13 Mar 2018
By Kevin Gahagan

Can I Have A Co-Signer For My Mortgage Loan?

Mortgage

Can I Have A Co-Signer For My Mortgage LoanLike credit cards or car loans, some mortgages allow borrowers to have co-signers on the loan with them, enhancing their application. However, a co-signer on a mortgage loan doesn’t have the same impact that it might on another loan. Furthermore, it poses serious drawbacks for the co-signer.

Mortgage Co-Signers

A mortgage co-signer is a person that isn’t an owner or occupant of the house. However, the co-signer is on the hook for the loan. Typically, a co-signer is a family member or close friend that wants to help the main borrower qualify for a mortgage. To that end, he signs the loan documents along with the main borrower, taking full responsibility for them.

When a co-signer applies for a mortgage, the lender considers the co-signer’s income and savings along with the borrower’s. For instance, if a borrower only has $3,000 per month in income but wants to have a mortgage that, when added up with his other payments, works out to a total debt load of $1,800 per month, a lender might not be willing to make the loan.

If the borrower adds a co-signer with $3,000 per month in income and no debt, the lender looks at the $1,800 in payments against the combined income of $6,000, and may be much more likely to approve it.

Co-Signer Limitations

Co-signers can add income, but they can’t mitigate credit problems. Typically, the lender will look at the least qualified borrower’s credit score when deciding whether or not to make the loan. This means that a co-signer might not be able to help a borrower who has adequate income but doesn’t have adequate credit.

Risks of Co-Signing

Co-signing arrangements carry risks for both the borrower and the co-signer. The co-signer gets all of the downsides of debt without the benefits. He doesn’t get to use or own the house, but he’s responsible for it if the mortgage goes unpaid.

The co-signer’s credit could be ruined and he could be sued (in some states) if the borrower doesn’t pay and he doesn’t step in. For the borrower, having a co-signer adds an additional level of pressure to make payments since defaulting on the loan will hurt him and his co-signer.

As always, it’s a good idea to speak with your trusted mortgage loan professional for advice in your specific situation.

01 Mar 2018
By Kevin Gahagan

Should You Get Pre-Qualified Or Pre-Approved For Your New Home Purchase?

Mortgage

How Pre-Qualifying Helps You Find The Right New HomeOften times, home buyers can be disappointed when they find their dream home only to discover they are not able to get a mortgage to purchase the property. There are methods that potential buyers can use to ensure this does not happen to them.

One of the options is to ensure you obtain a pre-qualification from your lender. It is important to understand the difference between a pre-approval and a pre-qualification. While both are helpful, they do not carry the same weight.

What are the differences between these options?

A pre-qualification allows a borrower to determine how much money they may be able to borrow. For most borrowers, this allows them to start the house-hunting process with a mortgage amount in mind. Borrowers should understand, while the loan amount can be calculated, changes in interest rate as well as the borrowers credit are not evaluated in this process.

In general, the lender will request specific information from the borrower including income and expenses as well as ask about their credit. None of this information is typically verified by the lender through an underwriting process before sending a pre-qualification letter.

On the other hand, a pre-approval requires the borrower to provide a number of documents to the lender, typically the same documents borrowers need to apply for a loan. The documentation supplied to the loan professional is then treated as a full purchase loan application and run through underwriting to secure a conditional commitment from a bank or mortgage lender.

Oftentimes, this difference between the two options leads borrowers to speculate as to whether a pre-qualification is useful.

Why pre-qualification helps in your home hunting?

There are many valid reasons why potential homebuyers should ask about pre-qualifying for their mortgage. Some of these include:

  • Home prices – if a borrower is eligible for a mortgage of $200,000 they will know they will have to seek homes in a specific price range. If a borrower is only able to put down 10 percent, they know the maximum home price they can afford is $220,000.
  • Down payments – in most cases, borrowers who can afford to put down a large down payment will have more options available to them. In some cases, understanding how much mortgage a borrower may qualify for beforehand allows them to save additional money for a down payment.
  • Estimates of dollars needed – another advantage to pre-qualifying is borrowers can get an idea of what additional closing costs they may need to qualify for a mortgage. This can be very helpful for a first time home buyer.

Pre-qualifying for a loan can save a home buyer from being disappointed. There are few things that are more upsetting than finding a home you love only to discover you are not eligible for the loan you need in order to purchase that home.

Typically, when you are seriously looking for your next home it would be a good idea to move to the full pre-approval process in order to get the most leverage when you find the home of your dreams.

As always, it’s a good idea to consult with your trusted mortgage professional for both loan pre-qualification as well as pre-approval.

 

27 Feb 2018
By Kevin Gahagan

How To Successfully Use Your Down Payment to Achieve Your Home Buying Goals

Mortgage

How To Successfully Use Your Down Payment to Achieve Your Home Buying GoalsWhen you are considering purchasing a home , understanding the lending guidelines regarding a down payment is important. 

Here are a few key tips to consider:

Gifting of a Down Payment

There are some programs that will allow you to use a gift for your home down payment. However, before you assume this, make sure you talk to your loan officer. Generally speaking, the lender will require the person making the gift to provide a letter stating the money was a gift and does not require repayment.

Windfalls as a Down Payment

When people hit the lottery or come into money through an inheritance, one of the first things they may consider is buying a new home. However, it is important ot keep in mind that lenders will typically want to know exactly how you came up with your down payment.

Borrowers still need to show a “paper trail” of how they came into money. If your down payment amount has not been “seasoned” the lender may not accept your loan.

What is a Seasoned Down Payment?

Generally speaking, your loan officer will want a “paper trail” to document your down payment. Most lenders require down payment funds to be at a minimum 60 days old. For example, let’s assume a borrower did win the lottery: If they deposit the funds into their checking account and leave it there for 2 months or more, the funds would be considered seasoned.

However not all lending guidelines are the same. Some lenders require even more seasoning to consider the money in your account truly yours. So it’s a good idea to plan well ahead of your purchase date to get your down payment funds in your account if you plan on getting money from another source.

Lender restrictions on down payment funds are fairly common. If you are uncertain if your funds meet the lender’s criteria, talk to your loan officer. In most cases, a lender will require at least one-half your down payment fall into the category of seasoned funds.

The One Place You Can Borrow For Your Down Payment

Some borrowers may use their retirement account or other savings to make their home down payment.  And most lenders are perfectly fine with you borrowing against your own savings in a 401(k) or IRA account. Of course you will likely want to discuss the tax implications with your accountant or financial advisor before making these withdrawals.

Don’t wait until the last minute to discuss your down payment with your loan officer because you may wind up disappointed. Keep in mind, every lender has different requirements and these rules may not apply to your lender.

22 Feb 2018
By Kevin Gahagan

3 Great Homebuying Tools Millenials Have Available to Them Right Now

Mortgage

Millennials Have Great Home Buying Tools AvailableThe economy seems to be heating up rapidly, but home loan interest rates are still at historically low levels. Real estate values have climbed a bit across the country, but low interest rates and affordable prices makes for an excellent opportunity for new homeowners to get into their first home before it rates and prices rise higher.

According to the recent studies, there were 4 consecutive quarters of homeownership growth where new homeowners outpaced new renters.  The solid economic fundamentals are likely responsible for creating this excellent home buying environment.

Over the past year, Millennials seem to be on board and helping to drive the upward trend. They represent the next generation of homebuyers, and as this group is getting older, they are getting married more frequently. They are also starting families which tend to encourage the idea of home ownership. In fact, a recent analysis showed that home ownership is 30% higher among married couples than non-married couples.

Specifically, low unemployment numbers and a progressively aging pool of Millennials with a desire for home ownership appear to be driving this trend. US homeownership actually increased over 2017 to an unadjusted rate of 64.2%, which was a significant uptick from the previous year at 63.7%.

Here are a few very helpful tools are still available for new buyers:

  • Any homebuyer with military status can take advantage of Veterans Administration loans with far better rates than the normal market, making mortgage payments cheaper.
  • Those buying in rural areas can take advantage of rural homebuyer’s assistance programs provided by the U.S. Department of Agriculture to help people move to small towns and similar communities.
  • The Housing and Urban Development Agency provides HUD loans that make it very affordable for those with limited income to purchase HUD-owned homes as first-time buyers and get into real estate.

Of course, the big response from Millenials is how do I earn more to even get started. Like Generation X folks before them, Millenials can’t wait for a job to be made available on a platter.

While looking, many smart folks have started their own businesses online or in their local marketplace. If a current job is enough to cover current bills, a second income can be entirely dedicated to saving, which can generate thousands of dollars quickly.

Even a part-time second job that creates $1,000 a month produces $12,000 a year and in two years enough for a sizable down payment. 

If you have questions about buying your next home, give us a call. We’d be happy to help!

22 Feb 2018
By Kevin Gahagan

3 Tips To Consider When Buying A Home With An FHA Mortgage

Mortgage

Tips to Sidestep Common FHA Loan Problems

FHA loans are becoming increasingly popular these days as potential homeowners may not able to qualify as easily for conventional mortgages.

The FHA insures some higher-risk loans, in turn allowing borrowers with low down payments and less than perfect credit to purchase homes and bolster the housing market.

However, while getting through the loan process with an FHA mortgage loan is not necessarily more difficult than with a conventional or conforming loan, there are some issues that you will want to be aware of.

Property Condition

You can’t buy just any property with a FHA loan, or any other loan for that matter. All lenders are concerned with the condition of a property, especially as it relates to livability and safety. 

Major deficiencies in a home will almost always be noted when the home is seen by the FHA appraiser. The appraiser must deem it to be livable, without any conditions that could jeopardize health or safety. 

Sometimes you can get the seller to make the needed repairs to pass the lender requirements. In other cases, you may want go an alternate route. The FHA 203K streamline loan allows you to borrow up to $35,000 for home repairs to bring the house up to code.

Low Appraisal

The primary role of the appraiser is to estimate it’s market value. These estimates are based on the property’s features and a comparison to similar properties that have sold recently. If the appraisal is low, the loan funding could fall through because the FHA underwriting guidelines (along with almost all conventional guidelines) will not let you borrow more than the home’s appraised value. You can, however, add to the amount you bring in to closing if you prefer to compensate for a low appraised value.

Rather than trying to scrape together a bigger down payment, you may want to take the information to the seller to renegotiate the purchase price. The seller will likely recognize that other buyers would be in the same boat, leading the seller to agree to a lower purchase price.

High Debt-to-Income Ratio

Debt to income ratios are a concern with virtually every type of mortgage loan on the market today. Your FHA loan may encounter a snag in the underwriting process if your total debt payments, including your new mortgage, would be a high percentage of your income.

FHA has an automated underwriting program called TOTAL Scorecard which uses an algorithm to determine a borrower’s qualification. The process is quick, and often you can make up for a high debt-to-income ratio with other compensating factors, like a larger down payment or a cash reserve of several months of mortgage payments.

If you have any questions regarding FHA loans or any other home financing questions, please give us a call!