"Am I in the right market condition to purchase a home?"

The basic question that every prospective buyer asks: "Am I in the right market condition to purchase a home?"

I started in the finance industry working for a large national bank and I've seen the real estate and mortgage markets change many times over.  So my answer to this question is, "Are you in the right financial condition to purchase a home?"

In first 6 months of 1994, when I just started my working career, the average mortgage rate at the time was 7.25%.  In Dec. 2001, my husband and I closed on our current house at around 7% for a 30 year fixed rate, which was the national average.  In Dec. 2002, we refinanced our house at 5% for a 15 year fixed rate, which was considered the historical low at the time. Afterwards, we saw the rate just kept dropping.  Did we make the right choice based on market condition?  Probably not, but we made financial choices that were good and right for us. 

As reported on The Dallas Morning News yesterday, under "Your Money" Section: Mortgage rates rose this week, Freddie Mac said in it's latest report, with lenders offering a 30-year fixed home loan to solid borrowers at an average of 4.57 percent - up from 4.51 percent last week and a full percentage point higher than a year ago. The average 15-year rate rose from 3.54 percent to 3.59 percent.

Our economy has gone through the recovery and the government says the economy is in the building phase.  Our GDP is up, auto sales are experiencing growth it hadn't seen for a long time,  and the unemployment rate has steadily dropped, so inevitably we will see interest rates rise again.  Still the current interest rate is very low compared to what my parents had to pay when they bought their house (around 9% in the late 80's).  Overall, we are in a very good economic period, so regardless of market condition, sit down with an experienced loan officer and go through your budget analysis.   It's not about the market, it's about investing in your future.  

Reference from The Dallas Morning News printed on Sept. 6, 2013. 
Reference from www.mortgage-x.com
http://www.mortgage-x.com/general/historical_rates.asp

JENNY'S TIPS: When to Refinance

Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least two points lower? That may have been true years ago, but with refinancing dropping in cost, it's not the wrong time to think about a new loan. Refinancing has a number of benefits that often make it worth the up-front expenditure many times over.

When you refinance, you might be able to lower your interest rate and monthly payment -- sometimes significantly. You might also be able to "cash out" some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation -- whatever! With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage.

All these benefits do cost something, though. When you refinance, you're paying for most of the same things you paid for when you obtained your original mortgage. These might include settlement costs and other fees, an appraisal, lender's title insurance, underwriting fees, and so on.

You might have to pay a penalty if you refinance your previous mortgage too quickly. That depends on the terms of your existing mortgage. These penalties are illegal in some places, and more often than not when you have one of these penalties on your current mortgage it applies only for the first year or two. We'll help you figure it out.

You might pay points to get a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You should be aware that the IRS has recently said that points paid for the purpose of refinancing your mortgage cannot be deducted in their entirety in the year you pay them, unless the refinanced loan is primarily for home improvements. Consult your tax professional before deducting points you pay on your new mortgage from your federal income taxes.

Speaking of taxes, if you lower your interest rate, naturally you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. This is another cost that some borrowers consider. We can help you do the math!

Ultimately, for most people the amount of up-front costs to refinance are made up very quickly in monthly savings. We'll work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes.

JENNY'S TIPS: How much can you afford?

Deciding how much house you can afford is a personal decision.  Many factors come into play.  How much can I borrow?  How much can I put toward my down payment?  What size monthly payment can I afford? 

There are no black and white answers to these questions.  It's a matter of give and take.  If you plan on a 30 year mortgage, you can probably make a lower down payment and still manage the monthly payments.  If, on the other hand, you plan on a 15 year mortgage, you'll probably want to make a larger down payment to keep your monthly payments in line with what you can afford. 

How large a down payment can I make?

Many buyers look at their cash on hand as their only source for their down payment.  This simply is not the case.  One way to fund or partially fund a down payment is by using a gift.  Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home. 

There are also down payment assistance programs that can help you.  And, of course, if you are selling a home, the equity you've built up can be applied to your down payment.

What size monthly payment can I afford?

When determining what size monthly payment you can afford, you'll want to consider what other monthly expenses you have.  Tangible expenses such as car payments, day care, and utility bills all play a role in how large a monthly payment you can afford. 

There are also the intangible expenses or lifestyle expenses that you'll want to consider.  Things such as dining out, travel, and when you buy your next car can effect how much you can afford.  Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment? 

How much can I borrow?

This is a question you'll want to get answered before you begin your home search.  This is something that we're here to help you with.  Our mortgage calculators will help you see how your down payment, monthly payment, and the amount you borrow are all interrelated.

JENNY'S TIPS: How to deal with a Bankruptcy

A bankruptcy filing delivers a devastating blow to your credit and FICO score, but it doesn’t mean you have to wait 10 years before you can qualify for a mortgage. Many consumers who have filed for bankruptcy have been able to obtain a mortgage, although it is often at a higher rate than someone qualifying for a prime or "A-paper" loan.

While credit card companies may care about what happened before you filed for bankruptcy, many mortgage lenders are more interested in your recovery — what you’ve done since your filing. It won’t happen over night, but here are some tips and things to keep in mind when you inquire about a mortgage with a tarnished credit past:

Give explanations

No mortgage lender is going to ignore the fact that you’ve filed bankruptcy and he or she will likely want to know the cause of the filing. Your lender will be particularly interested in whether the same situation could happen again. Your chances of being qualified are much better if your bankruptcy was caused by a single event such as a loss of employment or a death in the family, than if it was the result of “just spending too much.”

If the bankruptcy resulted from a single event, it is important to show your lender paperwork describing the incident, such as the layoff notice or death certificate. You may also want to bring in court documents to indicate when the bankruptcy was filed.

Demonstrate good money habits now

Many people who file bankruptcy swear off credit altogether, however, it is important to re-establish your credit rating. Get a secured credit card or take on some sort of loan — furniture, a car or a major appliance — to demonstrate that you are able to make timely payments. Make sure you are making other payments (utility bills, cell phone, etc.) on time as well. You won't turn things around in a year but your credit score will improve over time.

Dispute any credit report errors

There’s no need to add to your troubled credit history with errors on your credit report. Get a copy of your credit report from each of the three major credit reporting agencies: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com. If you encounter any errors, inform the CRA in writing what information you believe to be inaccurate and request deletion or correction.

Save your money

Lenders may be more willing to loan you money if you’ve saved up a considerable amount of money for a down payment.

Live within your means

Think small when the time comes to look for a home. Smaller homes often mean smaller mortgages.

JENNY'S TIPS: How to Get Your Loan Faster

Five ways to make the loan process go faster

We should say that "working with us" is the first way!  When you let us help you find the loan that's right for you, you truly are taking advantage of some of the area's best technology and expertise to get you a loan decision and funding on your loan quickly.  But here are five "other" ways you can speed up the process of getting a mortgage loan:

1. Have everything ready and in one place.  

You'll find a list of things you might need in support of your mortgage application by clicking here.  If you get them all together and keep them in a safe, portable place like a special pouch or folder, you can cut down on time spent rooting around for things we may need.  Also, you'll help cut down on your own anxiety and confusion.

2. Be honest and complete when you fill out your application. 

"Fudging" your employment or residence history or omitting open credit accounts you'd rather not have considered doesn't increase your chances of getting a favorable loan.  In 100 percent of cases, it makes it harder, and take longer.

3. Respond promptly to requests for additional information.  

During processing, we or the lender considering your loan may need additional information.  Provide it as soon as you get the request, or return the call as soon as you get the message.

4. Be prepared to explain derogatory items in your credit report.  

This is really part of number 2 above.  If you had an illness or a divorce where you missed or made late payments, or you have other instances of late payments or delinquencies on your credit report, be prepared to explain them.  Be honest, and don't be nervous! The loan processor isn't judging you, they're trying to fill in all the blanks in their paperwork.

5. Let the appraiser in!  

The appraisal is one of the lengthiest parts of the mortgage loan process.  Studies have shown that the single biggest factor in appraisal "lag time" is the appraiser's inability to reach the homeowner to make an appointment.  If you're refinancing and the appraiser calls to make an appointment, make it as soon as convenient for both of you.

And remember that the appraiser doesn't want to buy your house.  He or she will say what the house is worth clean and tidy and in reasonable repair, even if you have some dirty laundry on the laundry room floor or dirty dishes in the sink.  Cleaning doesn't get you a higher appraisal!  Letting the appraiser in as soon as possible gets you a loan faster, though.

How to Reduce Your Mortgage with One Additional Mortgage Payment a Year

There's a simple trick to significantly reduce the length of your mortgage and save you thousands of dollars. The trick is to make one extra mortgage payment a year and apply that payment toward your loan's principal.

This is the method being used by "Bi-Weekly Mortgage Reduction Services" and "Bi-Weekly Mortgage Savings Programs". Only, when you do it yourself, you don't pay a third party unnecessary set-up costs and fees!

Example: $100,000 loan, 30-year mortgage, 6.5% fixed interest rate

Extra Mortgage Payments/ Year Principal & Interest Additional Monthly Payment SAVINGS Total Paid # of Years 0 $632.07 0 0 $227,542.98 29.92 / 359 mos. 1 $632.07 $52.68 $29,088.02 $198,454.96 24.12 / 290 mos. 2 $632.07 $105.35 $46,492.13 $181,050.85 20.5 / 246 mos. 3 $632.07 $158.02 $58,320.95 $169,222.03 17.92 / 215 mos. 4 $632.07 $210.69 $66,969.79 $160,573.19 15.92 / 191 mos. 5 $632.07 $263.36 $73,607.77 $153,935.21 14.34 / 172 mos.

One-time Payment

It may not be possible for you to increase your monthly mortgage payment. Keep in mind that most mortgages will permit you to make additional payments to your principal at anytime. Perhaps, five-years after moving into your home you receive a larger than expected tax return, or an inheritance or a non-taxable cash gift. You could apply this money toward your loan's principal, resulting in significant savings and a shorter loan period.

Example:

With a $100,000, 30-year, 6.5% fixed interest rate mortgage loan, the borrower will pay a total of $227,542.98 to pay back the loan in 30 years. That equals $127,542.98 in interest payments.

If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). That's a savings of $22,832.23 in interest.

JENNY'S TIPS: Buying a home? Then don't do this!

Things to Avoid Before You Buy a Home

Many new homebuyers make the mistake of rushing out to buy things to fill their home with as soon as the seller accepts their purchase offer and the lender pre-approves their loan. But there are still a few major hurdles to overcome before the keys are handed out. Here are some things to avoid during the home buying process to assure your transaction goes as smoothly as possible.

Don't make an expensive purchase 

It may be tempting to order that new sofa for your soon-to-be living room, but its best to avoid making major purchases like furniture, cars, appliances, electronic equipment, jewelry, or vacations until after the closing. Financing that furniture with a store credit card or even one of your own credit cards could jeopardize your credit worthiness during the time it means the most. Using cash to purchase big items can also create a problem because many banks take into consideration your cash reserve when approving your mortgage.

Don't get a new job

Lenders like to see a consistent job history. Generally, changing jobs will not affect your ability to qualify for a mortgage loan - especially if you are going to be making more money. But for some people, getting a new job during the loan approval process could raise some concern and affect your application. 

Don't switch banks or move money around

As your lender reviews your loan package, you will likely be asked to provide bank statements for the last two or three months on your checking accounts, savings accounts, money market funds and other liquid assets. To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds. Changing banks or transferring money to another account - even if its just to consolidate funds - could make it difficult for the lender to document your funds.

Don't give a good faith deposit directly to the seller in a FSBO (For Sale By Owner) purchase 

As a rule, your good faith deposit belongs to you, not to the seller, until the deal closes. Your FSBO seller may not know that your good faith funds should be applied to your expenses at closing. Get an attorney or other neutral party who can hold the deposit or put it in a trust account until you close on the home. Your purchase contract should dictate to whom the funds go should the transaction fall through.

Don't disregard your lenders requirements 

You may have been pre-approved for the loan but your work with the lender is far from over. In order to process your loan, you need to meet certain requirements. Your lender will need copies of your bank statements, W2s and other paperwork. It is up to you to get it to him or her as soon as possible. Failure to submit certain qualifying documents could cause you to lose your loan and the financing you need to buy your home.

JENNY'S TIPS: FHA vs Conventional Loans and VA Loans

One of the most popular questions I get asked by my home buyers is "What is the difference between FHA loans, conventional loans (Fannie Mae and Freddie Mac) and VA loans?"  VA loans are available for qualifying Veterans only. 

Here is a general comparison:

                                                                                                                                                

FHA                                 Conventional                     VA Loans

 

3.5% Down                     5% with high                        0% down
Payment                          credit score                     

6% Maximum                  3%                                         6%

Contribution

for closing cost                  

Up Front Mortgage         No Upfront MIP                Varies depends

Insurance Premium                                                 on Veteran's status

(MIP) Financed into

the Loan                                                                                     

 

 

Monthly Mortgage         Monthly Mortgage                 None

Insurance                        Insurance with 20%

                                       Down

580 minimum                 Higher credit score               620 typically

credit score                     required                           

                                                                        

Max 1 FHA Loan            Max 4 Loans:                        Depends on

per person on                  1 Primary Residence           Veteran's entitlement  

primary residence           3 Investment Properties

These are general guidelines. Borrowers should be reviewed on a case-by-case basis. In today's market, mortgage guidelines are constantly changing as regulators try to "fix" the industry. The trend is that mortgage qualifications will only get tougher.  Best to talk to an experience loan professional and do a pre-qualification analysis. 

JENNY'S TIPS: How to Dispute Errors on your Credit Report

Your credit report is a record of your credit activities. It lists all of your credit card accounts and loans, the balances as well as your payment history. It also shows if any action has been taken against you because of unpaid bills such as a lawsuit or bankruptcy filing. Because businesses use this information to evaluate your applications for credit, insurance and employment, it’s important that the information in your report is complete and accurate, especially if you plan to make a big purchase like a home.

The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.

If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:

1. The first thing to do is get a copy of your credit report from each of the three major CRAs: Equifax, http://www.equifax.com/; Experian, http://www.experian.com/; and TransUnion, http://www.tuc.com/.

2. In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. Be sure to make copies of your dispute letter and enclosures.

3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.

JENNY'S TIPS: Are you pre-qualified or pre-approved for a loan?

Before you begin to shop for a new home, you should figure out how much you can afford. This will put you in a better position as a buyer. That’s when it is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan. The difference between the two terms will be important when you decide to make an offer on a house.

To get pre-qualified for a loan, I will collect information about your debt, income, and assets. We’ll look at your credit profile and assess goals for a down payment and get an idea of different loan programs that would work for you. I will issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow.

It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend. Getting pre-approved for a loan gives you more of a competitive advantage when the time comes to bid on a home because you have actually been approved for a loan for a specified amount.

To get pre-approved, you will complete a mortgage application and provide me with various information verifying your employment, assets and financial status such as W-2 forms, bank records and credit card statements. We’ll review your mortgage options and submit your application to the lender that best meets your needs. Once the application process is complete you will receive a pre-approval letter indicating the amount your lender is willing to lend you for your home.

A pre-approval letter is not binding on the lender; it is subject to an appraisal of the home you wish to purchase and certain other conditions. If your financial situation changes (e.g. you lose your job), interest rates rise or a specified expiration date passes, your lender must review your situation and recalculate your mortgage amount accordingly.

JENNY'S TIPS: Understand Your Debt-to-Income Ratio

Your debt-to-income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.

Debt limit

There is generally a debt limit associated with each type of loan, such as a 38/45 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.

Typically conventional loans have a qualifying ratio of 38/45, and FHA loan has 40/50. The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner's association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example, with a 28/36 qualifying ratio:
Gross monthly income of $3,500 x .28 = $980 can be applied to housing
Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford. We look forward to helping you buy your dream home.