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Understanding Mortgages

Young couple meeting with a loan officer

How first-time home buyers can secure a mortgage

First-time home buyers represent a substantial portion of the property seeking public. Accounting for roughly one-third of sales at any given point in the typical year, according to the National Association of Realtors, every first-time home buyer enters the market with the hopes of realizing the American dream - ideally at an affordable price.

But buying a home on a budget may seem easier said than done. Fortunately, there are a variety of opportunities that you can take advantage of to buy a home you've set your sights on.

What do you need when applying for a mortgage?

After you've taken a look at some of the listings in your area and seen what the prices are, you'll need a mortgage provider so you can apply for a loan. Lenders are quite plentiful, so you'll have plenty of options to choose from. Whoever you go with, they'll need to see some information to determine your financials. Some of the items to gather include your credit report, pay stubs from the last few weeks, a bank statement of available funds and a copy of your federal tax returns.

Your lender will pull a credit report. Your credit report, which you can also obtain from any of the three credit bureaus for free, offers a window into your payment history. They'll be looking to see if you take care of bills on time as well as if you have any debt. The higher your score, the more likely it is you'll be approved. Generally speaking, a FICO score of 740 or above is the ideal. Borrowers are approved with lower scores, but chances are greater that you'll get a lower mortgage rate with a strong score.

Is there a program for first-time home buyers?

Would-be buyers - regardless of whether they're first-time or not - come to the process with unique needs. Understanding this, there are many mortgage options to choose from. One of the more popular types for first-time buyers - including low-income families - are FHA loans. Backed by the Federal Housing Administration, FHA loans are often ideal if you're a new buyer because down payment requirements are lower.

For example, borrowers for other loan programs and products may need to spend 20 percent of the home's value as the down payment, as may be the case for a jumbo loan. Not so with FHA loans. Down payments as low as 3.5 percent are available. Additionally, FHA loans can be worthwhile to people with less-than-sterling credit.

Of course, conventional mortgage loans shouldn't be overlooked. There are conventional loan programs that allow for down payments as low as 3 percent.

Another option are VA mortgage loans. The Veterans Administration issues these through private lenders and as their name suggests, they're exclusively for active and former members of the armed services. Applicants don't need to come up with a down payment, nor do they need private mortgage insurance. Typically, mortgage insurance is necessary when down payments are less than 20 percent.

The path to homeownership is paved with possibilities. Getting your finances in order and understanding some of the terminology - such as loan-to-value ratio and debt-to-income ratio - can help you reach a successful destination. Your mortgage lender can help you understand this kind of terminology.

 

There are even more first-time home buyer options available than mentioned above, and great tools to help you discover what kind of mortgage program is going to work best for you. Reach out to your favorite loan officer today to ask your questions and get started!

 


Understanding Mortgages

House on a pie chart

What does “escrow” have to do with my mortgage payments?

“What does it mean when my mortgage lender says my mortgage is going to have an escrow?”

Your mortgage lender is referring to the account that will use a portion of your monthly mortgage payments to pay your property taxes, homeowners’ insurance, and if applicable, private mortgage insurance.

A little while back, we examined the meaning of “escrow” in the context of earnest money deposits and settlement funds. An escrow account is a third-party account that holds money safely and distributes it to the right place at the right time. That can also apply to money you need to earmark for taxes, insurance, and any other managed expenses after you have bought your house.

In the case of the escrow account attached to your mortgage, the payment you make each month gets separated out. The principle and interest owed to your mortgage servicer is paid right away while the amount set aside for taxes, homeowners’ insurance and mortgage insurance (if applicable) waits in your escrow account. When it comes time to pay these bills, that amount has been accounted for, and is paid directly from your escrow account.

What if too much or too little was set aside?

Each year, your escrow account is reviewed for overages or shortages and a new estimation is set for what you’ll need for the next year. If an overage is found, the excess money is sent back to you. If a shortage is found, your mortgage servicer lets you know and typically gives you the option of paying the difference or raising your monthly payment over the next year to compensate.

Can I get a mortgage without an escrow account?

Yes. And this may be where the myth about a home buyer having to hand over a 20% down payment was born. In general, for instance, if you’re looking at a conventional mortgage loan, the mortgage lender is going to require an escrow account if you borrow more than 80% of the property’s worth. From a lender’s perspective, an escrow account is good sense. Everything gets paid accurately and on time.

Other mortgage programs have their rules about escrow and down payment sizes, so it’s always a good idea to take questions about this to your trusted mortgage loan officer. There can be pros and cons, if you’re weighing whether using an escrow account with your mortgage makes sense for you, so you’re going to want to bring all the facts of your situation when you seek guidance. A loan officer is going to be familiar with the mortgage products available to you, and will be able to educate you on what that means for you specifically.

If you do get a mortgage without an escrow account, you’re going to want to make sure to pay your property taxes, insurance, etc. on time. Failure to do so can jeopardize your ownership of that property.

The next time you’re talking with your mortgage lender, and they refer to your escrow account, you can nod sagely and say with full confidence, “I understand.”

Now get out there and find the home of your dreams.


Understanding Mortgages

Mortgage rates are up. Here's why buyers shouldn't worry.

Mortgage Rates are up: Here's why buyers shouldn't worry

If you've been thinking about buying a house over the last few years, you've probably noticed something about mortgage rates: They're starting to rise.

According to the most recent data from Freddie Mac, 30-year fixed-rate home loans now average approximately 4.8 percent. That's up from around 4 percent back in January.

Fifteen-year FRMs, meanwhile, are following a similar path. In November 2018, they averaged 4.2 percent — nearly a full percentage point higher compared to when the year first began.

Given the climbing trend, this might suggest that it's a bad time to be in the market.

Deciding whether or not to buy is a personal decision that needs to be made in consultation with your loved ones and real estate agent. But if the direction of mortgage rates is serving as your barometer, some historical perspective may be in order.

Mortgage rates are a lot like the temperatures: They rise and fall over time. Similarly, they're influenced by multiple factors. For rates, they can include the pace of home buying, how the economy is functioning and actions taken by the Federal Reserve.

Mortgage rates were exorbitant in the 1980s

With 30-year fixed rate mortgages up from around 3.6 percent in 2012, it would seem that affordability conditions are worsening. However, if you go back to 1980, mortgage rates were much higher — considerably so, in fact.

Case in point: In 1982, borrowers paid approximately 16.9 percent (you read that right) on a 30-year fixed loan, according to archived data from Freddie Mac. That's more than three times higher compared to where rates stand today.

Real estate expert Kris Lindahl told KARE-TV that context is crucial regarding home loans and when a prospective buyer tries to determine when rates are deemed affordable.

"Historically, rates are still really low," Lindahl explained.

Lindahl added that millennials seem to be particularly cognizant of this fact, given that many are opting to buy higher-priced homes instead of entry-level houses "because they want to lock in that lower interest rate for the life of their loan."

Homeownership is gaining ground

It's these same 18- to 35-year-olds who are fueling robust growth in homeownership.

Using data from the U.S. Census Bureau, The Wall Street Journal reported that the share of Americans who own a residence reached 64.4 percent in the third quarter. However, among millennials, in particular, the homeownership rate climbed to 37 percent — a strong uptick from 2017, when long-term fixed mortgage rates averaged 3.8 percent.

"The recovery is now at this point driven by first-time home buyers and not older generations," real estate expert and economist Skylar Olsen told the Journal.

Historically low mortgage rates have helped make homeownership possible for millions of Americans, and they're clearly taking advantage while they remain in affordable territory.

What does the future rate climate look like? In short, it pays to buy now. In Freddie Mac's most recent forecast, they're projected to average in the low-5-percent range in 2019 and likely to rise to the mid-5s come 2020.

Now may be as good a time as ever to take advantage of the cost-cutting environment while you still can. Having said that, even in 2020, should rates rise further, what you'll spend in interest is minimal compared to yesteryear.


Understanding Mortgages

Who you will meet on your mortgage application journey

Who you'll meet on your mortgage application journey

If you're planning on buying a new home, it's hard to say for certain how many places you'll look at before finding the one that fits you and your budget. For some people, it's a mere handful; for others, it may be in the double digits.

The mortgage process is a bit more straightforward, as there are a specific set of individuals who are there to guide you through the entire homebuying journey. Here are the key mortgage professionals you'll come across during the process of applying for a mortgage.

Loan Officers

The two main contacts you'll have perform largely the same functions, but in slightly different capacities: Loan Officer and Loan Officer Assistant.

Loan Officer

The loan officer is typically the first person you’ll speak with during the loan process. He or she will review your personal homeownership goals and help determine what type of loan best fits your needs. They’ll assist you with completing the loan application, review your credit and can also provide you with a pre-qualification letter.

Loan Officer Assistant

The loan officer assistant works closely with the loan officer in a helping capacity. They gather and review additional documents that may be needed to complete your loan application. They can also answer any questions you may have if your loan officer is not available.

Processor

Loan processors generally come into the picture further along in the application chain of events. What they do is organize all the relevant documents so that the mortgage lender has what it needs for final approval. They also proofread, checking to see if anything is missing.

Underwriter

Mortgage underwriters are primarily charged with determining if you have the appropriate qualifications to borrow. Some of the factors taken into account include your annual salary, your employment history, debts - both the type and how much - as well as available assets, such as checking and savings accounts.

As detailed by The Truth About Mortgage, the underwriter will render one of three decisions: approval, denial or suspended status. This last one means that you may need to provide more documentation for the mortgage process to move to the next step.

Closer

You've probably heard the term "closing" as it pertains to buying a house. The closer is the point person for this last step. Closers prepare and assemble the documents necessary for closing to take place. They also coordinate with other professionals involved, such as lawyers (if necessary), agents and vendors.

Now that you're armed with a brief synopsis on who you'll meet during the homebuying process, the rest of the story is yours to determine.

Find a Loan Officer today to get started.


Understanding Mortgages

Who should I talk to first when buying a home

Who should I talk to first when buying a home?

You've decided to enter the housing market. Now what? Well, if you're like most people, aside from looking at what houses are available for purchase on various listing websites, you probably think talking to a real estate agent is the first person with whom to speak. You shouldn't have a problem finding one, as there are over 1.1 million of them in the U.S., according to the National Association of Realtors®.

While a real estate agent will certainly help you locate your forever or for-the-time-being home, listing agents actually aren't the first people to go to. Your best bet in the early going are loan officers. But what, exactly, are loan officers. More to the point, what makes them a go-to source starting out?

What does a loan officer do?

Loan officers perform many different functions in the mortgage realm. For the sake of simplicity, they serve as the gateway to obtaining a home loan.

When you meet with a loan officer, he or she will go over various personal details that will tell them whether you're a good candidate to buy a house. Some of these items they'll look through are pretty basic: whether you're gainfully employed, what you earn per year in salary, what kinds of assets you have available, and so on.

Loan officers will also run a credit check to get a determination of your credit score. The credit scoring bureaus - TransUnion, Experian and Equifax - use slightly different scoring metrics, but they all work from the fundamental premise of gauging how consistent you are about making your payments on time. The higher your score, the better chances you have not only of being approved for a loan, but securing one at a lower rate of interest compared to someone with a low score.

In short, loan officers help you get the proverbial ball rolling as it pertains to home financing.

Who employs loan officers?

Much like real estate agents, loan officers work for various entities. As noted by the Bureau of Labor Statistics, there are approximately 318,600 loan officers to choose from throughout the U.S., 80 percent of whom are employed by "credit intermediaries." That's an umbrella term for credit unions, mortgage companies and commercial banks.

It's fitting that loan officers work for credit intermediaries, because loan officers serve as the middleman. These individuals talk to loan applicants like you to gather and evaluate the personal information you provide, who then get in touch with management to make a decision on mortgage approval.

Consumer loan officers - the kind that you'll meet - specialize in loans for individual borrowers, but there are other varieties, such as commercial loan officers. They primarily deal with business owners interested in obtaining property for business purposes.

What makes loan officers truly significant?

Aside from explaining the details of what you need to apply for a mortgage, loan officers can give you a better sense of how much house you can afford. Home values go up and down, largely depending on supply, demand and what other properties in the area sell for. Loan officers help you determine the types of houses that fall in your budget, ensuring you don't settle on a place that you can't afford.

Additionally, loan officers can supply you with something that can provide you with an advantage: a prequalification letter. The current housing market favors sellers, meaning more people are looking to buy a house than sell. As a result, the market is highly competitive.

With a prequalification letter, though, your odds of getting the house you want improve because sellers know you have the means with which to buy. With due diligence - like meeting with a loan officer first - you're one step ahead of the game compared to people who met with a real estate agent at the outset.

Choices are a great thing to have when you're looking to buy a house. Loan officers provide them and, at the same time, help to narrow the market down so you avoid wasting time. So, what are you waiting for? Enter the market today by meeting with a reputable lender.

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