4 Things Not To Do Before Closing

Going through the mortgage process, you have been inundated with tasks and forms that you need to do and complete.  Due to Fannie Mae’s Loan Quality Initiative, lenders are looking closer at credit and doing checks in the final hour even minute before closing.  Here are 4 things that you should not do, no matter what, before closing on your new home or the refinancing of your current home.

The First – Take a Loan out on a Car

Let’s say you purchase a car days before you closing on your new home.  The lender is not aware of the new car loan and closes on the home.  A few months down the road, you fail to make your mortgage payments.  If Fannie Mae digs back into your files and credit history and discovers the undisclosed car loan, Fannie Mae can make the lender buy back the bad loan.  Obviously the lender loses money.

Number 2 – Apply for a New Credit Card

It seems that every store has a credit card and retailers often offer discounts to customers if you carry their card and use it.  Even if the card sits in a box untouched, your FICO and debt to income may be affected by the new card.

If you fail to make a mortgage payment down the road, the lender would be responsible for your actions and would need to purchase the bad loan back from Fannie Mae.

The Third – Max Out Your Credit Cards

Yes, another credit card warning.  It is understandable that you have this new home and no way to furnish it.  The way not to is by charging everything to your cards.

Your mortgage is based on your debt-to-income ratio and the approval for how much the lender is willing to give you relies heavily on this number.  Just because you have been approved by the lender doesn’t mean the deal can fall through at closing. Fannie Mae urges lenders to recalculate the debt-to-income ratio before the closing.  If the lender see this ratio increase, you loan may be denied.

The Fourth Point – Changing Jobs

Fannie Mae likes to see history and documentation.  If you switch jobs, obviously you don’t have that anymore.

And don’t rule out switching positions within the company.  If you go from being salaried to an hourly wage or one based on sales and commission, your prior documentation of income may not be usable.  If this happens, you may not qualify for the loan amount you did prior to the recalculation.

 

GSF Mortgage Home Buyers Advisor Issue #10

How Much Do I Need to Put Down?

The down payment concept is an easy one. The more money you can put down, the less your mortgage payment will be.  Scraping up that initial down payment takes some effort. Though FHA loans require a less substantial down payment than conventional loans, it can still be a huge chunk of money for a young person or couple. Don’t lose hope if you don’t have the standard 20% in your account.

Most mortgage lenders require a cash down payment of anywhere from 5 percent to 20 percent of the sale price. Some lenders have zero-down mortgage programs that are still in existence, but these are rare. If you can put down more than your lender requires, say 25 percent to 30 percent, your lender may be willing to overlook credit blemishes. If you come up short on the down payment, with less than 20 percent of the buying price, before your loan is approved you may have to obtain private mortgage insurance, or PMI, to protect the lender.

 

Looking for a Home Loan or Refinancing?

With the belt tightening that has occurred from lenders after the housing market took a nose dive, getting a loan may not be as easy for some people as it once was.  Here are 5 things that you will need to start the lending process off on the right foot.

1. Know Your Score. Lenders use the middle score from the three major credit bureaus (Equifax, Experian and TransUnion) to determine what mortgage you will qualify for. Lenders have raised their required score for borrowers.  What once was considered a good score is not the case now.  It is noted that a score of 740 is needed to get the best rates and APRs for a mortgage.

   Don’t be discouraged by this if your score is low.  The Federal Housing Administration (FHA) has loans available to lenders that the minimum score is much lower as is the down payment required.

   To find out your score, go to AnnualCreditReport.com.  You can obtain a free credit report once per year.  Make sure you check the report carefully and call on any mistakes or errors you may find.

2. Be Employed. If you want to borrow money, you need a way to pay the lender.  Ideally, lenders like to see at least 2 years in the same job and you should have the W-2s and recent pay stubs from this job.  Most lenders will also do a verbal verification of employment by calling your manager or boss.

   Any other income that you may have will also be noted.  Things like child support, investments or disability payments will all be calculated.

   If you are self-employed, be prepared to show a little bit more into your documentation of income.  You maybe asked to show tax returns, business license, and letters from your accountant and bank statements.

3. Carry Small Debt. Lenders will be checking your debt to income ratio meaning that if you owe more than you earn, your chances of getting a mortgage with a low rate are slim.  This point goes along with point number 1.  When looking at your credit score, you should be able to determine your Debt to Income ratio.  If it is high, use the upcoming months to get this lower by paying off credit card bills and really watching your spending.

4. Cash is King. The 20% down payment is once again looked highly upon.  If you need to put less money down, you’ll need private mortgage insurance which protects the lender in case you do not cover your mortgage payments.  There are still loans available through FHA (mentioned in point #1), but you need to be dealing with a lender that is approved by FHA to do these types of loans.

5. Be Real About the Value of the Home. Appraisals have gotten stricter and many deals fall apart when it comes to estimating the real value of the home.  A way to protect you prior to getting this far within a mortgage deal is to research the homes in the surrounding area.  Find out how much homes have sold for in the neighborhood and look to your real estate agent for help.

There are many other items to consider when purchasing or refinancing a home, but if you walk into the office knowledgeable on these 5 items, you’ll be a head in the game of lending.

 

GSF Mortgage – Home Buyers Advisor Issue 8

Which Mortgage is Right for Me?

Every mortgage has variables that determine how much a borrower ends up paying, and technical jargon can make it tough to understand what you’re getting into.

Most shoppers simply want a good deal on a loan. Making apples-to-apples comparisons can be difficult, but a little education can go a long way toward landing the right mortgage at a great price.

Before you begin, take a look at the different types of loans available today and who is most likely to benefit from using them.

30-year fixed-rate mortgage

This mortgage combines a stable, fixed interest rate with a long loan term that helps create manageable payments for millions of American families. During the years leading up to the current mortgage crisis, many homebuyers strayed from this time-tested formula in search of exotic loans with lower interest costs. Today, many borrowers are returning to the 30-year fixed-rate fold.

The 30-year fixed rate is best for borrowers who plan to remain in their homes for a long time and/or who want the security of knowing their monthly payment will never change.

5/1 ARM

The 5/1 ARM is an adjustable-rate mortgage that has a fixed rate for five years. After that, the rate adjusts periodically. The term for these loans is typically 30 years. As with the one-year ARM, borrowing costs are tied to a mortgage index such as the Libor or COFI. Buyers benefit from lower borrowing costs when interest rates fall, but feel the pain of higher payments when rates rise.

The 5/1 ARM is best for buyers who intend to sell within five years and are looking to cut down on their mortgage costs. Also, borrowers with enough cushion in their income to cover higher payments should rates increase.

Private mortgage insurance

Private mortgage insurance protects a lender against suffering a loss in the event a buyer defaults on a loan. PMI covers any shortfall between the price the home fetches when resold by the lender and the amount the homeowner owes.

Lenders typically require PMI for loans with an outstanding balance that is 80% or more of the home’s current market value. Keep in mind that although borrowers pay PMI, the insurance does nothing to protect them; it’s strictly for the lender’s protection.

Once homeowners reach 20% equity, they have the right (under the Homeowner’s Protection Act of 1998) to request cancellation of PMI.

 

Refinancing at a Longer Term

When money is scarce, borrowers may benefit from turning conventional wisdom on its head and opting for a mortgage refinance over the longest possible period.

Is it for you?
There are some drawbacks to having a longer loan.

One downfall – you will end up paying more interest over the life of the loan.  You’ll accumulate less equity as well if you end up selling your home after a few years. But borrowers struggling to meet monthly financial obligations or facing foreclosure have far more pressing concerns than how much more they might pay or save over the life of the loan.

People often seek to reduce their mortgage payments while they try to get their finances back on track.  If this is the case, it is better to have a longer-term mortgage than to risk losing your home or damaging your credit by making late payments.

Who qualifies?
While refinancing might be beneficial, not everyone will qualify. In the post-housing bubble period, credit is not always easy to obtain.

A borrower’s credit score is important. As always, higher scores equate to lower interest rates and fees. A 740-plus credit score is the goal to have right now.  However, borrowers in the 620 to 660 range will tend to pay 2 percent to 3 percent more in fees or a 0.5 percent higher rate.

Take action
Borrowers have to address financial issues that aren’t going to get resolved on their own. Talk to your GSF Mortgage Loan originator to find out if this plan of action makes sense for your financial situation.

 

GSF Mortgage Home Buyers Advisor Issue #7

How Do I Raise My Credit Score?

In our post-crisis economy, good credit isn’t just nice to have — it’s essential if you want to level the playing field with lenders.

Credit scores are three-digit numbers lenders use to gauge your creditworthiness, and until the financial crisis hit, a 720 FICO credit score was enough to get the best loan terms. Even people with lower scores could get decent deals, and at the peak of the lending boom it seemed that no score was so low that it merited a rejection.

These days, lenders typically demand 740 scores for the best mortgage rates. Lower scores mean higher rates or perhaps no loans at all.

The good news is that it’s possible to boost your numbers if you have a handle on your finances and you know how credit scores work. After all, the median credit score is 720 on the 300-to-850 FICO scale, meaning half the adult U.S. population has a higher score and half has a lower score. Forty percent have scores over 750, and 13% have scores above 800, according to Fair Isaac, the company that created FICO scoring.

To gain a higher credit score, make sure you are:

• Patrolling your credit reports. Make sure you dispute any errors you see such as accounts that aren’t yours and reports of late payments when you paid on time.
• Get a major credit card. Retail cards and gas cards can help you build your credit history initially, but to get your scores into 700-plus territory you’ll want at least one big name cared: Visa, MasterCard, Discover or American Express.
• Arrange automatic payments for every card or loan. Credit scores are extraordinarily sensitive to whether you pay your bills on time.
• Don’t let disputes go to collections.
• Pay down and spread out your debt.

Make sure you don’t let your cards gather dust. Overloading your cards is a bad thing for your scores, but so is not using them at all. The scoring formula prefers to see accounts that are being actively used rather than sitting on a shelf. Even a little activity is better than no activity.

The lower your scores, the longer it will take to crawl your way back up the FICO scale. But progress is possible, and anyone can hit a higher mark in time by using credit consistently and responsibly.

For more information on raising your credit score, please contact you GSF Mortgage Loan Originator.  They have resources that you may be interested in and staff that will work with you to get your score where it needs to be.

 

GSF Mortgage News You Can Use

The Top 5 “Don’ts” of Refinancing

Are you part of the growing number of homeowners taking advantage of historically low interest rates and causing the mortgage refinance boom?  If you are, GSF Mortgage wants to fill you in on a few items as not to make the refinancing any harder than it needs to be.

These days, refinancing a home is a bit more complicated than it was just a few years ago. The legwork and paperwork of getting a loan has increased. There are some common mistakes that occur when a homeowner wants to refinance.

GSF Mortgage wants to help you avoid the most common “don’ts” when refinancing a home.

1. Don’t aim high when it comes to an appraisal.  Being delusional about the value of your home will ruin your refinancing chances.  Too many of the homeowners looking for a refi are ignoring the fact that home values have been decreasing since the boom.  They get into a mindset that the homes are worth at least what they paid for them.  The most common reason for a home refi denial by a mortgage company is that the home appraisal comes in too low.  A lender will not lend for more than the appraised value of the home.
2. Don’t wait to lock. By playing the rate watch game, you are risking the chance that rates will go up, making the refinance uneconomical on your end.  If the rate is good and will save you money monthly, make sure you lock.  And remember to pad a few days when locking your loan because that cushion may come in handy in case of any delays that occur while closing.
3. Don’t begin a home remodeling project while refinancing.  If your kitchen is torn apart or the drywall is ripped from the hallway leaving it bare to the studs, the appraiser will have to access the home’s value on the day of inspection.  In the midst of repairs causes the house to be worth less even through the end result will enhance the home’s overall value.
4. Don’t ignore your lender’s calls.  A good way to stall a refinance is to go on vacation or just stop responding to phone calls and emails.  Lender’s paperwork is very time sensitive so even a day or two delay on your end may delay the paperwork on the lender’s end even more.  Everything these days when it comes to mortgages is time sensitive!
5. Don’t start over with another 30 year term.  By refinancing your current 30 year term with another 30 year term, your personal finances will take a beating.  Ask your lender about a 20 or 15 year mortgage.  The interest you will save will be in the thousands!

Please contact me to get started on refinancing your current mortgage if you have not done so already.  I look forward to talking with you about the historically low rates that GSF Mortgage has to offer you.

 

Bitten by the Home Remodeling Bug?

Will Your Home Remodel Pay Off?

Remodeling certain areas of your home is a great way to increase your property value – or so you may have thought. Not all projects are created equal when it comes down to how much of an increase you are looking for.

Think Before You Build
The return on investment or ROI of the remodeling project that you are planning is dependant on the local market, the residential real estate market and its condition when the property is sold and the overall craftsmanship of the renovation.  On average, there are certain projects that yield a higher ROI like a wood deck, an updated and upgraded kitchen and bathroom as well as window replacements no matter where the property is located or how the market is responding.

Consider Your Location
When considering any type of remodeling project, you need to make sure that any improvements made are appropriate for not only your home, but the neighborhood as well. Buyers are attracted to a particular area because of the services located nearby and because houses are in that buyer’s price range.

Additions or finishing off the basement or attic as well as fixing structural issues will add value for much longer than projects like updates to kitchens and bathrooms or technological improvements, such as new air conditioning systems, because these do become outdated over time.

Project Returns on Investment
Of course the ultimate reason behind remodeling is to enjoy living in an updated home. Secondary is the ROI that may be had on the particular remodel.

If you are interested is finding out if the project you are planning, below is a quick look at ROI for the most common projects.
This should give you a broad idea of which projects have the greatest probability of returning a bulk of the project cost at sale. Differentials in average recoveries are explained by the scope and quality of work performed, with smaller, less-useful projects being on the lower end of the range.

Project	Avg. Recovery %
Wood Deck Addition	80-85%
Siding Replacement	75-83%
Minor Kitchen Remodel	75-83%
Window Replacement	75-80%
Bathroom Remodel	70-78%
Major Kitchen Remodel	70-78%
Attic Bedroom Remodel	65-76%
Basement Remodel	65-75%
Two-Storey Addition	65-74%
Garage Addition	60-70%

Improvements, such as office and bedroom remodeling had the largest recovery ranges: from 50-70%. The large spread is due to differences in the size of the renovations and the importance the room has on the overall design of the home, such as guest bedroom versus master suite.

Conclusion
When contemplating any remodeling project, the most important consideration is the value you will receive from the improved home over any cost recovery that may be forthcoming from the sale of the home.  If you are concerned about the ROI, be sure to research local real estate guides to determine which projects are most likely to pay for themselves.

Remember that bigger is not always better, and spending more does not always ensure a greater amount of value creation. Home prices will always reflect the tastes of local property buyers and the amounts that buyers are willing to pay in a particular neighborhood or subdivision.

Are you looking for funding for this home remodel project – then look into GSF Mortgage’s 203K Home Loan. It’s perfect for remodeling projects mentioned above. Make sure you contact your GSF Mortgage Loan officer for more information.

 

Wait! Now there is a Tax Credit Extension!

Whew! That was close. The Tax Credit has been extended until September 30th. But not the entire tax credit.

You still had to have the paper work in by April 30th to be qualified for the tax credit, but if you missed the June 30th deadline to finish the paperwork, you have until September 30th to do so.

Yes, Congress waited until the very last minute to approve this extension. I hope that if gives some of you hope as now you can close and still get your credit!

 

GSF Mortgage’s Home Buyer Advisor Issue #1

Should You Buy a Home?

For most people, tax and investment benefits make home ownership an attractive option compared to renting.

Financial incentives vary, but many buyers are motivated by three major benefits:

1. Income tax reduction. In most cases, mortgage interest and property taxes reduce both taxable income and overall tax bills. Also, if you sell your home at a profit, it’s likely that much or all of your gain will be tax-free under federal tax rules approved in 1997.
2. Wealth-building possibilities. A home is not only shelter; it’s also an investment. While there’s no guarantee that real estate prices will rise, a home is the single largest asset that most people hold.
3. Tax-deductible borrowing power. As your home equity increases, you can borrow against it for any need with a home equity loan or line of credit. Because your loan or line of credit is backed by the equity in your home, you may be able to subtract the interest from your taxable income – which could lower your final tax bill.

The benefits and overall financial incentives grow the longer you stay in your home. If you can’t commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner – even in a rising market. When prices are falling, it’s an even worse proposition.

If you would like to discuss your options when it comes to purchasing a home, please feel free to contact me.  I can help you with your finances and I also have options available, like rent to owning a home for you to consider.