. Perhaps one of you made poor financial decisions before you were married, and as a consequence, your credit score took a plunge. This is another instance when applying for a mortgage using only one partner’s income and credit score may be the best option–as long as your debt load is manageable.

Understanding the Debt to Income Ratio

Mortgage lenders have many guidelines they must follow when determining whether to make a loan to a prospective homeowner or not. While some guidelines are federally mandated, others are imposed by the lending entity – the bank, credit union, or mortgage lending company. One of the most important guidelines to keep in mind – and one that many homeowners don’t fully understand – is the debt to income equation. Let’s take a closer look at this key element.

The purpose of the debt to income ratio is to give mortgage lenders the data they need to ensure that you can afford to make a mortgage payment along with your other monthly obligations. If you’re loaded down with credit card payments, student loans, alimony, or child support payments, you may have trouble qualifying for a mortgage. Or you may only be eligible for a small mortgage, which limits the size of home you can afford.

Determining Debt to Income Ratio

Your debt to income ratio shows a mortgage lender how much house you can afford after paying all your current financial obligations each month. Here’s how it works:

  • Total up all your monthly payments. This includes credit cards, housing, cars, personal loans, student loans, and anything else you’re on the hook for each month.
  • Divide the total of your monthly debt by your gross monthly income. The resulting dividend is your debt to income percentage.

Current guidelines for most mortgage lenders dictate that your debt to income must be 43% or lower to obtain a Qualified Mortgage (a specific category of mortgage that is consumer-friendly and easier to obtain for most people). There are other types of mortgages that have more flexible guidelines. Some larger lenders may be willing to take a risk and loan money based on a higher debt to income ratio, but those are the exceptions rather than the rule.

A Single Income Still has to Meet the Guidelines

All this information about debt to income ratios is useful because when a two-income couple wants to try qualifying for a mortgage using only one income, that income must still adhere to the lending guidelines. That means the single income must be used in the debt to income equation, and the result must come in at or below 43%. For some couples, this is no problem, but for others who are carrying a higher monthly debt load, this can be a challenge.

Do Your Homework Ahead of Time

Whether you decide to use one or both incomes to qualify for your new home mortgage is up to you. But doing a little work ahead of time may save you the embarrassment of being turned down by the lender. Take time to add up your monthly obligations and do the math. Knowing your debt to income percentage ahead of time will help you determine whether using only one income to qualify is an option for you.

Call Homestead Financial Mortgage with Questions

If you still have questions about whether you can qualify for a mortgage using only one income, give Homestead Financial Mortgage a call. Our experienced loan officers are happy to talk with you about your situation and help you decide on the best route to homeownership. We have four branch locations to serve you: Overland Park, KS; St. Louis, MO; Glen Carbon, IL; and Godfrey, IL. Stop in and visit or give us a call today. 

If you’ve experienced foreclosure you might think you’ll never be in a position to buy another home again. Foreclosure certainly impacts your credit score but it’s only a matter of time before you can once again apply for a mortgage. The question many people have is how long they have to wait before buying a home after foreclosure. How long depends on the circumstances of your foreclosure, your ability to increase your credit score, the type of loan you’re prepared to apply for and the foreclosure waiting period. Continue reading “Buying a Home After Foreclosure”

Collateral

When you obtain a mortgage loan to purchase a home, the collateral used to secure the loan is the house. If you fail to make payments and default on your loan, your lender has the option to claim ownership of the house due to its security interest.

Collateral = your home  –  this is the what secures the mortgage loan in case you don’t make your payments
Continue reading “How Collateral Impacts Mortgage Loan Qualification”

Quick Facts video 3: How capacity (your ability to repay) impacts your ability qualify for a mortgage loan.

How likely are you to be able to pay back your mortgage?  Steady employment is the best determinant of your ability to repay.  W2 wage earners are viewed as most stable from an underwriting standpoint because their income is easily documented.  Overtime, commission, and self employment income are considered less stable and are more difficult to document.

YES!               W2’s and tax returns prove steady employment

Maybe             Overtime, commission, self employment

NO way!         stated income loans (no documentation)

In our current market, full income documentation in the form of W2s and/or tax returns are required whether you’re self-employed or a wage earner. Stated income programs, which don’t require proof of income, are a thing of the past.

What is DTI?  Debt-To-Income ratio or DTI expressed as a percentage is the most important ratio to know when qualifying for a mortgage. You compute your DTI by dividing your total monthly obligations by your monthly before-tax income.

Debt-To-Income Ratio or DTI  =  Monthly obligations / Monthly pre-tax income

For example, if a borrower has a $250 auto payment, $150 in credit card payments, and a mortgage payment of $850 per month, then monthly obligations total $1,250. If your gross income is $4,000 a month then your debt to income ratio is 32%. A good rule of thumb is that you want a DTI no higher than 40%.

$250 + $150 + $850 = $1250 (monthly obligations)  /  $4,000 Monthly Income (pre-tax)  = 32%

Recommended DTI is 40% or less.

Another factor that impacts your ability to repay is the amount of liquid assets you have. Lenders want to see that you have enough cash reserves to cover your mortgage in “case of a rainy day”. Acceptable assets for reserves include checking, savings, and retirement accounts, as well as any other liquid cash accounts.

Saving for a rainy day pays off!

Checking, Savings, and Retirement Accounts as well as any other liquid assets make you more likely to be able to repay your mortgage.

Thanks for viewing our quick facts Capacity video, I hope you found it helpful.  If you have any questions please feel free to call us, our loan officers are friendly and ready to help!

Our loan officers are happy to answer any questions!  So give us a call at 800-Homestead-8! (A text file of this video can be found on our website)