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Homestead Financial Mortgage

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Tag: mortgages

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

Homestead Financial | Mortgage Rates Drop

The U.S. Federal Reserve raised its key, Federal Reserve Funds Rate (Fed Funds) .25% on Monday, March 13th, 2017 for the second time this year, citing economic growth, job gains and confidence.

Then the mortgage market did something odd. Mortgage rates dropped. The yield on the 10 year US treasury peaked at 2.60% the day the FOMC chair, Janet Yellen announced the Federal Reserve would raise its key Fed Funds rate to 1.00%, from .75%.

The reason? Consumer debt gets pricing from DC and mortgages get their pricing from Wall Street. Fed Funds is the interest rate the Federal Reserve changes its member banks for short term loans. There is no direct correlation between the Federal Reserve raising rates and mortgage rates.

So in other words, Fed Funds going up has an effect on your credit card rates and consumer loan rates, rates tied to the prime lending rate, but not mortgage rates.

So what do I do if I’m in the mortgage market? The best indicator of mortgage rates is the yield on the 10 year US Treasury which can be found here https://finance.yahoo.com/quote/%5ETNX?p=^TNX

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. 

Over the past 5 years, mortgage interest rates have gone in one direction, down, down, and down. Each time we appear to have hit a floor, the bottom drops out of it to another floor.

Over this time frame, some borrowers have taken an “I’ll get around to it” attitude. However, I thought it wise to break down what the actual savings on refinancing in today’s market will actually mean.

Example 1 – Paying off your Mortgage Faster

Borrower John in Chesterfield, MO has a $175,000 mortgage at 5.5%with 25 years left at a payment of $993.63 and has been putting off refinancing due to the trouble of rounding up all of the income documentation.
What is available is $175,000 mortgage at 15 years at 2.75% which carries a payment of $1,187.59.
Total payback on John’s loan (993.63x25x12) is $298,089 but by applying for a lower rate on a 15 year leaves him with a total payback of $213,766, saving John a whopping $84,322.

Ex. 2 Improving Cash Flow for Investments

Borrower Lisa from Overland Park, Kansas has a $200,000 Mortgage at 5.5% with 25 years left which carries payment of $1,135.58

What Lisa wants to do with her situation is refinance to a 30 at 3.500% and invest the excess cash flow. The payment on her $200,000 mortgage is $898.08, saving her $237.49. If Lisa invests the $237 savings every month over 30 years, assuming a 5% return in a tax deferred account, she will have $197,000 left over when she pays off her mortgage in 30 years.

So to conclude, if it’s to pay off your mortgage quicker, or to take advantage of investment opportunities, there are great financial opportunities in today’s refinance market.

If you’re one of the millions of homeowners with an underwater mortgage who would still like to refinance but can’t qualify for HARP (the federal Home Affordable Refinance Program), there are still some options. Though limited to borrowers in specific situations, you can still refinance a negative-equity mortgage even if you don’t qualify for HARP as long as your mortgage loan is backed by the FHA or VA.

Provided you’ve kept up with your mortgage payments, both FHA and VA mortgage loans offer what is known as “streamlined” refinancing that enables you to be approved for a refinance almost automatically. In fact, credit scores, appraisals, proof of employment aren’t necessary no matter how much the value of your home has fallen below what you owe on the loan. But it’s important to remember there are criteria that must be met.
Continue reading “Refinancing Without HARP”

Let’s face it, bad credit happens to all of us at one time or another. Whether you’re unemployed, are disabled, sick and cannot work or the victim of credit card fraud or identity theft, falling victim to bad credit is easy. Here are some ways to avoid bad credit.

One of the best ways to avoid bad credit is to prevent it from happening in the first place. Creating a monthly budget before you start developing credit is the ideal way to keep your credit from getting out of hand. By making a list of your monthly income and monthly expenses, you’ll know your spending limitations. Just because a credit card allows you to go out and buy a bunch of stuff right away doesn’t mean that you should. It’s important to put a cap on your spending and stay well below your credit card limit. When you spend close to your credit card’s limit, your credit score goes down. Continue reading “Avoiding Bad Credit”

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.