Category: Mortgage Tips

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First Home Homebuying Mortgage Mortgage Tips

Upfront Underwriting: A Better Way to Pre-approval

Getting approved for a mortgage without knowing which home you want to purchase might seem like a pipe dream. But MortgageRight is in the business of making the impossible a reality! Let’s look at how an underwritten pre-approval will allow you to get conditionally approved for a mortgage even if a home hasn’t caught your eye yet. 

How Does It Work?

Upfront underwriting, also known as To-Be-Determined (TBD) Pre-approval, is a method that sends the necessary information to an underwriter at the beginning of the mortgage process instead of at the end. This way, a lender can give you conditional approval of a dollar amount before you have a house picked out.  

Which Documents Will Be Reviewed?

Much like traditional loan underwriting, the upfront underwriting process requires documentation that supports your financial stability to ensure a successful pre-approval. To verify your eligibility, an underwriter will review the following:

  • Past two years of W-2s
  • Most recent pay stubs
  • Past two years of tax returns
  • Credit report
  • Other asset documentation
Underwritten Pre-approval vs. Pre-qualification 

The most notable difference between a true pre-approval and pre-qualification is underwriting review. If you opt for pre-qualification, you must submit income, asset, and credit-related information that will initially land in the hands of your mortgage loan originator. At that point, your mortgage loan originator will review the information and determine which loan programs and amounts you could be qualified for on your home purchase. Because pre-qualification does not involve an underwriter reviewing your information at the onset, loan circumstances are subject to change as you move through the home-buying process.

On the other hand, our Underwritten Pre-approval Program allows for upfront underwriting and faster issuance of a conditional approval of a loan amount. That is why an underwritten pre-approval is so valuable. Instead of having an underwriter review your information later in the process, it is sent directly to them. This way, you can get a well-founded assurance about which loan program and maximum loan amount you can use to purchase the home of your dreams. 

What Are the Other Advantages of Underwritten Pre-approval?

One of the greatest advantages of underwritten pre-approval is securing an upfront review and verification of your credit, income, assets, and loan application by an underwriter before you decide on your perfect home. It’s a great way to get ahead of the game, understand your budget, and start shopping with certainty.

An underwritten pre-approval is the ticket to peace of mind because it drastically reduces surprises on your way to the closing table. Plus, an underwriter’s stamp of approval gives realtors and sellers confidence that issues with your mortgage loan are unlikely, which earns you more negotiating power over other potential buyers when you finally find the house you want. 

Is an Underwritten Pre-approval RIGHT for You?

Many homebuyers can benefit from getting pre-approved at the beginning of the home-buying process. Think the underwritten pre-approval route is RIGHT for you? Contact us here, and we’ll get you into a new home in no time!

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First Home Homebuying Mortgage Mortgage Loans Mortgage Tips New Home

How to Get a Mortgage in 2021: A Step-by-Step Guide 

For many people, getting a mortgage can feel like learning to walk all over again—that is, if they go into the process uninformed. Information is what separates the runners from the crawlers, and knowing how to prepare will make it that much easier to walk into the front door of your dream home.

Ready to make strides in the home-buying process? Let’s look at how to get a mortgage, step-by-step. 

Step 1: Financial Preparedness is Key

When looking to get a mortgage, be sure you’re financially prepared to take on homeownership. Buying a home is a major investment, and you need to consider how it will affect your finances. Can you save enough for a down payment? Are you deep in debt? Can you cover closing costs? 

If you answered no to any of those questions, you may want to improve your financial situation before applying for a mortgage. 

Additionally, lenders take a close look at your credit score when determining your mortgage eligibility; so make sure your credit score is in good condition before applying for a mortgage. If your credit score needs a little work, give it a boost by paying off debts or holding off on opening new lines of credit until you can secure a mortgage. 

Step 2: Decide Which Mortgage Loan Type Suits Your Needs

There are many loan types out there with different eligibility requirements, so it’s best to learn which one will fit your unique home-buying needs before you apply. 

Here are some loan types you might be interested in:

  • FHA loans have features, such as low down payment options, flexible credit & income guidelines, and a fixed rate, that may make it easier for first-time homebuyers to achieve the dream of homeownership.
  • USDA loans are popular among today’s home buyers because the USDA program offers no-money-down financing where homebuyers can finance 100% of a home’s purchase price.
  • Conventional loans are home loans not insured by the federal government. This type is best suited for borrowers who have a strong credit score, stable employment history, and can make a down payment of at least 3% of the home’s cost. 
  • VA loans are most beneficial for the vast majority of military borrowers. These versatile, $0-down payment mortgages have made it possible for more than 24 million service members to achieve their dream of homeownership. 
  • Jumbo loans are for home prices that exceed federal loan limits. These are best suited for affluent buyers with good credit, a high income, and who can offer a substantial down payment. 
Fixed or Adjustable Rates?

Fixed-rate mortgages keep the same interest rate over the life of your loan. They also provide a consistent monthly payment on your mortgage and come in 15-year, 20-year, or 30-year loans. 

Adjustable-rate mortgages have flexible interest rates that change with market conditions. These come with a certain level of risk but are beneficial if the home is temporary. 

Step 3: What Documentation Is Needed?

You’ll need to have all of your documentation in order before you apply for a mortgage. Here’s a rundown of the paperwork your lender will request.

Proof of Income

A lender will ask for a variety of documents to verify your income. Some items you might need to provide include:

  • 2+ years of federal tax returns
  • 2 most recent W-2s and pay stubs
  • If you’re self-employed, 1099 forms or profit and loss statements, or other additional documents.
  • If applicable, legal documentation that proves you have been receiving child support, alimony, or other types of income for at least 6 months.
Credit Documentation

A lender will always ask for verbal or written permission to view your credit report. While looking at your credit report, lenders will keep an eye out for factors that might exclude you from getting a mortgage (e.g., bankruptcy or foreclosure). If bankruptcy or foreclosure are present on your credit report, you might have to wait a number of years before you’ll become eligible for a mortgage.

Proof of Assets & Liabilities 

It’s possible that a lender might request some of the following documents to verify your assets: 

  • Up to 60 days’ worth of account statements that confirm the assets in your checking and savings accounts
  • The most recent statement from your retirement or investment account
  • Documents highlighting the sale of any assets you released before you applied (e.g., a copy of title transfer for a sold car)

How To Get A Mortgage With MortgageRight

Step 4: Preapproval

Preapproval is the process of learning how much a lender is willing to lend you to purchase your home, and there are some big advantages of getting preapproved before starting the mortgage application process. 

For one, it shows sellers that you can make a solid offer up to a specific price. Preapproval also gives you a better understanding of your mortgage costs because lenders will determine—and provide details on— your interest rate, APR, fees, and other closing costs.

During the preapproval process, MortgageRight will seek to provide the mortgage option(s) we think best fit your needs. We will show you different mortgage solutions and how much you can qualify for.

Step 5: Submit your Application

Even if you have already been preapproved, you still need to formally submit your most recent financial documents when you apply for a mortgage. Outside of the previously mentioned Proof of Income documents, these can include:

  • Proof of other sources of income
  • Recent bank statements
  • Details on long-term debts (e.g., car or student loans)
  • ID and Social Security number
  • Documentation of recent deposits in your bank accounts
  • Documentation of any funds or gifts used for a down payment

*Depending on the type of mortgage you’re getting, other documentation may be required. 

Within three business days, MortgageRight will give you an initial loan estimate, which consists of:

  • The cost of the loan
  • Associated fees and closing costs
  • Interest rate and APR.
Step 6: Enter the Underwriting Process

During this process, an underwriter will verify your assets and finances with the documentation you have provided during your application submittal.

MortgageRight will also verify details about the property you want to purchase. This usually encompasses:

  • Ordering an appraisal 
  • Verification of the home’s title
  • Scheduling any state-required inspections. 

When underwriting is finalized, you’ll receive a Closing Disclosure document.

A Closing Disclosure will tell you important information about your mortgage, including your monthly payment, down payment, interest rate, and closing costs. If you have any questions regarding the Closing Disclosure, you may discuss them with your Loan Originator prior to the scheduled closing date. 

Step 7: Close on Your Home

When your loan gets approved, you will be scheduled to attend closing at the closing agent’s office. This closing session is the perfect time to ask any last-minute questions you may have about your loan. Remember to bring your Closing Disclosure, a valid photo ID, and your down payment. Once you sign on that dotted line, you will officially become a homeowner!

Are You Ready To Secure A Mortgage?

A lot of organization, documentation, and time goes into getting a mortgage, but if you prepare as much as you can beforehand, things should go smoothly for you. Think you’re ready to take that first step toward getting a mortgage? We’ll walk beside you! Click here to get started!

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First Home Homebuying Mortgage Mortgage Loans Mortgage Tips New Home

Pre-qualification vs. Pre-approval: What’s The Difference?

The mortgage process is filled with systems and terminology that the average homebuyer may not be familiar with. While preparing to apply for a mortgage, you may encounter the terms pre-approval and pre-qualification for the first time, and it is vital that you understand the individual role each of them plays in your home search. 

Pre-qualification: What does it mean?

Pre-qualification is an initial step in the mortgage-seeking process. It typically involves describing your credit, debt, income, and asset situation to a prospective lender. After reviewing the information, the lender will give you an estimated loan amount you can expect to receive. 

Most lenders (including MortgageRight) are flexible when it comes to this part of the mortgage process and will give the option to complete it over the phone, online, or in person. 

Though pre-qualification is not a requirement when applying for a mortgage, it’s an exercise in helping you understand your financial fitness regarding a mortgage. It’s also the perfect time to learn more about the different mortgage options available. 

Pre-approval: What does it mean?

Much like the pre-qualification process, you will need to provide your lender with information regarding your financial history and stability. The difference here is that financial documents are required and will serve as proof of your mortgage readiness.

Here’s a list of commonly requested documentation:

  • W-2s (a current pay stub)
  • A summary of your assets 
  • Your total monthly expenses
  • A copy of your mortgage statement and home insurance policy if you already own real estate

After assessing the documentation, verifying your financial fitness, and running your data through an automated underwriting system, your lender will send you a pre-approval letter. This letter details the amount, type, and terms of the mortgage loan your lender is willing to offer. 

While a pre-approval offer is not a guarantee, it does act as proof of your commitment to buying a home and can give you leverage in a competitive market. 

Choose What’s Best for You

Whether you’re unsure about your financial standing when it comes to getting a mortgage or you’re ready to move on to pre-approval, MortgageRight can help you every step of the way. Call us at (205) 776-8401 to discuss the next steps in pre-qualification or get pre-approved today!

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First Home Homebuying Mortgage Mortgage Loans Mortgage Tips New Home

Down Payments: How Much Do You Really Need?

When preparing to buy a home, it’s important to consider one of the most significant financial components of the purchase—your down payment. A down payment is an out-of-pocket amount you pay toward your home that translates into home equity. Because guidelines and lending practices vary when it comes to down payments, it can be hard to figure out how much you need. Let’s find out which down-payment option is right for you!

Is a 20% down payment necessary?

A 20% down payment can seem daunting for a first-time homebuyer. But there are other options. Most lenders are flexible about how much money they will allow you to put down. With that said, everything in life has its pros and cons, and making a sizable down payment is no different. 

Pros

If putting 20% down on your home is financially feasible, here are a few benefits you’ll reap.

You can land a better interest rate

When you put down 20% or more, you’re less of a risk to lenders. And when you’re not as risky to lend to, you gain access to lower interest rates. 

Your interest rate is simply the percentage of the principal or outstanding balance that you’re charged monthly for borrowing money. An interest rate that’s even one point lower can save you thousands of dollars throughout the life of your loan. 

Want to know more about interest rates? Find out here.

Your monthly payments will be lower

Your down payment goes toward the cost of your home. If you can put a sizable amount of money down, you can borrow less from your lender to pay for the rest of your home. With less money borrowed, you will have lower monthly mortgage payments. 

You won’t have to worry about PMI

PMI, or private mortgage insurance, is an assurance fee typically applied to a borrower’s monthly payments if they cannot put a certain amount down on the home they purchase. It acts as a buffer for lenders when the risk of default is on the table, and if you put 20% down, you won’t have to worry about it.

Even if putting 20% down isn’t in the cards, you can request that your lender remove PMI when you reach 20% equity in your home. Typically, if you don’t make the request, a lender will automatically cancel PMI when you build at least 22% equity in your home. However, this does not apply to FHA loans. 

Need to know the basics of equity? Learn more here.

You’ll pay less interest over time

The higher your down payment, the lower your borrowed amount, so you’ll pay less interest over the duration of your loan. 

Cons 

Though putting 20% down seems like it might be the best option for every buyer, there are potential disadvantages to consider. 

Saving takes time 

Most borrowers will spend months (or even years) putting money away for a down payment, but some borrowers’ savings might be better used elsewhere. If you think you might need the money to fund an important event in your future, it might be more beneficial to put down less than 20%. 

Less money for repairs and home improvements

Some borrowers have their eye on a home that will require a few repairs, and they might be able to snag it for a bargain because of it. With a larger down payment, there are fewer funds left to go toward the maintenance of the purchased home. 

This might be less of a drawback if you’re willing to hold back on the repairing process. Once you’ve built up enough equity in your home, you may be eligible for a cash-out refinance to fund your home improvement project(s).

Is it possible to buy a house with no down payment?

Of course! Not being able to put money down may not exclude you from being able to buy the home of your dreams. However, it does prevent you from being able to access certain loans. If you want to put 0% down, you’ll need to get a government-backed loan. 

Government-backed loans are those that the government insures. They are beneficial to borrowers because the government will cover any financial losses if you default on the loan. Lenders will also be more likely to give lower interest rates and less stringent down payment requirements on these loans. 

If you’re thinking about buying a home with no money down, a VA loan or USDA loan may be the right option for you. You may qualify for a VA loan if you’re a current or former service member or a surviving spouse of a former service member. To qualify for a USDA loan, the home you want to purchase must be located in an eligible rural or suburban area.

Both VA and USDA loans come with a zero-down payment guarantee as long as you meet the minimum requirements set by the Department of Veteran Affairs (VA) and the U.S. Department of Agriculture (USDA).

Down-payment requirements for non-government loans

Outside of government loans, down-payment requirements can vary:

Conventional Loan: Conventional loan requirements a determined on a lender-by-lender basis. Some lenders may require you to put higher than 5% down, but at MortgageRight, 3-5% is common. 

FHA Loan: You can land an FHA loan with as little as 3.5% down if you have a credit score of 580 or above. However, if your credit score is within the 500-579 range, you’ll be required to put down as much as 10% 

Jumbo Loan: Though they don’t have a designated down-payment requirement, Jumbo loans typically require higher down payments and credit scores to be eligible. 

Don’t let a down payment keep you from owning your dream home

Whether you’re in the financial position to put more than 20% down or a zero-down payment is more suitable, MortgageRight can help you secure the RIGHT loan option for your home-buying needs. Get a quote or pre-approval letter or contact us at mortgageright.com/contact to make your dream home a reality!

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First Home Homebuying Mortgage Mortgage Insurance Mortgage Loans Mortgage Tips New Home

PMI vs. MIP: A Guide to Mortgage Insurance

Mortgage insurance is a gateway to homeownership. It adds an extra layer of accessibility for those who can’t put forward a sizable down payment. By paying mortgage insurance in addition to the monthly mortgage payment, a borrower can buy the home of their dreams with less than 20% down. 

Private mortgage insurance (PMI) and a mortgage insurance premium (MIP) are the two most common types of mortgage insurance. Though these types of mortgage insurance are prevalent, which one you get depends on a variety of factors. 

PMI vs. MIP: What Are They?

PMI

Private mortgage insurance is a cost only applicable to conventional (or non-government-backed) loans. PMI is an “assurance fee” typically applied to monthly payments if a borrower cannot put 20% or more down on the home they purchase. PMI acts as a buffer for lenders when the risk of default is on the table while making homeownership possible for borrowers who can only put a small percentage down on the home they want. 

MIP

A mortgage insurance premium is much like PMI, but it only applies to government-backed (FHA) loans, and it is required no matter your down-payment amount. This mortgage insurance consists of an annual MIP and UFMIP (upfront mortgage insurance premium). 

Notable Differences Between PMI And MIP

Beyond the type of loan each mortgage insurance policy applies to, there are other notable differences to keep in mind. 

Can You Cancel?

If you put down less than 20% on a conventional loan, mortgage insurance is something you will more than likely have to pay. However, mortgage insurance payments change when you acquire 20% equity in your home. When you reach this equity benchmark, you can request that your lender remove PMI from your mortgage. Even borrowers who get caught up in the motions of paying PMI alongside their mortgage and forget to request a stop on PMI have the chance to see it go. 

PMI is automatically canceled once you reach 22% equity based on your original appraised value. As your home value increases, you can request the lender remove PMI if a new appraisal demonstrates the equity is 20% or more of the appraised value. 

This is great news for most borrowers who pay PMI, but things work a little differently for those who have FHA loans. Typically, the MIP can’t be canceled on this government-backed loan and is a payment that remains for the duration of the loan regardless of equity. 

If the MIP payments tacked onto FHA loans aren’t for you, there are still other options. When your equity reaches 20% or more, you can refinance your home with a conventional loan and no PMI. 

Upfront Costs

An FHA loan is a mortgage option that requires both an upfront mortgage insurance premium (UFMIP) and MIP.

With this loan, UFMIP is 1.75% of the amount borrowed. It can either be paid in full at closing or added to the loan amount. 

PMI, however, is typically paid annually, with a portion included in each monthly mortgage payment. This prevents you from paying any upfront costs.

Annual Costs

Those who finance their home with an FHA loan will pay an annual MIP. This amount falls between a range of 0.45% – 1.05%. 

Alternatively, the PMI rate is determined by your down payment amount and creditworthiness. PMI rates are typically between 0.58% – 1.86% of the loan amount.

PMI vs. MIP: Which One Is RIGHT For You?

Whether PMI or MIP, mortgage insurance is a payment that many borrowers will come across on their home-buying journey. But it doesn’t have to hold you back from getting your perfect home! Contact us here, and we’ll help you navigate the ins and outs of mortgage insurance with ease!