Category: First-time Homebuyer

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Down Payment First-time Homebuyer Homebuying Homebuying Tips Mortgages

PMI vs. MIP: A Guide to Mortgage Insurance

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

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

PMI vs. MIP: What Are They?

PMI

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

MIP

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

Notable Differences Between PMI And MIP

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

Can You Cancel?

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

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

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

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

Upfront Costs

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

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

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

Annual Costs

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

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

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

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

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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 a low or 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. 

An FHA loan is a government-backed loan insured by the Federal Housing Administration. With this mortgage option, you can typically purchase a home 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% 

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. 

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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First-time Homebuyer Homebuying Loans Mortgages Pre-approval Purchase

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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First-time Homebuyer Homebuying Homebuying Tips Mortgages Pre-approval

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

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

Pre-qualification: What does it mean?

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

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

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

Pre-approval: What does it mean?

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

Here’s a list of commonly requested documentation:

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

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

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

Choose What’s Best for You

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

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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 Credit Down Payment First-time Homebuyer Home Inspections Homebuying Homebuying Tips Interest Rates Loans Mortgages Purchase

Mortgages 101: Everything You Need to Know About This Home Buying Process

Purchasing a home is an exciting process. However, it can be intimidating when you consider all the decisions and details leading up to closing day. 

We want to help make the process just a little easier. To do so, we put together some of the most frequently asked questions about mortgages and the mortgage process – a Mortgage 101, if you will. By the end of this blog, you’ll be even closer to getting your dream home!

  1. How do I start the mortgage process?

Before submitting your mortgage application, you’ll need to have an idea of the type of mortgage loan you want, ensure your credit report is error-free, choose your lender, get pre-approved, and assemble your loan paperwork. 

If that sounds like a lot — just hold tight. We are going to break each of these down further in the following questions. 

  1. How do I know which type of mortgage loan is right for me?

There are many types of mortgages available to choose from based on requirements, interest rates, and availability. Some of the most common are conventional mortgages, government-insured mortgages, fixed-rate, adjustable-rate, and jumbo mortgages. 

To help you get an idea of the mortgage that’s right for you, we wrote a blog on each of these types (and more!) and broke them down into their characteristics and benefits. Read about them here!

  1. Can I get a mortgage loan without a credit score?

It is more challenging to get a mortgage loan without a credit score, but it’s not impossible. As we mentioned in the previous question, you can get an FHA loan with low or no credit. However, this can incur greater costs in the long run with fees and insurance. 

If you don’t have a credit score — the best process for you is finding a lender who does manual underwriting. Manual underwriting is a hands-on process that reviews your proof of income, rental history, and other documents to evaluate your ability to pay debts. In addition to documentation, you’ll need to have a sizable downpayment (20% if possible), allowing you to get a mortgage loan — suggest going for the 15-year conventional. 

  1. How should I choose a mortgage lender?

First and foremost, do your research. What are your options? Should you check out a credit union, mortgage banker, or smaller financial institution?

Come with the right questions. The more you know beforehand, the more you are positioned to ask the relevant questions to help you make your decisions. This guide can help! Start by figuring out what type of loan(s) you are interested in and what you can afford. 

  1. What is pre-approval? How do I get pre-approved?

A pre-approval determines how much money you can borrow to purchase your home. Lenders will analyze your income, assets, and credit score to determine the type of loan you can get approved for, how much you can borrow, and what the interest rate will be. 

Pre-approval is a practical step in the mortgage process, as you can show sellers that a lender is willing to loan you the money. It makes the searching process more straightforward and can make your offer on a home stronger. 

  1. Are pre-qualification and pre-approval the same?

While they ultimately aim to reach the same goal, a pre-qualification is not as accurate as a pre-approval because it is less in-depth. A prequalification is more of an estimate because you do not have to provide as much information, such as your credit report. However, both are beneficial in giving insight into your loan opportunities. 

  1. What information should I have available when applying for a loan?

You’re getting closer and closer to locking down that mortgage loan! First, you’ll need to submit the official mortgage application through your lender. You’ll also need your ID, proof of income, tax returns, bank statements, retirement or investment account statements, rent history, credit report, and possibly a few others if specified by your lender. You may even have most of these nearby if you have gone through the pre-approval process! 

  1. Do I need to do a home appraisal and inspection? Why?

Yes! Lenders require a home appraisal before issuing a mortgage. Although it’s a worst-case scenario, they want to make sure the home is valued high enough to recover the cost of the loan if the buyer defaults on the mortgage. 

Inspections, however, are optional — but highly beneficial. It can often be the deciding factor in finding the home right for you. Here are 10 things buyers should know about home inspections!

  1. What homes can I afford, and what will my mortgage payments cost?

One of the most important factors to consider before beginning the search for a new home is your budget. You have to consider the down payment necessary for your new home and the monthly cost of the mortgage. Your mortgage payment is affected by a few factors, including your credit, DTI (debt-to-income ratio), and current assets. It also depends on how many years you want to spread the payment over. 

Once you have an idea of how much your home will cost, try our mortgage calculator! It will provide a helpful estimate of what your mortgage payment will be each month. 

  1. What does a lender look for when approving my mortgage loan?

As we have mentioned, your mortgage loan approval is affected significantly by your credit history, debt-to-income ratio, and current assets. When checking your credit history, lenders will look for:

  • Few to no recent credit applications
  • Positive payment history
  • Credit utilization (only using around 30% of your credit limit at once)
  • Being an authorized user on another account (their activity can reflect your credit)
  • Bankruptcies or other negative marks (delinquent account, charge-offs, etc.)

In addition to making sure you have a stable income, your lender will also assess how much of your current income goes to pay off debts. If this is a significant amount, the lender may determine that you are not well-suited to take on more debt, or your interest rate may be higher. 

Lastly, lenders will often want to see any bank statements or investments, as high-value assets will reflect positively on your ability to make a sizable down payment or pay your mortgage on time each month. 

Bonus Question: Can I Start Now?

Absolutely! At MortgageRight, we help people like you find the mortgage that’s right for you by securing your pre-approval letter and low rates. To start your home buying journey today, head over to our home page and click the quote or pre-approval button in the top right-hand corner. Just a few clicks will get you that much closer to the long-awaited move-in day! Do you have a question that’s not on this list? Feel free to email us at contact@mortgageright.com or give us a call at (205) 776-8401, and we will be happy to answer it for you!