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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!

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First-time Homebuyer Homebuying Homebuying Tips Loans Mortgages Purchase

Which Type of Mortgage Loan Is Right For Me?

Getting a mortgage loan can be a daunting task. However, the greater understanding you have about these loans as you begin your home buying journey, the easier it will be. 

There are many types of mortgages available to choose from. They differ based on requirements, interest rates, and availability. In this blog, we list the most common types of mortgage loans, and for which type each homebuyer is best suited. 

Conventional Mortgages 

Conventional mortgages 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. 

Read more about conventional mortgage loans here!

Government-Insured Mortgages

Although not a mortgage lender itself, three government agencies back mortgages: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans), and the U.S. Department of Veterans Affairs (VA loans). 

  • FHA Loans are for borrowers who don’t have a large down payment saved up and do not have the highest credit. 
  • USDA Loans are for moderate and low-income borrowers. Borrowers must purchase a home in a USDA-eligible area but often are not required to make a down payment.
  • VA Loans are flexible, low-interest loans for those serving in the military, both active duty and veterans. These do not require a down payment. 

Fixed-Rate Mortgages 

As per the name, these 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

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. 

Jumbo Mortgages 

Jumbo mortgages are for when the home price exceeds the federal loan limits. These are best suited for affluent buyers with good credit, a high income, and who can offer a substantial down payment. 

Read more about jumbo mortgage loans here!

Making Mortgages Easy

If you have more questions about mortgages, don’t worry! We put together this helpful guide featuring frequently asked questions and their answers. Check out the blog here! 

We are in the business of ‘lending as it should be’! Check out our home page to get a quote or pre-approval letter, or email us at contact@mortgageright.com for any questions. 

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Budgeting Homebuying Tips Loans Mortgages

What Is Your Next Big Investment? These Budgeting Tips Will Help Make It Happen.

Budgeting seems such a daunting task. We start with our monthly income, then start carving it up into smaller and smaller pieces as we subtract expenses. Take another look, and you just might realize the process is really an empowering experience.  

That’s because budgeting gives us something akin to superpowers in helping us reach our goals. That said, we offer the following ideas on how to set up a budget, as well as a few tips on how to tackle debt, pay bills on time, and boost your credit score.  

What Is Your Budget?

In its most basic sense, a budget is your income after taxes, minus all your monthly expenses. Some of the costs you want to be sure to account for are:

  • Mortgage (or rent, if you’ve yet to purchase your first home)
  • Utilities
  • Insurance (health, life, car, etc.)
  • Groceries
  • Phone bill
  • School/Childcare
  • Subscription services (lawn care, cable, gym memberships, etc.)
  • Vehicle (payments, maintenance, and gas)
  • In addition to making automobile payments, consider adding line items to pay down other debt (see below).
  • Lastly, if at all possible, add a line item for savings. This could be for unforeseen expenses, as well as for things like gifts, a child’s college fund, and retirement.

Write out your budget, and most importantly, track it. Your budget will probably change slightly from month to month, but it will still provide a good overview of your expenditures. Tracking allows you to analyze and make changes if needed in the future. 

Minimize Your Debt

Prioritize paying off any outstanding debt by including it in your budget as a “necessary” expense. While you can still buy a house if you have outstanding debt, eliminating or reducing it will allow you to do any number of things, not the least of which is raise your credit score and help you in the home loan approval process. 

Set Up Automatic Bill Pay

Late fees are the worst — especially when they’re the result of an unfortunate mix up about a due date or just plain old, ordinary forgetfulness. Automatic bill pay can help eliminate such mistakes by paying your bills on a schedule that you set up. 

One suggestion, however – before your start auto-pay, make sure your budgeting work doesn’t need adjustments by tracking it for a few months. A simple error in math or a forgotten bill could result in those very late fees you’re trying to avoid. For extra assurance, you might also set reminders for due dates, even with auto-pay, to remember how much money will come out of your account and when. 

Keep Yourself Accountable

It can be easy to lose sight of your budget goal if you’re the only one responsible for it. Share your expectations with a spouse, friend, or family member who is willing to check-in and make sure you’re on track. Let them know where you plan to cut back and ask them to help hold you to it. 

Set benchmarks for each month! Determine how much you want to save and celebrate each success along the way to your goal. You’ll soon realize your new home, special occasion/holiday gift, or home improvement project is within reach … 

Reach Your Goal With MortgageRight!

Whether you’re looking to purchase a new home or refinance your current home, MortgageRight is lending as it should be. We can help you apply your budget to a low-rate mortgage that is right for you. 

To learn more about how we can help you plan for tomorrow – including that all-important step of getting pre-approved — give us a call at 205-776-8401!

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Homebuying Tips Interest Rates Loans Market Analysis Mortgages

What Does This Market Analysis Say About Mortgage Rates?

Mortgage rates are down, which can be an incentive for those looking to purchase or refinance a home. In fact, they’re some of the lowest rates we’ve seen in years! We talked to our resident expert employee, Jeff Angew, who provided some insight into how the current climate has impacted these opportunities for homeowners and homebuyers. 

Why Have Mortgage Rates Fallen?

With the onset of COVID-19 in March, part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was to allow consumers to skip or lower mortgage payments for up to six months, a concept called mortgage forbearance. While beneficial for consumers, this component of the CARES Act incited something close to panic in the mortgage market. 

Because many in the market believed that a reduction in mortgage payments meant a significantly lower return for investors, mortgage rates began to skyrocket and investors in mortgage-backed securities began to exit the space. 

Enter the Federal Reserve, which, to help financial markets, lowered the federal funds rate to 0%-.25%, causing interest to fall significantly. However, this still did not help liquidity in the markets. 

In April, the Federal Reserve again stepped in, this time to purchase mortgage-backed securities; thus, causing them to be the largest holder of these securities and return a level of security to the market. This resulted in the lowest rates seen in the mortgage market to-date, causing something of a refinance boom. 

What are the Current Rates?

The current 30-year rate, as reported by Bankrate, is at 3.08%. The last time it was this low was in September 2016, at 3.32%. 

Learn more about the rates and APR in your state here

What Will Future Mortgage Rates Look Like?

The Federal Reserve plans to keep the federal funds rate at or near 0% through 2021 and will continue to purchase mortgage-backed securities. However, the presidential election in November could cause a change in the market, depending on who is elected. 

Currently, there are an estimated 19 million highly qualified refinance candidates who could lower their rate by at least .75%, adding to the strain on mortgage originators and causing rates to stay in this range. 

How Can You Take Advantage of These Low Rates!

While these rates are near historic lows, they won’t last forever. Whether you’re looking to purchase a house or refinance your current home, we’re here to help! Call us at 205.776.8401 to lock in your low rate today!

If you’re ready for a quote or a pre-approval, click the buttons in the top right corner of our home page

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Homebuying Homebuying Tips Loans Mortgages Purchase

Buying a Vacation Property? What to Consider When Investing in Your Home-Away-From-Home.

As the number of people purchasing vacation homes is on the rise – many a result of the social limitations caused by the coronavirus pandemic – we offer this helpful guide for those looking to buy a getaway property of their very own. 

Benefits of a Vacation Home

If you’re a frequent traveler and enjoy escaping to one very special spot each year, investing in a vacation home can save you money in the long run. Even better, properties in popular vacation areas often increase in value over time. 

Making such a purchase all the more attractive, you may also be eligible for a tax break from the mortgage on your second home. 

And should you choose to move when you retire, your vacation home could become your primary residence in that special location you already know and love. 

Simply put, vacation homes are a great idea. But what should you consider before investing in one? 

What’s Your Budget?

We aren’t saying it’s all about the money, but, of course, the cost of a second home is one of the most important factors to consider. In addition to a second mortgage, you will also need to factor in the cost of taxes, insurance, utilities, possible HOA fees, and furnishings for the home. 

And that’s just the beginning. As you maintain your vacation home, you may want to consider how it will be cared for when you’re away. Will you need landscaping services? Will you want a security system to protect your unattended home? And don’t forget the cost of traveling there and back. 

While these costs aren’t supposed to discourage you from investing in a vacation home, they are essential considerations when looking for the home that’s right for you and your budget. 

To get a better idea of what your payments will look like, check out our mortgage calculator

Where Do You Want to Rest and Relax?

Location is another essential part of finding the perfect vacation home. Where do you picture yourself escaping for a week away? Where do you want to spend your weekends? You may love the beach, or the city, or the mountains, but do you like that locale enough to spend the majority of your vacations there? You want to choose a place that won’t lose its appeal after a visit or two. 

The second consideration with the location regards distance – in addition to how much it costs to get there, consider travel time. You may choose a vacation home in your DREAM location, but if it takes a half day’s drive to get there, or you need to catch a flight every time you want to visit, then you may not end up spending as much time there as you intended. So, the takeaway here? Decide on a getaway that’s not too far from home!

Is Rental Income a Must?

Many people consider buying a vacation home and then look to rent it out when they aren’t using it. While renting can bring in extra income, it does offer a few challenges. For instance, sometimes renting out your property can have implications for financing and taxes, or homeowner associations may have rules and limitations for renters. 

Also, if you plan to occupy the home during the typical vacation months, consider that there may be fewer available renters during the “off-season.” Renting your property also comes with additional considerations, like how to advertise and who will take care of any significant issues that occur while guests are present. 

If consistent rental income is a must, then do your research on what to expect given your budget and vacation schedule. 

Finding the Vacation Home That’s Right for You

Purchasing a vacation property is an exciting venture, and the professionals at MortgageRight are dedicated to making the home-buying process an easy one – whether it’s for your primary residence or that perfect vacation getaway. Whether you’ve just started looking or you’re ready for a quote, we can help!

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Homebuying Homebuying Tips Loans Mortgages Purchase

Silver Linings: How to Make the Best of Buying a Home During a Recession

We are seeing the economic effects of COVID-19 in real-time. This “new normal” is going to be far-reaching, long-lasting, and will likely result in a lengthy recession. It’s not all gloom and doom, though. Markets fluctuate, but they are resilient. There are great ways to make the best of this bad situation, particularly if you plan on buying a home. 

If you have been patiently waiting for housing prices to go down, boy do we have news for you. There has never been a better time to buy. Historically low mortgage rates combined with motivated sellers make this a great buyer’s market. Job instability is a concern, but if you have a stable job situation and a little bit of money saved right now, it could be an opportune time to purchase a home. With less competition from other homebuyers and sellers willing to negotiate, this could be your chance to find your dream home. 

Here are some tips to put you in the best position to buy a home during a recession:

  1. Get pre-approved for a mortgage. Homebuyers who already have financing in place are in a better negotiating position. Having savings is always a bonus, but go ahead and get pre-approved before you start shopping so you can enter every conversation with confidence.
  2. Organize your finances. Don’t get too excited – just because a house is a good deal doesn’t mean you can afford it. Work on your budget. Make sure you take stock of all your assets and debts before you make any big decisions. 
  3. Do your research. With unstable markets, housing prices can fluctuate and give a false sense of value. Make sure you research your neighborhoods well! Knowing historic pricing for an area can give you a sense of objectivity when evaluating an offer.
  4. Get a home inspection. In uncertain times, sellers may be trying to offload homes with problems that are costly to repair. Be very thorough and make sure you’re not buying the home equivalent of a lemon! 
  5. Clear the title. Start with a clean slate. Sometimes the home of your dreams can be the property of your nightmares. Make sure that the property doesn’t have any liens from a contractor or a lending institution. Have a lawyer run the title of your new home to verify it will be transferred without risk.
  6. Use your bargaining power. Watch for motivated sellers. If the price has been reduced on the home several times over the last few months, it may be a signal that they have already moved and are holding the mortgage on two properties. In this situation, the seller may be willing to negotiate to cover closing costs and other fees in order to quickly complete the sale. 
  7. Avoid unnecessary fees. It’s your market right now! When houses move slowly, realtors will sometimes take a few percentage points off of a commission in order to get the deal signed. Negotiating these fees down before closing can benefit both the buyer and the seller, leaving everyone happy.
  8. Use logic. Have the emotional stability to walk away if it’s not the right deal for you. Wait until the right opportunity comes along before you commit.

Even with all these tips in mind, there is no such thing as a foolproof approach to the housing market. An unstable economy means there is risk involved in major purchases like a home, but fortune favors the bold. If you pay attention to these 8 tips, you may be able to find a tremendous deal by acting decisively while others are afraid to move.

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Credit Homebuying Tips Loans Mortgages

Understanding How Debt Affects Your Mortgage

When determining a target price range for purchasing a home, it’s important to consider your existing debt, as this will affect what kind of mortgage you will qualify for. Your debt to income ratio, or DTI, is one of the most important metrics after your credit score. In this post, we cover everything that a homebuyer needs to know about their DTI and the effect that this will have on the mortgage process. 

What is DTI?

The primary tool mortgage lenders use when considering your application is your DTI, or debt to income ratio. In simple terms, this is the percentage of your income that you must set aside each month toward paying off your debts. This number can be as important as your base income and your credit score when determining your eligibility for a loan. 

Calculating your DTI

To calculate your DTI, lenders will divide your monthly debt obligations by your gross income. This seems simple enough, but this equation fails to take into account taxes, food, utilities, health insurance, transportation costs, or childcare. You will want the lowest DTI possible, not just to ensure a good mortgage rate, but also to be able to still live comfortably while paying off your debts. 

Front-end vs. Back-end DTI

There are two kinds of DTI: front-end DTI and back-end DTI. Front-end DTIs only include housing costs like future mortgage payments, insurance, property tax, and homeowner costs compared with your gross income. Back-end DTIs include all your other debts like credit card debt, student loan debt, and car loans compared with your gross income. Most mortgage lenders will take both DTIs into account when considering your application. 

What is the best debt-to-income ratio?

In order to get approved for a conventional mortgage, your back-end DTI should be less than 43%, however, with excellent credit, you may be eligible for up to 50%. If your ratio is higher than this, you could pay more interest or be denied for a loan. 

Even if your back-end DTI is lower than 43%, only you can determine the debt to income ratio that makes sense for your situation. Just because you can be approved for a loan at a good rate doesn’t mean it’s a great idea. Some mortgage lenders do not have your best interest in mind. They just want to make the largest loan possible. Don’t be fooled! Make sure you do the math before you overcommit yourself to monthly mortgage payments. You know your household budget better than anyone. 

At the end of the day, we recommend paying extra on your debts and avoiding large purchases on credit to lower your DTI before you apply for a mortgage. This helps the mortgage process go smoothly so that you can have both your dream home and financial peace of mind.  

If you have questions about your financial situation or the mortgage process, feel free to reach out to any of our mortgage professionals at (205) 776-8401

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Loans Mortgages Refinance

Making the Most of Refinancing Your Home

It seems like a pain to go through the mortgage process AGAIN just a few years after purchasing your home. Loan applications, appraisals, closings…why bother if your current mortgage payments already fit comfortably into your budget? Are the savings and benefits worth it? Even if you’re not considering a move, the time could be right to refinance your home. 

Do you have a child in college? Are you interested in starting a business? Refinancing your home can be a strategic way to dip into your own personal piggy bank to help in many different life situations.

What is refinancing?

“Refinancing” is getting a new mortgage to replace your original one. Instead of throwing out the original mortgage, the first loan is paid off when the new loan is created. Refinancing can improve the interest rate and term of the loan. 

When is refinancing a good idea?

Like many things, it’s a numbers’ game. There are two metrics to weigh as you consider when to refinance: your home’s value relative to the amount owed on your current mortgage and current interest rates. Over time, the value of your home should increase, and there could be more incentives to refinance. You can’t control the fluctuations in interest rates, but you can monitor them to find strategic opportunities. When your home’s value is up and the interest rates are down, you will get the maximum benefit from refinancing your home. 

We’ve had historically low-interest rates for a long time, and it’s difficult to tell when they might start to creep back up. With the current state of the economy, we recommend making refinancing decisions based on your personal financial situation rather than holding out for a possible future rate improvement. 

Why is refinancing beneficial?

Apart from just lowering your monthly mortgage payments, refinancing gives you options to utilize the equity you’ve built on your home. You can utilize the cash equity built up in your home to pay off credit card debt, a car loan, a student loan, or even start a business, buy a second home or an investment property. 

Decreasing your interest rate today by even one percentage point might make a bigger difference than you think. A 1% improvement could save you more than $20,000 per $100,000 financed over the term of a 30-year mortgage. 

Should I refinance?

MortgageRight can help explore all the different possibilities that open up to you when you refinance your home. Our trained mortgage specialists can help you explore the benefits of refinancing based on your situation to determine if now is the best time for you to take action. 

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Homebuying Homebuying Tips Loans Mortgages Purchase

MYTH: Now is Not a Good Time to Buy

Real Estate has appreciated a lot lately and we have heard many potential homebuyers say they’re thinking about waiting until prices come down to buy a home. If rising home values are keeping you on the sidelines, you may be waiting longer than you ever intended.

For instance, should you try and wait it out, the market may have gone up 20% before there is a 10% correction. And while you’re waiting for months or years, you may still pay 10% more for your new home after paying rent when you could have started paying off a new mortgage.

The right time to buy your first home is when you are ready; both financially and emotionally. And significant life events (getting married, relocating, landing a great new job, having children) generally drive the decision to consider purchasing instead of continuing to rent.

At MortgageRight, our experience tells us you cannot time the real estate market when data becomes available many months after market events take place. This, along with so many other variables, makes pinpointing a perfect time to buy nearly impossible.

If you are ready to buy your first home, this may be the right time to buy a home. Competitive interest rates and a variety of home loan programs are currently available that will can meet your needs today.

Don’t let this myth is deter you. Instead of continuing to make rent payments to a landlord, start making payments on your own home.

Contact MortgageRight. Our helpful loan associates area always ready to explain the process and your options.

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First-time Homebuyer Homebuying Homebuying Tips Loans Mortgages Purchase

Defining the First-Time Homebuyer

The U.S. Department of Housing and Urban Development (HUD) describes a first-time homebuyer as someone who meets any of the following conditions:

  • An individual who has not owned a principal residence for three years. A spouse is also considered a first-time homebuyer if he or she meets the above criteria. If you’ve owned a home but your spouse has not, then you can purchase a place together as first-time homebuyers.
  • A single parent who has only owned a home with a former spouse while married
  • A displaced homemaker who has only owned with a spouse.
  • An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
  • An individual who has only owned a property that was not in compliance with state, local or model building codes – and which cannot be brought into compliance for less than the cost of constructing a permanent structure.

Please contact MortgageRight at 205.776.8401 or Contact@MortgageRight.com for more information.