Category: Budgeting

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Budgeting Credit Down Payment Homebuying Homebuying Tips Mortgages Purchase Refinance

5 Ways to Get the Best Mortgage

One of the most important things to do when getting a mortgage is to ensure the mortgage you choose fits all your home-buying requirements. It’s possible to get the right interest rate, monthly payment amount, and more! You simply need to make the most of available mortgage options, and put your best foot forward where your finances are concerned. Here’s how you can get the best mortgage for your needs. 

Improve your credit score.

No matter which loan you choose, better mortgage rates tend to come to borrowers with higher credit scores. To lenders, your credit score is a risk assessment tool. Typically, the lower your credit score, the riskier it is to lend to you. Borrowers with a low credit score are more likely to default on a loan or fail to meet contractual obligations. This leads lenders to charge higher interest rates to applicants with lower credit scores.

If your credit score is preventing you from buying the perfect home, these tips will help you improve it:

  • Be consistent with payments – On-time debt payment is the number one way to raise your credit score. If you have trouble making payments on time, consider using automatic payment systems. 
  • Consider paying your debts off early – Paying down certain debt before it’s due or making more payments a month than required can also benefit your credit score. Going this route can also decrease your debt-to-income ratio.

Need more help increasing your credit score? Download our FREE Credit Repair Guide.

Choose your loan term carefully.

Short-term loans

Short-term mortgage loans are those that are shorter than the typical 30-year term. Risk is less of an issue with short-term loans, so they typically come with lower mortgage rates. Short-term loans also tend to save borrowers more money over time. However, because you’ll be paying the principal for a shorter amount of time, your monthly payments will be higher.

This loan option is less suitable for borrowers who fall into a lower income bracket, don’t have enough savings to offset higher monthly payments, or are less financially stable. If you’re adamant about a lower mortgage interest rate and can handle higher mortgage payments, a short-term loan might be your best bet.

Long-term loans

Long-term loans are the most common and are typically a 30-year term. These loans allow you to spread your payments over a longer period of time, which will lower monthly mortgage payments and leave you with more disposable income each month than a short-term loan would.

 Make a larger down payment.

The more money you put down on your home, the less you will owe on the mortgage loan. If you make a larger down payment, you can build more equity in your home from the start. Because interest is calculated from the principal, larger down payments also open the door for lower interest costs over the life of the loan.

A borrower’s inability to put down a significant amount on a home could make lenders view their loan as riskier than those who put more money down. In this case, less money down can result in a higher interest rate. 

Keep this in mind: A sizable down payment has its perks, but some loans don’t require a large (or any) down payment at all! FHA and VA loans are excellent mortgage options for those that qualify and want to put less money down.

Remember rate locks.

Rate locks are a great way to potentially avoid rate changes before you close on your home loan. Our Lock & Shop program preapproves a borrower’s budget ahead of time and applies a 60-day interest-rate lock before they start shopping for a home. Lock & Shop is available for all conforming Conventional, VA, FHA, and USDA loans.

Keep this in mind: Like most rate-lock options, borrowers do have to pay an upfront fee to access our program. To learn more, reach out to your closest branch here.

Want to change your mortgage? Refinance!

If you’ve already purchased your home but you’re unsatisfied with your current loan, refinancing is an option! Renegotiating the terms of your mortgage can save you money over the new course of the loan. There are many available refinancing options, each with its own advantages and drawbacks. 

Here are a few ways a refinance can benefit you:

  • If you have an adjustable-rate mortgage and interest rates are on an upward trend, you can benefit by refinancing to a fixed-rate mortgage. 
  • Sometimes expenses pop up, and you need cash to pay for them. If you have enough equity built up in your home, you can use a cash-out refinance to get a lump sum and pay for anything that needs funding.
  • Many borrowers improve their financial situation over time, so it is possible for you to renegotiate a fixed-rate mortgage to a lower rate if you have a better credit score or if rates have decreased since you initially closed on your loan.
Make sure your mortgage is RIGHT for you!

Landing the right mortgage can make or break your home-buying experience, so we want to help you make the best mortgage decision you can! Reach out today to get started on your home-buying journey. 

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Budgeting Government Loans Homebuying Loans Mortgages

Is a Reverse Mortgage Right for You?

Have you ever wondered if you could buy a home and pay nothing on the mortgage while you’re living there? It might sound too good to be true, but a reverse mortgage is a real home-buying option—and it might be the right one for you!

What is a reverse mortgage?

A reverse mortgage is similar to a traditional home loan because it allows homebuyers to borrow money using their home as collateral. However, a reverse mortgage doesn’t require the borrower to make monthly mortgage payments. Instead, the borrower may receive monthly payments from the lender. 

Something to consider: There are multiple ways to receive and utilize the funds from a reverse mortgage. A borrower can pay off a current mortgage or lien, receive a lump sum, a line of credit, monthly payments, or a combination of all 3. The borrower must also pay the loan in full when they no longer live in the home. 

Home Equity Conversion Mortgage (HECM)

A HECM is the most common type of reverse mortgage. It is a specialized home loan issued by Federal Housing Administration (FHA)-approved lenders. Because a HECM is a government-backed, non-recourse loan, you will never owe more than what the home is worth. You can also spend the funds on anything.

Requirements

Homeowners who opt for a reverse mortgage should be aware of the following:

  • Homeowners must be at least 62 years old.  
  • Homeowners are required to pay property taxes and homeowners insurance.
  • Homeowners must use the property as their primary residence.
  • Homeowners must keep the home in good condition. 

Something to consider: The amount a homeowner owes the lender when they no longer occupy the home will go up over time because interest accrues monthly. 

How much will you receive monthly?

If your lender is paying you, where is the money coming from? When you get a reverse mortgage, the monthly payments you receive come from the equity you have in your home.

To decide how much you’ll receive monthly, your lender will order an appraisal of your home. They will then use the appraisal value, age, and available interest rate to determine the loan and monthly payment amount.

How do you pay back a reverse mortgage?

When you decide to sell your home, that money goes toward repaying your reverse mortgage and interest. This means you won’t profit as much from the sale as you might with a traditional mortgage. Why? Because the interest accruing each month adds to your principal balance. 

Something to consider: Even though you’re not required to repay your mortgage until you sell your home, pass away, or no longer live on the property, you can still choose to make regular payments on your home.

What if the homeowner passes away? 

The property becomes the beneficiary’s responsibility if the homeowner passes away before the home is sold. If the beneficiary wants to keep the home, they can either purchase it for the amount owed on the reverse mortgage (or 95% of the appraised value) or refinance to a traditional mortgage loan. The beneficiary may also sell the home and pay off the reverse mortgage.

Who benefits most from reverse mortgages?

Reverse mortgages let homeowners of retirement age take advantage of their home’s value sooner than with a traditional loan. It also helps them lower or eliminates their monthly mortgage payments and better cover their expenses.

However, some older homeowners could benefit more than others. You’re more likely to make the most of a reverse mortgage if you fit the following criteria:

  • Your home value is on the increase – If you have a lot of equity built up in your home, you may still have money left over when you take out a reverse mortgage. 
  • You plan to live in your home long-term – Like a traditional mortgage, there are upfront costs associated with a reverse mortgage. Planning to stay in the home long-term will make taking on those costs worthwhile. 
  • You can cover home costs – Because a reverse mortgage requires you to keep property taxes, insurance, maintenance, and other payments up to date, it’s essential to have enough funds on hand to cover these expenses. 
Should you get a reverse mortgage?

A reverse mortgage isn’t for everyone, but it could be the mortgage option that helps you achieve a financially fulfilling retirement. If you want to learn more about reverse mortgages, or you’re ready to make another home-buying decision—we’re the RIGHT people to call! Click here to get started.  

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Budgeting First-time Homebuyer Homebuying Homebuying Tips Mortgages Purchase

How to Decide the Best Place to Live

What do lush green lawns, occasional cul-de-sacs, mainstream grocery stores, and annual block parties have in common? Neighborhood. And when you’ve got home buying on your mind, thoughts about your ideal future neighborhood shouldn’t be too far behind. Choosing the right location is one of the most important parts of home buying because you need to find an area that supports your lifestyle and fits your budget.

Here are a few steps that will make the decision process easier. 

Step One: Know Your Budget 

Your budget is the first thing you should consider when choosing a potential home location. Why? Because if you don’t know how much you can afford, you’ll struggle to find the right home. Consider how much you could put toward a down payment while maintaining some of your savings. Then, think about how much you can reasonably pay each month toward your mortgage. 

Some areas are better suited for average-wage home seekers who have figured out their budget. These cities are among Real Estate News’ top 10: 

Seattle, Washington

Metro Population: 3,871,323

Median Home Price: $675,237

Average Annual Salary: $68,460

Huntsville, Alabama

Metro Population: 457,003

Median Home Price: $192,667

Average Annual Salary: $55,980

Boulder, Colorado

Metro Population: 322,510

Median Home Price: $528,833

Average Annual Salary: $67,160

Sarasota, Florida

Metro Population: 803,709

Median Home Price: $387,630

Average Annual Salary: $46,040

Austin, Texas

Metro Population: 2,114,441

Median Home Price: $377,693

Average Annual Salary: $55,190

 

Cost of Living

Researching the cost of living for any potential home location is a must. Coupled with your budget, understanding the cost of living in certain areas can help you decide whether you want to spend a little more to stay in the city or choose a suburb on the outskirts to save money. Forbes highlights a list of locations to consider if you’re looking for the most affordable home-buying options in the country: 

Memphis, Tennessee

Metro Population: 651,011

Median Home Price: $140,000

Average Annual Salary: $57,538 

Cost of Living Index: 17% more affordable than the nation’s average

Toledo, Ohio

Metro Population: 275,116 

Median Home Price: $109,900

Average Annual Salary: $58,930

Cost of Living Index: 8% more affordable than the nation’s average

Akron, Ohio

Metro Population: 197,375 

Median Home Price: $118,950

Average Annual Salary: $62,000

Cost of Living Index: 6% more affordable than the nation’s average

Detroit, Michigan

Metro Population: 672,351 

Median Home Price: $70,000

Average Annual Salary: $64,357

Cost of Living Index: 3% more affordable than the nation’s average

 

Even in the most affordable areas, you’ll find that some suburban neighborhoods are more expensive than others. Your ideal home location should strike a near-perfect balance between how much you can afford and how easily you see yourself making a life there. 

Step Two: Consider Every Factor

There’s more to choosing the right home location than affordability. All areas have different benefits that they bring to the table, and you need to keep those in mind when deciding where you want to live.  

Transportation

How you get from place to place is an incredibly important factor when deciding where to settle down. If you’re a fan of efficient public transportation, an area in or close to the city might be best for you. Prefer to drive your own car? Then you won’t need to limit yourself to subway-heavy living locations.

Climate

Climate can dictate whether you should move to a specific area. Are you a fan of constant sunshine and warmth? Then snowy locations are out of the question. Do you hate dreary, rainy days? Then a western state might better suit your needs. 

Also, consider the unique expenses that come with living in certain climates. For example, if you’re thinking of moving to a mid- or southwestern location, you might want to make sure you can afford insurance that covers fire damage. Similarly, if you want a house on the beach, flood insurance should be included in your budgeting plan. 

Demographics

Get some insight into demographics before you move to an area. Consider population numbers, average person’s age, number of hospitals available, and even crime rates when deciding on a location. 

School Districts

Choosing an area with good educational options is essential for home seekers with children. But those without children also benefit from having good public schools in a prospective home location. Generally, an area with better schools means it’s of better quality overall, which will help with maintaining or increasing property values. Picking a neighborhood with a good school district would also benefit those who may not have children now but will in the future. 

Culture

Think about the cultural aspects of the places you’re considering. What events are common in the area? Is it a spot with stadiums that host frequent concerts and sporting events? Are there annual festivals? You’ll want to know these things before deciding on a move. 

Convenience

Nowadays, we build our lives around convenience, so it’s necessary to consider how much of it you want when deciding on a home location. Need restaurants within walking distance? Want a gas station on every corner? Many areas have those amenities conveniently available throughout, but having easy access to certain businesses might increase home prices. 

Appearance

If you don’t like the look of a neighborhood, you won’t like your life there. Are you a fan of sprawling trees and green pastures? Well, many metropolitan areas might not sync with your aesthetic tastes. Does the thought of a deer leaping from the woods nauseate you? Then city-life is calling. Have an irrational fear of garden gnomes? Then you probably shouldn’t pick the neighborhood where every house has a miniature elf in the middle of the yard. Just be sure the view you’re seeing is one you can’t picture yourself tiring of. 

Step Three: Get The Ball Rolling

List your deal-breakers

Before you begin touring any potential home locations, you need to make a list of things that must be a part of your future living experience. Then, tack on things that you don’t want to see in a potential neighborhood to narrow down your choices. 

Scope out the area

Now that you’ve compiled a viable list of locations you want to live in, you need to scope out those areas. 

In-person 

When visiting a potential home location in person, you’ll want to head to any place you think you might frequent if you were to move to the area—like grocery stores, shopping malls, parks, and other recreational hotspots. You may also want to visit surrounding neighborhoods to compare. Because public transport isn’t an option in some locations, you might also want to test drive your potential commutes. 

Virtual tour

If you’ve got your eye on areas a little further from your current location and you’re not ready to commit to an in-person visit yet, a self-guided virtual neighborhood tour could give you enough insight to narrow down your search. Google Street View can provide a relatively up-to-date and thorough overview to help you get the overall feel of a specific neighborhood. There are also a variety of virtual home tours available online. 

Location Decided? Lender Provided!

Finding that perfect home in that perfect location takes time, but we’re here to help you make the purchase when you’re ready! Get a quote or pre-approval letter, or contact us at mortgageright.com/contact to get the RIGHT financing for your new home!

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

Homeownership 101: What Are the Costs?

When faced with consistently rising rent prices and the desire to build wealth, homeownership is one of the most beneficial money moves you can make in your lifetime. But that doesn’t mean it comes without its costs. 

To avoid any surprise expenses after buying and moving into your new home, future homeowners need to understand all the costs of homeownership before signing any dotted lines.

Let’s take a look at the most common costs of owning a home so you can enter homeownership financially prepared. 

Upfront Costs

Down Payment

The most widely mentioned homeownership expenses are the out-of-pocket amounts you will need to close on your home. Typically, these upfront costs consist of your down payment and other closing costs. 

Down payments vary in amount, but they are often between 3% and 20% of a home’s price. Some government-backed loan programs, such as VA and USDA, require zero down payment; however, if you don’t qualify for a zero-down-payment loan, it will be in your best interest to save up a decent amount of money to be able to purchase your home. 

Closing Costs

Closing costs are fees that you acquire throughout the home-buying process. Closing costs consist of lender fees, taxes, insurance, title search fees, etc. They are typically between 3% and 6% of a home’s purchase price. 

Monthly Mortgage Costs

Property Taxes

When you get a mortgage, property taxes might be included in your monthly mortgage payment, which would allow your lender to hold the funds in an escrow account and pay them on your behalf. 

The U.S. Bureau of Labor Statistics’ Consumer Expenditures Survey (CES) estimates homeowners paid an average of $3,370 in property taxes in 2019. 

Insurance

Homeownership will likely also come with an insurance cost added to your monthly mortgage payment:

  • General Home Insurance – covers loss and damage to your house, as well as the assets inside your home if a damaging event occurs and would be used to restore your home to its original value. 
  • 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).

Day-To-Day Costs

Once you’ve closed on your home and moved in, there are other living costs to consider aside from the expected monthly mortgage expenses.

Utilities

An umbrella term familiar to any new homeowner who was first a renter, utilities consist of all electricity, fuels, and services needed to keep your home livable. 

The 2020 Consumer Expenditures Survey (CES) supports the idea that utilities can make up a sizable chunk of monthly expenditure when they state that the average homeowner spent around $4,150 on utilities, or about $350 a month.

But don’t let these numbers scare you. Utility costs can vary depending on your location, the size and features of your house, and how much you use them overall.

Homeowners Association (HOA) Fees

Nowadays, many communities have a homeowners association that you will likely have to join, which means you will need to pay a monthly fee to that association. 

HOA fees generally pay for the following services shared by neighbors or community members:  

  • repair of shared community buildings 
  • neighborhood walkways or roads
  • upkeep of common areas
  • landscaping or weather-related services (such as lawn care or snow removal). 

Monthly HOA fees are often $200 – $300, but the exact cost is dependent on the extent of shared spaces and services your community offers. The fewer community spaces and services available, the lower your HOA fee will tend to be. 

In some cases, HOAs will ask you to pay a special assessment if an unforeseen emergency expense arises and they don’t have funds set aside to cover the cost. If this occurs, your HOA will request the special assessment fee in addition to your typical monthly HOA fees.

If you’re considering moving into a neighborhood with an HOA, make sure you understand the regular dues (and special assessments) you’ll have to pay.

Internal Upkeep: Maintenance 

Homeownership comes with the responsibility to fix things that need fixin’. This is where maintenance costs come in. If some part of your home needs to be replaced, cleaned, or otherwise serviced, you will need to have the money (and time) set aside to get things working as they should. 

According to a 2021 index from Thumbtack, a home services organization, the average homeowner should “budget $4,886 for a single-family home—up about $450 from last year, in part due to labor and material shortages.” 

The above price estimate may seem daunting to new homebuyers, but be aware that this estimate is a result of the past few years of unique, global circumstances. As things continue to fall back into normalcy, so should maintenance expenses. 

Here are the most common repairs and maintenance services homeowners need:

  • water damage
  • roof issue
  • HVAC care
  • plumbing problems
  • pest removal

If you want to be as prepared as possible to cover these costs if they arise, a good rule of thumb is to save 1% of your home’s value each year. 

Renovation Costs

Renovation costs are also something new homeowners should consider. However, they are not a definite expense. If you feel the need to make aesthetic additions to your home in the form of painting, rearranging, or upgrading, be sure to set aside enough funds for your home makeover to go smoothly. 

Though renovation is not a requirement, it can be a great investment, as many of these projects can help boost your home’s value. MortgageRight also has an awesome Renovation Loan Program to help you fund any renovations you might want to undertake. 

Financial Preparedness Is The RIGHT Way To Approach Homeownership

Homeownership is rewarding, but it’s not something you should jump into unprepared. If you need more help navigating the ins and outs of homeownership expenses, or you’re ready to put your money where your mouth is, contact us here, and we’ll get you started!

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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 answer to the question “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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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 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, 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.

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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.