South Orange County Blog from Bob Phillips

Don’t Make These Mistakes When You Want To Get A Home Loan

Don't Make These Mistakes When You Want To Get A Home LoanGetting a home loan can be a challenging process, and a finicky one. Qualifying can be challenging and once a buyer gets approved, it can be surprisingly easy to derail the process. Here are some mistakes to be avoided:

Not Pre-Checking Credit

Once a borrower makes his application for a mortgage, his fate is largely sealed. One way to increase the chance of qualifying for a home loan is for a borrower to check his credit before applying. That way, he can address any issues before they become problems for the lender.

Changing Jobs

Lenders judge borrowers on their ability to repay the loan. While a borrower’s credit rating is a good indicator of past performance, his current job and income provides some assurances that he can make his payments.

Changing jobs or losing a job interrupts the income, and can make a lender decide not to lend to that borrower.

Taking On New Debt

New debt can derail a mortgage in two ways. First, adding debt can lower credit scores from the inquiry that comes as well as worry lenders. Second, new debt increases monthly payments, which lower the amount that a borrower can take out on a home loan due to the limitations imposed by the lender’s debt to income ratio.

Fudging The Numbers

Some borrowers might be tempted to tweak some of the numbers on their mortgage applications to make them more attractive to the lender, but lying on a mortgage application is a very bad idea.

First, lenders investigate what gets entered and they’re likely to catch it. Second, it is also fraud and could leave the borrower subject to prosecution.

In general, people considering a home loan should remember the Hippocratic Oath that doctors take. Its message — do no harm — is a good rule of thumb for applying for a mortgage.

Applicants that keep their financial status the same throughout the process without making any changes are more likely to emerge at the end with their new home and their original loan.

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Factors To Consider When Applying For A Home Mortgage

Factors To Consider When Applying For A Home MortgageOwning a home can be a sign of independence and success. It allows you to build up equity and the mortgage interest and property taxes are tax-deductible. What can you do to make a home affordable for you?

Reputable lenders look at a list of criteria to decide how much they’ll loan you.

This List Includes:

  • Credit score
  • Existing assets including cash
  • Car leases or loans
  • Credit card balances
  • Debt consolidation loans
  • Home equity loans
  • Installment loans
  • Student loans
  • Other monthly debts
  • Size/source of your down payment

If you’d like to get an idea of what you can afford before talking to a lender, here are a few tools you can use to decide whether a home is within your budget.

Here Are Some Guidelines:

  • As a rule of thumb, your house hunting budget shouldn’t be more than 2.5 times your pre-tax annual income.  If you earn $50,000 a year, your budget for house hunting should be around $125,000.
  • Your Housing Expense Ratio, which is principal, interest, taxes and insurance shouldn’t be more than 25% to 28% of your pre-tax monthly income.
  • Your Debt-to-Income Ratio should be no more than 36% of your pre-tax monthly income.  This is the ratio between how much you owe and how much you earn.
  • Use an online calculator to figure how much home you can afford.

“Qualifying for” and “can afford” are two different things.  Shopping for a home within your budget will save you a lot of heartache now and in the future.

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These Overlooked Issues Can Become Deal-Killers For Your Mortgage Application

These Overlooked Issues Can Become Deal-Killers For Your Mortgage Application

A mortgage loan approval is never final until it’s funded. And that means after you’ve signed the final paperwork and the bank has wired funds to escrow.

Mortgages are made up of many moving parts, any of which might “go wrong” while your home loan is underway.

Some are in your control, like deciding to purchase new items on credit during the mortgage process, many more are not. These “not in your control” items are the ones that you may not be thinking of.

Just being aware of some potential pitfalls could help save your loan down the road, and your peace of mind today.

What Many Mortgage Articles Don’t Say

Many mortgage related articles offer similar things like buying a car before closing, or opening a bunch of new credit cards, but there are  more uncommon factors that can lead to a similar loan turndown.

For example, a home not be able to get approved if it’s unsuitable, or unsafe, for human habitation — a condition you may not discover until after a thorough home inspection’s been made.

Broken windows, lack of plumbing, major electrical code violations and/or major foundation damage are all deal-breakers with a lender.

You’ll either have to fix the home prior to your loan closing, or don’t close at all.

More Mortgage Pitfalls To Avoid

There are others ways in which a mortgage approval can go bad, too:

  • You’re self-employed and your income was declining over the years leading up to your mortgage application
  • Your tax return shows large amounts of unreimbursed employee expenses
  • You have switched lines of work or had unexplained breaks of employment in recent years

Mortgage approvals are delicate and, despite an improving economy, lenders still operate with caution. Talk with your real estate agent and your loan officer and put together a game plan.

The best way to beat the mortgage system is to know the rules before you start to play.

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Whatever You Do, Don’t Make These Common Mortgage Mistakes

Whatever You Do, Don'ty Make These Common Mortgage MistakesAre you applying for a mortgage on your home? Keep in mind that a mortgage is a major financial decision and choosing one will have a significant impact on the rest of your life.

Many people go into this decision without understanding all of the essential mortgage information they need to know. This means that they may not make the best choices which could result in paying much more than they need to.

If you want to save yourself from throwing away your hard earned money, here are a few common mistakes to avoid:

Trying To Time The Mortgage Interest Rate Market

Many people will wait too long to make a decision to lock in their mortgage rate, trying to wait until they think that the rates have hit bottom. However, unfortunately most of the time this leads them to wait too long and end up with a higher interest rate.

If you are waiting things out, keep a very close eye on the economic indicators. Better yet, your trusted mortgage professional would be a good source of information about the fluctuations of interest rates.

Forgetting About Closing Costs

In addition to saving up a down payment for your mortgage, don’t forget to factor in the closing costs. These can range from two percent all the way up to six percent of the value of your home.

Make sure that you have budgeted for this in advance, so that these fees don’t catch you by surprise.

Not Considering All Loan Options

There are many people out there who haven’t considered certain loan products, such as an adjustable rate mortgage, because they just don’t understand how they work. However, you might be missing out on an option that would really work well for you.

Make sure you do your research and gain an understanding of the loan options available to you.  Ask your loan officer for guidance in this area.

Looking At Just The Mortgage Rate

Remember that the mortgage interest rate is only one factor that you should consider when choosing a mortgage. Don’t forget to also consider the time frame of the mortgage closing, any restrictions on lump sum payments and any other important factors.

Following these steps will help you avoid a few of the common mistakes people make when choosing a mortgage.

What Should You To Do In Advance To Prepare For Your Mortgage Application

What Should You To Do In Advance To Prepare For Your Mortgage Application

If you are applying for a mortgage to buy a home, doing your homework in advance before you submit the application means that you will stand a better chance of getting accepted at a desirable mortgage rate.

According to mortgage experts, it is a good idea to gather up all of the needed documents in advance before launching your house hunt, as this will make the application process a lot easier.

The housing burst has resulted in much harder lending standards, which means that it could possible take weeks or sometimes even months to secure a loan.

Here are a few important steps that you should take in advance:

Consider What You Can Really Afford

Before you start the entire house hunting and mortgage application process, you should consider what you can really afford to buy.

It might be tempting to buy a house at the upper end of your price range, but consider the fact that it will be more of a struggle to make your mortgage payments and it will take much longer to pay down the mortgage. Assess your finances and be honest with yourself.

Buying a home that is more comfortably within your price range will ensure that you can easily manage your monthly budget over the years.

Save Up A Down Payment

The bank will want to see that you are able to make a down payment of at least 20% of the value of the home.

In order to save up this amount of money, it will be easier if you start in advance and save a small amount every month. The more you can pay for a down payment, the less your mortgage will be and the more money you will save over the length of the loan.

Do Your Research

Take your time to do lots of research in advance and seek out impartial advice on the mortgage market. There are so many options to choose from and a lot to consider, so the more knowledge you have the more prepared you are to make an informed decision.

Consider Your Credit

Before applying for a mortgage loan, you should take a look at your credit report.

Your lender will look at it when you are making an application and they will use it to consider whether or not to offer you the loan and what type of interest rate to give you. If you spot any errors or issues with the credit report, it is a good idea to get them fixed now before you apply.

These are just a few things to consider before applying for a mortgage.

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