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Homestead Financial Mortgage

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Buying a Home for less per Month than your Rent by the Numbers

This statement always raises an eyebrow…or 10, when I say in this market, with just a moderate down payment, you can buy a home for less than what you pay in rent.
 

Buy a home for less than rent

This is how it comes out by the numbers:

Let’s take a $175,000 house in this market, assuming a 5% down payment.

Principal and Interest  @4.25 817.88
Taxes @1.25% 182.29
Insurance  100.00
Mortgage Insurance    81.74
Total     $1,181.88

 

Lets compare that to a reasonable rent payment in this market of $1,250. This is how we come to prove the statement that you can buy a home for less than your rent.

Even further, after the tax benefits of mortgage interest, and the doors which this immensely valuable deduction opens, the net effect means an amazing savings to the home buyer over renting.

For more information, check out HomesteadU

It’s not easy being a single parent. In fact, it can be quite challenging at times, especially if you’re used to having two incomes and a larger monthly budget. Sometimes it’s hard to make ends meet, and for some single parents, the idea of home ownership seems out of the question. We have some good news, though.

Child Support Payments May Count as Income

Child support payments can be added to your regular income from your job or other sources and be used to qualify for a mortgage. These payments boost your overall monthly income, which means you may be eligible for a bigger mortgage than you thought. And that means you can afford a larger or nicer home for yourself and your family. 

There are a couple of rules that have to be adhered to when using child support payments to qualify for a mortgage. Below are the primary conditions that have to be met in order for your child support checks to qualify as income on your mortgage application.

Six months of payments in the past.

You have to have received child support payments for a minimum of six months before the date on which you submit your mortgage loan application. This means you have to have received the full amount of child support regularly for the past six months. Sporadic payments don’t count, nor do payments that are less than the legally-decreed amount as determined by your divorce or separation agreement. You’ll need to be able to document receipt of these payments.

Helpful Hint: Each time you receive a child support payment, deposit the check as soon as possible and in full. Don’t keep cash out or deposit the check along with other checks. You’ll need to have a clean record of receipt of your child support payments, and the best way to do that is through your bank records and deposit slips. Don’t muddy the paper trail; deposit each check in full as soon as you receive it. It may also be helpful to make a copy of each check before you deposit it.

Some states are set up to help enforce the payment of child support. If your child support payments come to you through the state, you can use documentation from the state to show that the payments are being made on time and in full. In those cases, for example, the state of MO Child Support Enforcement has a link to document payment history of their cases, which is available here. Each recipient is required to obtain an 8 digit key code to access their account.

Three years of payments going forward.

You also have to be able to prove that you expect your child support payments to continue for an additional three years from the date you submit your mortgage application. Most child support payments continue until the child turns 18. So if you’re applying for a mortgage and you have a 16-year-old, you won’t be able to include child support payments because they’ll only continue for another two years.

If you have children of varying ages, you may be able to split your child support and use the portion that applies to the younger ones if the older ones are getting ready to “age out.” Consult with your mortgage loan officer to determine what’s allowed in your situation.

Helpful Hint: Documentation is essential when proving that your child support payments are anticipated for another three years. Make sure you know where all your paperwork is, and use one of the following to verify the expected continuation of child support payments for your mortgage loan officer:

  • A divorce or separation agreement that mandates the amount of your child support payments and the length of time they’re in effect.
  • A written decree, court order, or other document that outlines child support payment requirements.

Voluntary Child Support

While it’s not common, some ex-spouses do make voluntary child support over and above what’s mandated by the divorce decree. While this is good news for you and your children, voluntary payments are not allowed as income when applying for a mortgage. The simple reason for this is that they’re voluntary; they’re not mandated by a legal document. While they do help with monthly bills, they don’t fall under the rules noted above and don’t count as income for mortgage qualification.

A Note about Alimony Payments

Alimony payments – payments made to an ex-spouse to maintain a certain standard of living after divorce – are separate from child support payments, but also fall within the realm of income. As long as they meet the criteria noted above (having been received consistently and in full for the past six months and with the expectation that they’ll continue for another three years), they can be included as income when qualifying for a mortgage.

If, however, your alimony payments are in jeopardy – for instance, if your spouse has filed a request to reduce or discontinue them – your mortgage lender will not consider them as income for mortgage qualification.

We Are Here to Help

Homestead Financial Mortgage wants to help you get into the home of your dreams. For over ten years, we’ve been working with customers in St. Louis, MO; Overland Park, KS; and Godfrey and Glen Carbon, IL. We’d love to work with you, too. We’re licensed in eight states (Missouri, Kansas, Illinois, Tennessee, Indiana, Colorado, Florida, and Arkansas), and we can help you find a home that’s a perfect fit for your family’s needs.

If homeownership is a dream of yours, don’t let your single status hold you back. Talk to one of our expert mortgage loan officers to see if your child support payments can help you qualify for a mortgage. You might be surprised at the possibilities you uncover!

To learn more, please reach out!

A family’s most valuable asset is their home. Many homeowners use a Home Equity Loans or a Home Equity Line of Credit (HELOC) to finance big ticket items like a child’s college education, home improvements and even medical bills. If you are considering a HELOC, you’ll want to take advantage of the best credit terms without subjecting yourself to any undue financial risks since inability to repay the borrowed amount plus interest could cost you your home. Here are some things to consider.

It’s important to understand the difference between a home equity loan and a Home Equity Line of Credit. With a home equity loan a lender agrees to loan a maximum amount for an agreed upon time period (a term) with the borrower’s equity in his or her home as collateral. Equity is the amount of money you would receive after selling your home and paying off the mortgage. Home equity loans provide homeowners a one-time advance with specific monthly payments and a specified time frame for repayment. Home equity loans are a convenient way to borrow money because of flexible terms and competitive rates.
Continue reading “What You Should Know about a Home Equity Line of Credit (HELOC)”

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”

Clinically put, Private Mortgage Insurance, or PMI or MI, is insurance that will help to protect a lender from loss in the case of a default by the borrower. MI is almost always required on loans with less than twenty percent equity. That means, if you are purchasing a home with less than twenty percent down or refinancing to more than eighty percent of your home’s value, you will be required to pay mortgage insurance. While it is a payment that the borrower pays to insure another party, it does have its benefits.

How is mortgage insurance charged?

There are a couple of ways MI is charged. There is Monthly MI, which is computed based on various factors such as credit score, LTV(Loan to Value), and term, then there is MIP(Mortgage Insurance Premium) which is charged up front, and most of the time added to the loan amount. Some programs charge one or the other, while some, (Gulp) charge both. In some cases, there is an add on to the interest rate which pays the premium, called Lender Paid MI. (LPMI)

Why should I pay MI?

Simply put, if you don’t have 20% to put down on a mortgage when you purchase or refinance, then be happy you get to pay MI. For example, in Kansas City and St. Louis, the average home sales price is right at $145,000. I don’t know about you, but I didn’t have 20% down ($29,000) sitting around in my checking when I purchased my first home.

Having MI to purchase a home allows most buyers to get into a home with as little as 2.5% down in some cases. So without the benefit of MI, purchasing a new home would be very difficult.

However, here are some tips to be as efficient as you can with the premiums you pay.

How to pay as little MI as possible

  1. Save as much money as you can. The larger the down payment, the lower the MI, and/or MIP.
  2. Keep your credit score as high as possible. Remember, the minimum score to get a home loan these days is 640. The higher the score, the lower the MI.

How to get out of paying MI if you are already paying

  1. Most MI contracts cancel when you pay the loan amount down to 78% of the original value of the home at purchase or value on the last refi. However, that takes almost 10 years if you put down 5%.
  2. The 2nd way to get out of paying MI, is by refinancing your home assuming you have built up 20% equity through a combination of principle payments and appreciation. However if you are content with your existing loan, you should call your lender to see on what conditions they will cancel your MI.

To summarize, while MI is a premium you pay to insure someone else’s interest, it helps people buy homes and refinance homes with less that 20% equity and with some good planning and discipline, there are ways to keep the premiums to a minimum.

 

Of the potential borrowers that apply through either of our St. Louis or Kansas City mortgage offices that get turned down, the major reason is due to credit score (minimum required is 640) and the other is due to value.

While there is nothing we can do in the near term about value (from the housing crisis), here are some tips to improve your credit score that can help you in the next 30-180 days.

1. Pay your bills on time. Do not pay them late. Call this the sarcastic “OMG” part of our blog, but this makes up 35% of your credit score. It is important to note, that paying your bills late, also means:

  • Paying late, but paying the late fee. You are still marked as paying late.
  • No longer paying your car loan because you “gave it back” is still paying your bills late. “That’s not a repossession, we gave it back”, is not a viable argument.
  • Allowing a debt to go to collection because you “disagreed” with the charge is still marked as paying late. You need to pay the debt to avoid the late mark then get your money back from the creditor.

2. Keep the Balances on Revolving Accounts Low.

For example, if you have a credit card with a $10,000 limit, and:

  • You owe $10,000, that is bad. This means you are maxed out.
  • You owe $100, that is Good! This means you have financial room.
  • You haven’t used that credit card for a while, don’t close it out. The capacity to have access to credit helps your score.

3. Adding a Spouse as an Authorized User:  This works for the situation where one spouse has a higher, qualifying score, but the other does not, but both borrowers income is needed to qualify for the loan.

If your spouse has available credit on their credit cards when you have little credit or little available, then ask to be added as an authorized user. This will help both borrower’s score if you need a few more points.

4. Adding a Secured Credit Card: I’ve mentioned before that credit card utilization accounts for 30% of your score, so if you’re having trouble getting a credit card, then apply for a secured credit card. We’ve had success referring borrowers to Orchard Bank, www.orchardbank.com.

5. Use Department Store Credit Cards as a Last Resort: While they can help, department store credit cards usually keep a low credit limit, consequently, are easy to max out, and can’t be used at a wide variety of stores.

By using a couple of these tips, hopefully that may result in an increase in score just enough to qualify or keep the rate you qualify for as low as possible.