Kathryn Jean Keller

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What Potential Homebuyers Need To Know About Buying Their First Homes

November 9, 2021 by Kathryn Jean Keller

What Potential Homebuyers Need To Know About Buying Their First HomesIt is exciting to purchase a house for the first time, but this is also a major financial decision. Therefore, potential homebuyers need to make sure they are prepared. What do potential homeowners need to know about purchasing a home for the first time? Learn more about this process below. 

Ask For Help From A Real Estate Agent

First-time home buyers always need to ask for help from a real estate agent. A real estate agent can help someone identify potential issues with a home that might have otherwise been overlooked. A real estate agent can also make sure potential home buyers do not overpay for a home. 

Always Get A Pre-Approval Letter

Potential home buyers also need to get a pre-approval letter from a lender. This is a letter stating that a potential home buyer has been approved for a specific loan amount for that specific property. A pre-approval letter will help someone’s offer appear more competitive, particularly if they are going up against a cash offer. This makes the seller more confident that the offer is not going to fall through on financing. 

Do Not Skip The Inspection

Some home buyers are tempted to skip the inspection because this costs more money. It is critical to get a home inspection done so that everyone is aware of the potential issues with the home. If there is a major repair identified, potential home buyers may ask to have this repaired before purchasing the home. 

Pay Down Other Debt

First-time homebuyers need to pay down as much of their debt as possible before applying for a home loan. This could make it easier to receive financing, and potential homeowners might receive a lower interest rate. Examples of other forms of debt include credit card debt, student loans, and car loans. 

Get The Money In Order

Of course, potential homeowners need to make sure they arrange their money prior to closing, but it is also important to get a down payment put together before looking for a home. Many sellers will ask for proof of funds before accepting an offer. Arranging funds prior to the search process can make this much smoother. This can also help first-time homebuyers compete with cash offers. 

 

Mortgage Tagged: Debt, First Time Homeowner, Inspections

The Top Benefits Of Having Mortgage Debt

October 5, 2021 by Kathryn Jean Keller

The Top Benefits Of Having Mortgage DebtThe vast majority of people need to take out a loan to purchase a home. While there are many forms of debt that people would rather avoid, some types of debt can actually be a positive. This includes mortgage debt. What are a few of the top benefits of having mortgage debt?

Access To Extra Liquidity

One of the biggest benefits of having mortgage debt is that homeowners will have access to more liquid cash. If someone spends all of their money buying a house in cash, they might not have anything left over to cover other expenses. Examples include deaths in the family, medical bills, and repairs on cars and the house itself. Many people like to have access to extra liquid cash, and they are willing to take out a mortgage to do it.

The Payments Do Not Change

It is entirely possible that someone’s income will go up during the life of the mortgage. Even if someone’s income goes up, the size of the mortgage payments will not change. The payments might stay the same size for 30 years, which could make the house more affordable. The same cannot be said of rent payments, which usually go up every time the contract is renewed. 

Access To Tax Deductions

Homeowners have access to a significant tax deduction. This comes in the form of mortgage interest. Even though it is important for everyone to meet with a trained tax professional to go over their taxes, the interest attached to a mortgage is usually tax-deductible. This can be a significant tax advantage for homeowners.

A Better Credit Score

It is critical for all homeowners to make sure they make their mortgage payments on time. In doing so, the homeowner’s credit score will go up. People might not think that their credit scores matter much after taking out a home loan, but this could make a difference when applying for car loans or future home loans. Therefore, having a long track record of on-time mortgage payments can make a major difference.

Take Advantage Of Mortgage Debt

These are a few of the top benefits of having mortgage debt. All homeowners need to leverage these benefits for their financial gain down the road.

 

Mortgage Tagged: Debt, Fixed Payments, Mortgage

How Does My Existing Debt Affect Getting A New Mortgage?

November 5, 2019 by Kathryn Jean Keller

How Does My Existing Debt Affect Getting A New MortgageCarrying debt is a common problem that people have. Some of the most common types of debt include student loans, credit cards, and motor vehicles. When you are interested in buying a new home, you often think about whether or not your debt is going to hurt your chances of qualifying for a new mortgage.

Fortunately, you may still get a new home with that debt. There are several factors that may determine whether or not you qualify.

Your Debt to Income Ratio

The debt to income ratio is a major factor that the mortgage lender is going to consider when deciding whether or not you will qualify for a new mortgage. In general, the magic number is 43 percent. If your debt exceeds 43 percent of your total income, the lender will have a hard time giving you that new mortgage.

For example, if you make $5,000 per month, you will want to have less than $2,150 in monthly debt payments. To make yourself a more attractive candidate for a mortgage, try paying off some of your existing debt.

Taking A Look At The Credit Score

The lender is also going to consider your credit score. The higher your credit score is, the more likely the lender will reward you with a loan. In order to keep your credit score high, make sure you manage your debt well.

Making your debt payments on time will keep your credit score high. Missing debt payments will lower your score. Manage your existing debt well and you will have a better chance of qualifying for a mortgage.

Making Sure You Can Handle A Mortgage

Finally, the lender is also going to take a look at whether you can take on the responsibilities of owning a home. The monthly mortgage payment isn’t the only expense you will be taking on. Some of the other issues you will have to handle include property taxes, maintenance costs, and homeowners’ insurance. 

The bank or credit union will want to ensure you can handle these costs. To make these expenses easier to bear, it might be a good idea to pay off some of that existing debt.

Investing In A New Mortgage

Looking for a new home is exciting. You can purchase a house with existing debt as long as it is minimized and managed well. Think about these factors before investing in a mortgage. And as always, consult with your trusted local mortgage professional for the best advice on your personal situation.

Mortgage Tagged: Debt, Loan Qualification, Mortgage

Understanding Your Debt To Income Ratio

May 31, 2018 by Kathryn Jean Keller

Understanding Your Debt To Income RatioWhen you are filling out a mortgage application, the lender will be asking you for specific financial information. One of the reasons they ask for this information is to enable the underwriter to calculate your debt to income ratio.

The debt to income ratio is what most mortgage lenders use to determine the level of risk they are taking when they agree to provide you a mortgage. Most mortgage lenders will use your debt to income ratio to determine your interest rate, down payment requirements, and in some instances, escrow requirements.

How Lenders Calculate Debt to Income Ratio

When your loan is being underwritten, the lender will look at both a “front-end” and a “back-end” debt to income ratio. There are two separate calculations for these ratios which are:

  • Front end – this calculation is based entirely on your housing costs. The lender will add up all housing costs including mortgage payments, interest payments on your mortgage, personal mortgage insurance, and insurance payments. The total will then be divided by your current monthly income before taxes and other deductions to find the ratio. Ideally, a lender would not want this number to exceed 36 percent.
  • Back end – the debt to income ratio on the back end includes all expenses including housing. Your lender will likely use your open credit accounts showing on your credit report which could include car loans, revolving credit lines, and student debt. For most mortgages, your debt to income ratio should be no higher than 43 percent.

Current Rent and Housing Expenses

If you are currently paying more than 36 percent of your total income for rental expenses, the lender may consider this when calculating your front-end ratio. For example, if your current rent payment is 40 percent of your total gross income and you can demonstrate you have been making payments on time, as agreed for a long period of time, the lender may be more flexible with the terms of your loan. Keep in mind however, you could pay an interest premium if this is the case.

The back-end ratios are also important. This is because for a lender to have your loan backed by a Fannie Mae, or other approved mortgage backer, your ratio would have to be lower than 43 percent. There are exceptions to this rule but in general, a borrower would face challenges obtaining a mortgage if their debt ratios are too high.

Lowering Debt to Income Ratio

There are two ways to improve your debt to income ratio. The first is to earn more money and the second is to lower your debt. Lowering debt can be accomplished by paying off some of your outstanding debt, putting a larger down payment on your home purchase, or taking a mortgage with a lower interest rate. For most consumers, paying off debt is the best way to lower their ratio.

Keep in mind, even if you have open credit lines that are not being used, your mortgage lender may take them into consideration when calculating your debt to income ratios. Before closing an account however, talk to your mortgage lender about what options you should explore. In some instances, a lender may offer you a shorter-term loan or a loan with an adjustable rate to help you qualify.

Borrowers should be aware that their credit scores are not tied to their debt to income ratios. However, a lower debt to income ratio combined with a higher credit score can make a big difference when it comes to what loan programs a lender may be willing to offer to you.

Contact your trusted mortgage professional to find out more about debt to income ratio and other factors necessary to qualify for a home purchase or refinance. 

Mortgage Tagged: Debt, Loan Qualification, Mortgage

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Kathryn Jean Keller

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