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Budgeting Credit Down Payment First-time Homebuyer Homebuying Tips Mortgages Purchase

5 First-time Homebuyer Mistakes and How To Avoid Them

We get it. Today’s home-buying landscape can leave many first-time homebuyers wondering if they’re making the right choices when it comes to securing a mortgage. The good news is, you don’t have to go into this blind. Let’s look at five common mistakes homebuyers make and how to avoid them.

Making a down payment that’s too small

Contrary to popular belief, you don’t always have to make a 20% down payment to purchase a home. Some loan programs will allow you to put as little as 3.5% on the table, or no down payment at all. Now, you might be thinking, of course I’m going to go with the option that takes the least out of my pocket upfront. But paying a smaller down payment does not suit everyone’s needs. 

Smaller down payments might lessen the hit to your savings in the short term, but you will be left with larger monthly mortgage payments as a result. On the flip side, going into a home purchase with a larger down payment might deplete funds you had saved up for other situations.

Use this advice to avoid a setback:  The solution to the question of “which down payment amount is best?” comes down to one thing—your judgment. You’ll want to decide on a down payment (and supporting loan program) that will guarantee a monthly mortgage payment you’re satisfied with. If you’re aiming for a higher down payment, save more beforehand. If a lower down payment is more your style, make sure your finances can withstand a higher monthly payment.  

Not checking credit reports and correcting errors

Your credit report is one of the “holy grail’ documents lenders use when deciding whether to approve your loan and at what interest rate. If there are any errors, unknown or otherwise, in your credit report, it could lead to a lender landing you with a higher interest rate than you anticipate. That’s why it’s so important to make sure your credit report is accurate. 

Use this advice to avoid a setback: Now more than ever, it’s easier to get access to your credit report. Request a free credit report from the three main credit bureaus to check for discrepancies. From there, you can dispute any errors you notice. 

Ignoring VA, USDA, & FHA loan programs

Making a small down payment is at the top of the list for many first-time homebuyers. But they aren’t always aware of the benefits that come with government-backed loan programs. VA, USDA, and FHA loans often make it easier to buy a home by requiring as little as zero down. 

Use this advice to avoid a setback:  Learn how these loan programs can benefit you: 

  • VA – For the majority of military borrowers, the VA loan program is the most beneficial. These versatile, $0-down payment mortgages have made it possible for more than 24 million service members to achieve their dream of homeownership. 
  • USDA – A USDA (United States Department of Agriculture) loan is a government-backed loan that allows lenders to offer borrowers lower rates and no down payment. This loan aims to boost rural economies and build a better quality of life for rural communities across the nation. The USDA makes this possible by creating a more affordable option for families looking to buy a new home. 
  • FHA – An FHA loan is a mortgage insured by the Federal Housing Administration. With a minimum 3.5% down payment for borrowers and a wider range of acceptable credit scores, FHA loans are popular among first-time homebuyers who have little savings or have credit challenges.
Emptying your savings

For most homebuyers, savings are an integral part of the home-buying process. That’s why you should make sure you have enough funds stashed away to pay for the cost that comes with a home purchase. 

Having ample savings is especially important for borrowers who buy older or previously owned homes. Why? Because more often than not, home repairs or renovations will be on your to-do list, and if you blow through your savings, you might find yourself dealing with a leaky roof longer than you want to. 

Use this advice to avoid a setback: Be sure to save enough money to make your down payment, pay for closing costs and moving expenses, and tackle any repairs that may crop up. Your lender will provide estimates of closing costs. MortgageRight also has a great Renovation Loan option that you can make the most of!

Applying for credit too soon

Once you apply for a mortgage, the financial choices you make between that moment and the date you close on your home are crucial. During this period, you shouldn’t make any financial decision involving opening new lines of credit.  

 Use this advice to avoid a setback:  If you need to get a new credit card, finance a new car, or make any other large purchase using credit, be sure to do it after your mortgage loan closes to avoid any unwanted surprises.

Make the RIGHT choice with us!

Mistakes are a part of life, but they don’t have to be a part of your home-buying experience. If you have any questions about the do’s and don’ts of getting a mortgage, or you’re ready to take that first step, contact us today, and we’ll guide you home.

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Down Payment First-time Homebuyer Homebuying Homebuying Tips Purchase

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-time Homebuyer Homebuying Homebuying Tips Loans Market Analysis Mortgages Pre-approval Purchase

Top 3 Ways Remote Work Is Changing Homebuying

Throughout history, our home spaces have evolved alongside our workplaces. And as telecommunication and global connection continue to thrive, more people than ever are dropping the commute and firing up their laptops to put in a good day’s work. But what does this change in the workplace mean for up-in-coming homebuyers entering the housing market? Let’s find out! 

How remote work is changing home-buying behavior

When searching for the perfect home, the commute to work has been an integral part of most homebuyers’ decision-making process, and that remains true in today’s home-buying landscape. A 2021 study done by Realtor.com provides insight into homebuyers’ willingness to trade in longer commute times for more affordable homes in more desirable areas.

But with the emergence of remote work across the nation, the “this-for-that” mentality has less influence on homebuyers. Homebuyers that originally struggled to find homes that fit both their price point and desired commute time now have the opportunity to be more flexible because:

  • Majority of recent homebuyers (Gen Z, Millennials, Gen X) prefer remote work.
  • About four-in-ten recent homebuyers work remotely due to pre- and post-pandemic conditions.
  • Younger workers are driving real estate markets.
  • Close to half of recent homebuyers report companies embracing remote work.

This is great news for homebuyers who want to forgo city living altogether while maintaining their current job. If you’ve had your eyes set on a suburban or rural area, the freedom that remote work provides (and the benefits of a USDA loan) can help you snag the home of your dreams.

More first-time buyers are entering the market

The influx of remote work is also helping individuals who could not otherwise purchase a home enter the housing market. According to Zillow, remote work could open the door to homeownership for nearly two million renters to buy starter homes in less expensive areas outside of the cities they work in. 

The Mortgage Bankers Association explains how this reshaping of the housing market could take place. More than 10% of renters who may have struggled to afford a home within the city limits of San Francisco could afford a home within the metro area (but beyond an acceptable 5-day-per-week commuting distance). With current interest rates at an all-time low and the ability to move out of high cost-of-living areas, current renters who work remotely have more opportunities than ever to become homeowners.

In-home requirements are more specific

The areas people choose to live in aren’t the only thing changing with the rise of remote work. There is also a noticeable shift in what homebuyers are looking for in their homes. 

Having a dedicated office space is a top priority for homebuyers working remotely. Homes with an extra bedroom, a finished attic or basement, or designated office space are beginning to overshadow previously sought-after amenities. Home theatres and gyms are losing their luster in this new era of home buying because the more time buyers spend working at home, the more willing they are to reap the benefits of an in-home experience from a public place. 

Need a New Home to Work From?

No matter where you get your work done, any time is the RIGHT time to start your home-buying journey. If remote work has become a permanent part of your life, you don’t want to miss out on buying the perfect home for your needs. Re-invent what home looks like for you by getting a quote or pre-approval letter today

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USDA Loans: How to Break the Big-City Blues with a Rural Relocation

With the increase in housing prices and the decrease in peace of mind, now, more than ever, rural residential living is taking precedence over living in metropolitan areas. If your sights aren’t set on settling down in the big city, the USDA loan may be the perfect mortgage option to help you purchase your dream home! 

What is a USDA loan & how do I qualify for one?

A USDA (United States Department of Agriculture) loan is a government-backed loan that allows lenders to offer borrowers lower rates and no down payment. This loan aims to boost rural economies and build a better quality of life for rural communities across the nation. The USDA makes this possible by creating a more affordable option for families looking to buy a new home. 

The process of getting a USDA loan is not much different from other loans on the market, but there are some requirements you need to be aware of:

  • The USDA must approve the lender.
  • With a USDA loan, an appraisal is not only required to determine the fair market value of the home, but it must adhere to additional guidelines stipulated by the USDA. 
  • You will only be allowed to purchase homes in a specified area using a USDA loan. 
  • Approval for a USDA loan may take a little longer because you have to be approved by both your lender and the USDA.
What homes can I purchase with a USDA loan?
Acceptable property types

To be approved for a USDA loan, the property you’re seeking to purchase must serve as your primary residence. This means that it cannot be a farm, a vacation home, a secondary home (or one you intend to rent out), or an investment property. 

Note: If the property you intend to purchase is a primary residence, it can have an “income-producing” building (e.g., a barn or a silo) as long as it is not used for commercial purposes. 

Appraisal requirements

When trying to secure a USDA home loan, certain criteria must be met when it’s time for an appraisal. These include but are not limited to the following: 

  • Home must be built on a structurally sound foundation
  • Quality roofing 
  • Must be easily accessed from a road
  • Functional electrical & plumbing systems
  • Functional heating & cooling systems

There is a multitude of home types you can purchase using a USDA loan. Townhouses, condos, newly constructed homes, preexisting homes, and manufactured homes are viable options as long as they meet the previously mentioned requirements. 

Find the home of your dreams
Pre-approval first

Now that you have a better understanding of what type of home qualifies for a USDA loan, you might think you’re ready to start home-hunting. But it’s always better to begin searching for a home after you have been preapproved. Pre-approval will give you a clearer understanding of the type of home you can afford and the budgeting choices you may need to make. 

Location matters

Once you’re preapproved, it will be easier to search for that home you just can’t live without. And when you find it, you need to be sure that it is located in a USDA-approved area. Generally, these are homes in communities with smaller population centers outside of a city or other metropolitan areas. Some suburbs may qualify as well.

Think you might have trouble determining which areas are approved? Well, the USDA property eligibility map makes the process easy. Simply type in the property address, and the map will show you whether the desired location is approved. The map also provides insight into surrounding areas that may or may not be USDA-approved. If your first choice doesn’t fit the USDA’s location criteria, a home in the surrounding area may qualify. 

Note: Even if you have taken all the necessary steps when choosing your perfect home, the USDA Rural Development department has the final say in determining the property’s eligibility upon receiving your application.

Applying for a USDA loan 

You’ll need to apply with a USDA-approved lender to purchase a home with a USDA loan, and MortgageRight is here to help make that purchase a possibility. We will work in conjunction with the Rural Development department, guiding you through the entire application process and getting you closer to having those keys in hand. 

The RIGHT USDA Lender

Ready to make a rural community your home? We can help you secure the USDA loan you need. Click here to get started. 

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Budgeting Down Payment First-time Homebuyer Homebuying Homebuying Tips Mortgages Pre-approval Purchase Self-Employed

How to Get a Mortgage if You’re Self-Employed

You’ve finally put some action behind the go-getter title your friends gave you and started a successful business. Now you’re looking for the perfect place to wind down after putting in the work. But as a self-employed individual, are there extra hoops you’ll need to jump through to buy your new home? Let’s find out. 

Does Being Self-Employed Make it Harder to Get a Mortgage?

The answer depends on what you consider harder. The biggest difference between a self-employed and an otherwise employed person is the documentation a lender may request to increase your chances of approval. 

When applying for a mortgage while self-employed, you need to be realistic about your income and what you can afford, prepared to submit more paperwork, and willing to pay constant attention to detail. 

Understanding Your Unique Self-Employed Situation

When assessing a self-employed borrower, most lenders will want to have a good understanding of the nature and location of your business, your business’ financial viability when it comes to current and future income generation, and your personal income stability.  

Employment Verification

Employment verification is the first step in proving you are successfully self-employed. Documents verifying self-employment status can include written communication from the following:

  • Current (and past) clients indicating services performed
  • A letter from your licensed CPA, or tax preparer
  • A professional organization that can attest to your membership
  • Any state or business license that you hold
  • Evidence of worker compensation and insurance for your business
  • A Doing Business As (DBA) issued at least 2 years prior to your application date

Income Documentation

You’re much more likely to be approved for a mortgage if you can provide proof of a steady income. You may think you only need a few tax documents to breeze through the income verification portion of the approval process, but there have been recent changes in requirements, and you need to be prepared.

In June 2020, mortgage organizations Fannie Mae and Freddie Mac instated specific income verification practices for self-employed borrowers. According to a bulletin posted by the organizations, “the mortgage file must include a written analysis of the self-employed income amount and justification of the determination that the income used to qualify the borrower is stable.”

Because of these new stipulations, your lender will now ask for the following to verify your income:

  • 2 years of personal tax returns (this includes W-2s if you’re paid through your corporation)
  • An unaudited year-to-date (YTD) profit and loss statement that is signed by the borrower and reports business revenue (i.e., gross receipts or sales), expenses, and net income                      Note: The statement must cover the most recent month preceding the application received date.
  • 3 months business account statements no older than the latest two months represented on the YTD profit and loss statement                                                                                                                Note: Personal asset account statements evidencing business deposits and expenses may be used when the borrower owns a small business and does not have a separate business account.
The Road to Approval

Documentation is not the only thing you should consider when it’s time to submit your mortgage application. The road to approval may be clear of speedbumps if you have these four segments of your financial portfolio in order.

Credit Score

If there’s one thing self-employed mortgage applicants share with every other applicant out there, it’s what lenders will view as an acceptable credit score. 

Lenders look to your credit score for information on your debt repayment history, and a better score may equal more favorable loan terms, so be sure to keep your credit score as high as possible at all times.

Debt-To-Income-Ratio 

When it comes to getting a mortgage while self-employed, underwriters look at your existing debts instead of your income. This is how your debt-to-income ratio (DTI) is calculated.

Your DTI is a measurement of your income against your recurring debts, and it determines how much money you have available for potential monthly mortgage payments. 

DTI may hold more weight for self-employed borrowers because lenders might view tax write-offs as lowered income. This could result in existing debts becoming a larger share of your approved budget. 

If your DTI is 50% or higher, it may be wise to pay some current debts down before you apply for a mortgage. 

Down Payment

Your lender will also require proof that you have the funds for a down payment, miscellaneous fees, and enough funds to cover the initial monthly mortgage payments. 

This is why having a thorough understanding of your financial situation is so important. If you know that you will not be able to afford these expenses or you’re not willing to make the necessary financial adjustments, you should hold off on applying for a mortgage.

Separate Personal & Business Expenses

People who own businesses tend to intermingle business and personal debts, but this can backfire on those seeking a mortgage. The increase in credit usage may hurt your mortgage application if you charge business purchases, such as office phones or other supplies, to your personal cards or accounts.  

Keeping your business and personal accounts separate will more accurately reflect your financial profile (and increase your chances of being approved for a mortgage). 

Ready to Be a Self-Employed Homeowner?

Landing a mortgage while self-employed doesn’t have to be difficult! All you need is the RIGHT information and the RIGHT preparation to become a homeowner. Think you’re ready to take the next home-buying step? Click here to get started. 

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Budgeting Credit Down Payment First-time Homebuyer Homebuying Tips Loans Mortgages Purchase

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. Here are some items you might need to provide:

  • 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 determineand 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, you may also need to submit the following:

  • 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. It consists of the following information:

  • 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 take steps to verify details about the property you want to purchase:

  • Order an appraisal 
  • Verify the home’s title
  • Schedule 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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Budgeting Down Payment First-time Homebuyer Homebuying Homebuying Tips Mortgages Pre-approval Purchase

Cease Your Lease: Advantages of Buying a Home

Owning a home has been a rite of passage for generations, but in recent years, one obstacle has kept people from their home-buying goals—rent. While many have broken free from the leash of a lease, one group still clings to the world of renting.

Millennials: Stuck in The Rent Ring

For the millennial generation (those born between 1981 – 1996), rent is an ever-present—and often welcome—expense. According to data from the Pew Research Center, more millennials choose to rent over buying a home compared to generations prior. Several factors play into many millennials’ decision to continue renting. Past economic decline, postponement of marriage, the housing bubble, and freedom to apartment hop have all lead millennials to stick with their landlords. But as the housing market continues to improve, millennials need to know that the American Dream of owning their own home is still within reach. 

Top 3 Reasons to Buy vs. Rent 

1). Owning a home will benefit you in the long run

Renting your home (or apartment) means shelling out income to a landlord and putting nothing toward an investment you own. Buying a home trumps renting because it can result in financial gain in the future. When you buy a home with a 30-year mortgage and make the required payments, you will come out owning your home, and money will stop coming out of your pockets. However, if you rent a property, you will have nothing to show for all the time and money you put toward paying your rent. 

2). Boosted equity as property values rise

Rising home values are the name of the game (and are expected to be on the ups for the foreseeable future), which makes homeownership a profitable long-term investment. According to Zillow, the average U.S. home price has increased 13.2% from May 2020 to 2021—a record rise since the company began aggregating housing data in 1996. 

This increase in property values is critical when deciding to buy versus rent because owning a home can result in a significant return if your home is sold at a higher value than it is purchased. And, with each monthly mortgage payment, you boost the amount of equity—a tangible growth in your home value that you can borrow against—you have in your home. 

3). Avoid constant rent increases

Though the amount may be unpredictable, one thing is for sure, your rent is going to rise (likely every year). With steadily rising rent comes constant budget changes and potential overpayment for a property that does not live up to its price tag in living conditions. Sound like a nightmare? Well, with a fixed-rate mortgage, you will always pay the same amount each month on a home you own, and you can’t be kicked out by a landlord!

*The Principal and Interest payment remains the same on a fixed-rate mortgage. Typically, only the escrow portion of the payment (insurance and property tax amount) increases. 

Breaking the Cycle: Letting Go of Beliefs That Keep You with a Lease

Bright lights can bog you down

We get it—the lure of living in the big city is strong for millennials, but a large metropolitan area could only offer you sky-high rent prices (as opposed to a fixed-rate home with a backyard). If those city lights are beginning to blind you, consider moving to a more rural area just outside and landing a home that suits you with a USDA loan

Don’t let debt stop you from getting a house with a deck

Student loan debt is a massive concern for many who want to leave renter life behind, but being debt-free isn’t a requirement when buying a home or qualifying for a mortgage. Lenders do consider your current debt, including any associated with student loans, but only to determine your DTI (Debt-to-Income Ratio). Your DTI is simply a measurement of your income against recurring debts, and lenders look to it to decide whether you will be in a financial position to make payments on a possible mortgage. The more debt you have, the more likely you are to fall behind on your payments. But don’t lose hope—lenders have varying options when it comes to DTI ratios. 

*Most lenders prefer a potential borrower’s DTI to be about 35% or lower during the approval process. 

Tie the knot after finding your way home

In a report about millennial home-buying trends, Bank of America states, “Life events such as getting married or having children are typical triggers to buying a home. The longer this age group lives with parents or independently, the more homeownership will be delayed,” However, this does not have to be the route you take. Even if your social media status says single, you should still be seeking to own a home to build wealth for your future—and an FHA loan (or a VA loan if you are military-affiliated and eligible) can help a new home be your plus one.

Ready To Leave Your Lease Behind? 

Buying a home is a huge step for up-and-coming generations, but it doesn’t have to be stressful. If you’re ready to let go of the leasing life and start living life, we can help! Getting a quote or pre-approval letter is easy. To get started, click here

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Budgeting Credit Down Payment First-time Homebuyer Mortgages Purchase

‘C’ Your Way to a New Home

Worthiness. For some, it is innate. For others, it is forged by a lifetime of trial and error. And when it comes to buying a home, creditworthiness is a determining factor in whether you will be handed the keys to your new haven. 

 

The Five Cs of Credit

 

The Five Cs of Credit is a classification of characteristics—character, capacity, capital, collateral, and conditions—that lenders use to ascertain the creditworthiness of a potential borrower. 

 

Character – Not to be confused with Luke Skywalker or James Bond, the first C refers to a borrower’s general trustworthiness, credibility, and personality. The function of this C is to determine whether the borrower is responsible and can be relied upon to make on-time payments on their mortgage (or other debts). Lenders typically look to a borrower’s credit history and interactions with previous lenders to evaluate their character; work experience, references, credentials, and overall reputation may come under the microscope as well. 

 

Capacity – The second C refers to a borrower’s ability to repay a mortgage loan by measuring income against recurring debts. This process is known as the debt-to-income ratio (DTI), which is calculated by adding up a borrower’s total monthly debt payments and dividing that summation by the borrower’s gross monthly income. Though acceptable DTI ratios vary between lenders, most prefer a potential borrower’s ratio to be about 35% or lower during the approval process. 

 

Capital – If you’re a borrower, putting money down is one of the best ways to up your chances of securing the mortgage you’re seeking. Lenders want to see a borrower that is committed to their investment, and what better proof is there than putting your own capital on the line? Typically, when it comes to the third C, the higher the down payment, the more vested the borrower is in the property. 

 

Collateral – A borrower’s assets are the key to this C. When it comes to landing a mortgage, the home is the collateral the borrower pledges to obtain the loan. It is important to maintain your account to avoid compromising your new home.

 

Conditions – The final C consists of lenders focusing on financial factors outside of the borrower’s control. The health of the economy, interest rates, and the amount of the principal come into play here. If the lender determines that any of these external factors will inhibit a potential borrower’s ability to repay the loan, the loan may not be approved. 

 

Improving your worth

 

It’s one thing to understand the five Cs, but you may need to take steps to improve one or more components when considering purchasing a new home. Here are a few ways you can better your overall financial situation and bolster your creditworthiness using the five Cs:

 

Be consistent with payments – Credit score is one of the largest determining factors of your FICO score, and it typically increases when making monthly payments on time. If you find yourself lost in the onslaught of monthly bill payments, consider adding an automatic payment system into the mix to keep payments consistent and demonstrate your good character to future lenders. 

 

Consider paying your debts off early – In both nature and lending situations, the old adage “the early bird gets the worm” rings true. Making extra payments or paying off debts early can improve your credit score and decrease your debt-to-income ratio. These factors tie into your capacity to repay your mortgage and lower the risk you pose to a lender. 

 

Boost your savings – Extra funds can mean easier approval when it comes to landing a mortgage. Having the capital on hand to use as a down payment on your home will make you more desirable in the eyes of the lender. To increase your savings, try implementing an easy-to-follow budgeting strategy

 

 

You’re Worthy? We’re Ready.

 

If you think you’ve mastered the five Cs of credit, it’s time to get a quote! Do you have more questions about increasing your creditworthiness? Download our FREE Credit Repair Guide.

Categories
Budgeting Interest Rates Mortgages Purchase Refinance

Bring Home the Bacon: The Ins & Outs of a Cash-Out Refinance

Picture This: You come home from a hard day’s work only to find the paint chipping from your walls and high-interest debt chipping away at your bank account. With a sigh, you throw yourself down in your favorite recliner and stare up at the ceiling in defeat—until it hits you. There is a reason a home is considered one of the best investments you can make in your lifetime, and using the roof over your head to put cash in your pocket might be just what you need to get your life back on track.

What Is a Cash-Out Refinance?

When refinancing a mortgage, you replace your existing loan with a new one for the same amount—usually at a lower interest rate to reduce mortgage payments. But with a cash-out refinance, you substitute your current home loan with a new mortgage that is higher than your outstanding loan balance. 

A cash-out refinance makes the most of the equity you have built over time by letting you pocket the difference between the two mortgages in cash. This lump sum opens the door for consolidating high-interest debt, making important purchases, or tackling large-scale home renovation projects.

The Equity of It All

Home equity is the backbone of a cash-out refinance, so let’s look at the numbers. 

Say you purchased a home at $250,000, and its value has risen to $300,000. Having lived in the home for five years, you have managed to pay your mortgage down to $215,000. 

The equity built in your home is simply the difference between your mortgage balance and your home’s value. Which, in this example, is $85,000.

*Though you might be itching to utilize the entire amount, lenders generally only allow you to withdraw a portion of it. Assuming you can only refinance 80% of the home’s value, you take out $17,000 in cash, while $68,000 remains in the home. 

Yays & Nays of a Cash-Out Refinance

Yays

The advantages of a cash-out refinance often outweigh those of other loan options. Here’s how a cash-out refinance can help your finances thrive:

  • Land a lower interest rate – Generally, a mortgage refinance is an opportunity to get a lower interest rate than you would if you opted for a HELOC (Home Equity Line of Credit) or a home equity loan. This benefit also applies to a cash-out refinance with the added perk of pocketing some cash you might need. 
  • Fund home improvement projects – One of the easiest ways to add value to your home and boost your overall homeowning experience is to start home improvement projects. Renovating your bathroom or giving your kitchen a facelift can increase your home’s appeal and future selling potential. 
  • Consolidate high-interest debts and pay them off – Are you drowning in debt? Using a cash-out refinance to pay off high-interest credit cards (and other debt) can bring you back above water and save you thousands in future interest payments.  
  •  Pay for other expenses – Have a child going off to college soon? You can use your home’s equity to pay for your child’s tuition in the event of student loan interest rates being higher than the rate of your refinanced mortgage. Just want the money to splurge? Have at it! You can use the lump sum you receive from a cash-out refinance to purchase virtually anything.
Nays

Though beneficial for many homeowners, a cash-out refinance isn’t always the best choice for every situation. Here’s why you might want to consider alternatives:

  • Higher interest rate than expected – Getting a cash-out refinance might seem like a no-brainer, but be sure it is working in your favor. Generally, you want to refinance if the outcome will be a lower interest rate. If a cash-out refinance ends in an interest-rate spike, it might not be the route you want to take. 
  • You can’t avoid closing costs  – Because a cash-out refinance is still a refinance, you have to pay closing costs. Typically, the closing costs are deducted from the cash you are receiving and not out of pocket. It is always a good idea to consider the overall financial benefit of a cash-out refinance. If your potential savings are less than the costs, a cash-out refinance might not make sense for your situation. 
  • Taking a chance with your home – Though a cash-out refinance is yours to use however you choose, always be aware of the risk that comes with using your home as collateral. Be sure to take out no more than the amount you need, and put it toward a project that is guaranteed to benefit you financially.
  • Enabling unhealthy financial habits – As tempting as it may be to use your home as a cash cow, tapping your home’s equity to finance every expense could cause a sense of false security and, ultimately, lead to a resurfacing of the debts you initially paid off.  

Do You Qualify?

To reap the benefits of a cash-out refinance, you need to qualify. Much like getting a mortgage for a new home, if you are considering a cash-out refinance, your qualification for the loan will be based on your credit score, finances, and property. 

While requirements for a cash-out refinance differ between lenders and the type of loan, these are the general criteria: 

  • More than 20% equity in your home 
  • Verification of the home’s value with a new appraisal
  • A minimum credit score of 620
  • Debt-to-income ratio (including the new loan) of 43% or less
  • Employment and income verification

The Big Picture: Is a Cash-Out Refinance Your Best Option?

Whether you want to revamp your basement or knockdown debt, a cash-out refinance can be an attractive option when it comes to meeting your financial goals. Are you still on the fence about a refinance? Reach out to MortgageRight, and we’ll help you down. 

Categories
Credit Down Payment Government Loans Homebuying Homebuying Tips Interest Rates Loans Mortgages Purchase Refinance

Appreciating Our Veterans One VA Loan at a Time

What does it mean to be a Veteran? Being a veteran means fighting for the freedoms of those you have never met. It means having a willingness to give up everything while expecting nothing in return. Being a veteran means volunteering to leave the home you’ve always known, so others won’t have to. It means that you not only understand the concept of courage, but you embody it.

Most of all, being a veteran means taking off the uniform and rebuilding a civilian life when your service is complete. Here at MortgageRight, we understand how difficult it can be to make the transition from protector to private citizen. To show our appreciation for your sacrifice, we provide easy access to a mortgage made just for you—the VA home loan.  

What Is a VA Loan?

Homeownership can become a hassle if you’re not equipped with the financing option that is right for you. For the vast majority of military borrowers, the VA loan program is the most beneficial. These versatile, $0-down payment mortgages have made it possible for more than 24 million service members to achieve their dream of homeownership. 

Despite the program being designed to create a seamless homebuying experience for service members, much of our military population is left in the dark about the program’s unique benefits, and this leads them to choose less favorable loan options.

Who Qualifies? 

To be eligible for a VA loan, you must be a veteran or active service member who has satisfied at least one of these service requirements:

  • Served for 90 consecutive days during wartime 
  • Served for 181 days during peacetime 
  • Served in the National Guard or the Reserves for 6 years

Surviving spouses of service members may also qualify if the service member’s life was lost in the line of duty or if they sustained a service-related disability.

Before you can obtain a VA loan, you will need to present your lender with a copy of your Certificate of Eligibility, which is a document provided by The Department of Veteran’s Affairs as proof of your qualification. To prove previous military service, you must provide a Report of Separation (DD Form 214). If you are on active duty, you will need to provide a Statement of Service instead.

Though The Department of Veteran Affairs does not require a minimum credit score to qualify, it is best to maintain a credit score of 620 or higher to ensure third-party lender requirements are met. 

Backed by Benefits

  • Zero Down Payment

Other loan programs usually require at least a 3% down payment when purchasing a home. However, if you’re looking to buy a home with a VA loan, one of its most advantageous aspects is that the down payment requirement is no longer a burden. 

  • 90% Equity Cash Out

For homeowning service members and veterans, refinancing with a VA loan opens the door for a 90% equity cash out. This option replaces your existing mortgage with a new loan for more than you owe on your current mortgage and allows you to pocket the difference if your home has risen in value. This is especially beneficial if you are looking to save for higher education or retirement, pay off higher-interest debt, or make needed home improvements.

  • Say No to Mortgage Insurance Costs

Unlike other home loans on the market that require mortgage insurance premiums when the borrower has less than 20% equity in their home, VA loans do not come with any mortgage insurance premiums or private mortgage insurance costs—which helps borrowers save even more each month. 

 

Though a VA loan offers savings opportunities at every corner, it does require a VA Funding Fee (that is 2.3% of the amount borrowed with a VA loan, which increases to 3.6% if you are a previous VA loan borrower).

  • The IRRRL Deal

If you have an existing VA-backed home loan, the IRRRL (Interest rate reduction refinance loan) is another added perk. This program is perfect if you want to reduce your current monthly mortgage payments or increase payment stability. 

Let Us Appreciate You

As a Veteran owned and operated lender, MortgageRight always rises to the challenge of helping active and veteran service members navigate the VA-loan landscape and secure the mortgage that meets their unique homebuying needs.

Unsure if the VA loan is right for you? We can help! Get a quote or pre-approval letter or email us at contact@mortgageright.com for any questions.

Happy Military Appreciation Month & Thank You for Your Service!