U.S. Wage Increases Could Help Home Buyers

U.S. Wage Increases Could Help Home BuyersThe struggle to achieve the American homeownership dream often feels like it happens in a vacuum. Everyday people work hard, save money and polish up their credit to get a low mortgage rate.

But there are powerful forces at work that are far beyond each person’s control. And until recently, the gap between American wage growth and rising home prices was widening. According to data coming out of the U.S. Department of Labor, unemployment recently hit a 49-year low and wages are enjoying the greatest uptick in nearly a decade. That is good news for prospective home buyers.

American Wages On The Rise

The 2018 economic news has seemed like one long greatest hits album. Historic-low unemployment for African-Americans and Hispanic-Americans has spurred confidence among these groups and the national unemployment has been steadily under 4-percent. The stock markets are booming, and the GDP growth has been impressive.

But there has been some frustration over stubborn wages that haven’t kept pace with other metrics. A report following stagnant salaries in February pointed to no slow down between rising home prices and wallowing pay rates. The growth rate was reportedly a modest 0.1 percent gain in February and that put Americans behind the curve in terms of buying homes.

But numbers coming out of the second quarter jobs report point to a 10-year high wage increase. The Bureau of Labor and Statistics reported wages are rising as employers compete to fill positions and the 12-month increase stands at 2.9 percent through August.

These are key numbers that may put a smile on potential home buyers’ faces.

  • Wages rose 0.5 percent in the second quarter of 2018.
  • Through August, wages rose 2.9 percent over the previous 12-month period.
  • Private industry compensation increased by 2.9 percent.
  • Government compensation increased by 2.3 percent, down from 2.6 in 2017.
  • Sales jobs gained by 3.5 percent.
  • Transportation jobs increased by 3.4 percent.

Experts are also claiming that setbacks from hurricanes likely blocked wage growth from topping the 2.9 high in 2009.

Where The Housing Market Stands

There’s little doubt that the surging economy put a higher number of Americans in position to purchase homes. However, inventory has remained well behind demand and that created a seller’s market with rising listing prices. But home prices are coming within reach for more people in 2018 and possibly 2019 market.

Since bottoming out in 2102, today’s home prices reportedly stand at about 6 percent higher than they were at their 2006 peak. That is not necessarily an indication that another housing bubble exists. Rather, the uptick in home prices is a natural reaction to an inventory shortage and economic growth.

The optimistic news for prospective home buyers is that wage growth appears to be gaining on home costs. As the gap closes, it’s likely that more and more people will be financially able to secure the American Dream of owning a home.

If you are in the market for a new home, contact us to start the pre-approval process.

Best Things To Do Now To Get Your Finances Mortgage Ready

Best Things To Do Now To Get Your Finances Mortgage ReadyYou probably already know that qualifying for a mortgage can be the biggest hurdle — aside from actually finding that dream property — along the path to home ownership.

Rather than agonizing about it, however, there are some positive actions you can take in advance to help you realize your dream.

Take A Close Look At Your Budget

If you don’t currently operate with a comprehensive household budget, get started now to analyze your income and monitor your spending habits. There’s no better way to prepare for home ownership than by being realistic about how you spend your money. If you don’t have a regular savings program, or if you’re constantly short on cash prior to the next payday, take steps to remedy the problem. Plan for the future by getting the present in check.

Gather Employment And Earnings Records

Mortgage lenders want to see stability and commitment. Finding and organize your employment records to show a consistent earnings pattern and, hopefully, a record of growth, both in terms of income and responsibility. Simplify the task of gathering required documents by collecting all records in a binder or notebook that can easily be copies when it’s time to submit them to a lender. It’s a confidence-building step as well.

Organize Your Banking Records

Lenders will not only want to see employment records, but they will require copies of all bank and investment accounts as well. Again, by being organized and getting a handle on your dollar inflow and outflow, you’ll gain insights into your individual spending habits and make the job easier for a mortgage specialist.

Make Copies Of Your Tax Returns

Tax returns confirm and validate all the other financial information that you will be required to supply. Typically, returns for the past two or three years will be required. If you own a small business or have income in addition to that from paid employment, make copies of those records as well.

Put A Halt To Spending

Perhaps the best way to demonstrate your serious intent to purchase — and pay for — a new home is by curtailing your spending on impulse purchases and expensive entertainment. This is not the time to buy a new car, book an exotic vacation, purchase major electronics or even home furnishings, or commit to time payments of any sort. Frugality should become your mantra in the months leading up to loan qualification.

Monitor Your Credit Cards

If your credit rating is within acceptable limits, do what you can to make all payments on time, pay down balances, minimize new purchases and demonstrate your continuing ability to “live within your means.” Do not apply for new credit cards, no matter how tempting the offers, because increased account activity can adversely affect your FICO score. In addition, if you have a blip on your credit report, do what you can to repair it prior to making a mortgage loan application, or be prepared to explain the circumstances, in detail and in writing.

Applying for a loan need not be scary; understanding the financial reality, however, is a great benefit.

Contact us for assistance in organizing your documents and aligning you with your best financing options.

4 Ways To Put Your Home’s Equity To Work For You

Top Uses Of A HELOCHomeowners who have equity built up in their homes can tap into that equity using a home equity line of credit, or HELOC. This financial tool can be a great way to accomplish a number of financial goals.

Here are four excellent uses of a HELOC for homeowners to consider.

Consolidating Costly Debts

Credit card debt and other types of consumer loans are costly, unless a debtor is lucky enough to have a no-interest card. Borrowers can consolidate that debt into a HELOC, which is much more affordable because it is a secured debt.

This advantage only works if the borrower stops adding to the debt problem. A HELOC becomes a valuable tool to get rid of debt quickly when used properly.

Create An Emergency Fund

Most people do not intend to end up in credit trouble, but emergencies happen. Emergency home repairs, job loss, or car repairs can quickly add up to unwanted debt.

A HELOC provides homeowners the option to have an emergency fund. Should one of these emergencies pop up, the homeowner can use the HELOC for an affordable source of funds.

Home Repairs That Add Value

Some home repairs add value to the property, but are also expensive. A HELOC can provide a source to fund these repairs. Because they put value back into the property, homeowners may be making wise use of their equity when using the HELOC in this way.

To make this work well, homeowners should choose repairs that do add to the home’s value. Since the cost of the repairs comes from the equity, the home’s owner should recoup the costs later when selling the home.

Funds For Investing

Finally, homeowners can use funds from a HELOC to get started in investment. This is risky, because the loan is paid regardless of how successful the investment is, but it can give a homeowner the chance to start investing for the first time.

Similarly, retirees can sometimes use HELOC funds to supplement retirement income if investments are struggling. This is a temporary solution to give investments a chance to recover, but for those living on a fixed income it is very helpful to have this option.

The HELOC is a valuable tool for homeowners that allows them to tap equity when it is needed. Since they have spent years building up this equity, homeowners should not fear using it when it can help with their financial goals.

Contact us to find out if a HELOC may be right for you.

Understanding the Factors That Impact Your Credit Score

Understanding the Factors That Impact Your Credit ScoreMost consumers believe if they pay their bills on time, they need not worry about their credit score. Oftentimes, it is a rude awakening when they apply for a mortgage loan, car loan, or any revolving credit to learn they are not going to get the lowest rates available due to their credit score. This is because paying bills on time only accounts for 35 percent of your credit score. The remaining 65 percent is spread out among other factors that impact your credit score.

Credit Usage and Impact on Score

Nearly one-third, 30 percent, of your credit score is based on how much of your available credit you are using. For example, if you have combined credit available of $100,000 and you use $90,000, you will suffer a decline in your credit score. Those consumers who have similar credit lines and are using $9,000 will get a slight bump in their score.

New Credit vs. Old Credit

We seldom think about how long we have held a line of credit open. However, some consumers “exchange” credit lines for other credit lines due to special offers made by credit card companies. This is not necessarily a good idea since 15 percent of your credit score is determined by the age of your credit accounts. The longer you have had an account, the better in most cases. The calculation will take all open credit accounts, take the amount of time they have been open and get an “average age”. If you have six accounts which have been open less than a year and six that have been open five years, the newer accounts will count against you in this case.

Mixing up Credit Lines

A consumer who has only a mortgage and a single credit score will take a modest hit on their credit score versus a consumer who has multiple credit cards, a mortgage, and an auto loan. The types of credit you have will account for 10 percent of your credit score and the more varied your open credit lines, the better. While it is inadvisable to open new credit lines simply to show a variety of types, having installment loans, retail credit cards, and traditional credit cards is a good idea.

New Lines of Credit Opened

One danger many consumers are unaware of is suddenly opening new lines of credit. For example, a new homeowner may open a new account with a home improvement store, a general retail store, and a new credit card to help them furnish and repair their new home. This could be a red flag since the credit lines are new, and there is no established history on the mortgage, or the new credit lines. Since this factor accounts for 10 percent of your credit score, you could suffer a temporary decline in your credit score.

Consumers should be aware of the factors which impact their credit score, and also be aware of the factors that do not impact their scores. Understanding your credit score may be the most important tool you have when buying a home, or refinancing your current mortgage.

Please contact us to discuss how your credit score may be impacting your ability to finance your next home purchase.

Understanding Your Debt To Income Ratio

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 us to find out more about debt to income ratio and other factors necessary to qualify for a home purchase or refinance.

5 Ways Millennial Buyers Can Snag Their Dream Home In This Sellers Market

5 Ways Millennial Buyers Can Snag Their Dream Home In This Sellers MarketAccording to the 2017 Home Buyer and Seller Generational Trends Report, Millennials bought 34% of the homes sold; the largest of any generation last year.

Millennials looking to buy their first or second home need to ready themselves for a surprisingly competitive market. Lack of supply causes attractive homes to garner multiple offers in just a few hours!

What can a Millennial buyer do to appeal to sellers and be the one who ends up with the home? Here are 5 ways they can snag their dream home in this seller’s market.

Get Pre-Approved

Figuring out what a home buyer can afford is a crucial step and no different for these savy Millenial home buyers. Sellers like to avoid nasty surprises. Being pre-approved shows the seller that the homebuyer is serious and financially able to purchase their home.

Meeting with a mortgage originator and getting pre-approved is how it’s done. This professional will pull credit history and look at current financial infomation to determine precisely how much of a mortgage is affordable. The pre-approval can then be used as part of their offer letter.

Be Decisive

A hot real estate market is no time for cold feet. Millennials should proactively create a list of must-haves and be ready with an offer when they find a home that meets their requirements.

Taking too long to mull over whether they like the house, the neighborhood, or the price can result in a dream house being sold right out from under them.

Get Real

Millennials should research pricing in the neighborhoods they like, and lean on their real estate agent for helpful guidance. Low-balling an offer is not likely to be received well in this competitive market. Making a fair, reasonable offer close to, or even above, the asking price is the best course of action to land the home they want.

Show Personality

If sellers feel like they know the buyer, they are more likely to choose them over a faceless offer. Include a personal letter with the offer. Go into detail about why the house is appealing. Add personal details about what the Millennial buyer wants to do in the house like raise children, plant a garden, or enjoy baking in the kitchen.

If all buyers are equal, a heartfelt letter just might tip the scales.

Agree to the Sellers Timetable

Some sellers prefer unloading their house fast. Others may want to wait to move until their kids are out of school or the new home they are building is ready.

Millennial buyers may need to dig to get this information but it can be used to their advantage. Being flexible might just set them up to be the best choice for the seller.

While challenging, it’s not impossible for Millennials to end up with the house of their dreams. With a bit of planning, decisiveness, flexibility, and a preapproval from their trusted mortgage professional, Millenials can make homeownership a reality in the very near future!

 

 

Manage These 3 Items Before Applying For A Mortgage

Manage These 3 Items Before Applying For A MortgageMortgage lenders weigh the risk of getting their principal and interest paid back by looking at the qualities of the prospective borrrower. And due to the amount of money being requested and lent to purchase homes, those requirements can become daunting.  Working with a trusted and qualified mortgage professional makes this sometimes confusing process a little clearer.

To this end, there are three things that a potential homebuyer can do to prepare for the mortgage approval process.

Manage Debt And Credit Levels

For many homebuyers, managing their credit score is the biggest challenge. Mortgage lenders like buyers with strong credit. While getting strong credit usually isn’t something that can be done overnight, paying bills on time, all of the time can help to build a positive profile.

Using as little credit as possible is also helpful, since high utilization of existing credit lines can harm a borrower’s score. Having less debt can also reduce monthly payments, making it easier to qualify for a larger mortgage.

Manage Income And Qualifying Ratios

Lenders look for two things when it comes to a borrower’s income:

  1. Stable incomes are preferred, so being able to prove the income with a W-2 form or other documentation is usually required. Self-employed people will typically need to prove their income with their tax returns, so taking high write-offs can make it harder to qualify.
  2. A borrower’s income should be significantly higher than his total monthly debt payments. Lenders divide a borrower’s monthly payments — including their proposed mortgage — into the gross monthly income. If the payments exceed a set percentage, the lender will shrink the mortgage until it considers the payment affordable.

Collect Required Paperwork Early

To qualify for a mortgage, borrowers typically need to submit a comprehensive file of supporting documentation. This can include tax returns, pay stubs and bank and investment account statements.

Since lenders frequently want some historical data, it can be a good idea for people considering applying for a mortgage to start collecting documentation before they actually begin the mortgage application process. Once again, working with a qualified mortgage professional will make this process a lot more comfortable.

A Mortgage Pre-Approval Can Help You In Your Home Purchase Negotiations

A Mortgage Pre-Approval Can Help You In Your Home Purchase NegotiationsA mortgage pre-qualification is an initial estimate of what type and size of mortgage a borrower could get. It is limited, though, because it’s only based on what the borrower tells the lender, which might not be the same as what the lender finds out when it goes through a full process of analyzing the borrower and his credit.

The Initial Loan Pre-Qualification

To get pre-qualified, a borrower starts by finding a lender. Typically, he will give the lender basic information on his ability to borrow. This includes his income, how much money he has in the bank, his current payments and an estimate of his credit worthiness.

The lender takes the pre-qualification information that he gets and compares it to the loan programs of which he is aware. For instance, if he knows that a borrower doesn’t have a lot to put down, but the borrower mentions that he’s active-duty military, the mortgage lender might offer a VA loan as an option.

Based on the programs he sees and the information the mortgage professional gets from the borrower, he will tell the borrower what kind of mortgage to expect.Typically, this gives the borrower a sense of the likely interest rate and of the loan amount he can borrow. Generally, this is enough to let a borrower start looking at real estate listings with a realistic sense of what will be affordable.

The Power of A Mortgage Pre-Approval

When it comes time to start writing offers, though, a mortgage pre-qualification might not be enough. A pre-qualification is missing one important factor — underwriting the borrower’s income and credit.

When a borrower goes beyond a pre-qualification to get a mortgage pre-approval, he submits his credit for the lender to check. That way, his qualifications get confirmed and the lender can issue a more binding letter that not only lets him know what he can afford but also lets him show a seller that he is truly qualified to get a loan.

With that letter, his offer may be viewed as stronger and he can be more likely to get the ability to buy the house he wants.  Contact us today to discuss your options before looking at homes.  It may very likely give you a bit more purchasing leverage.

3 Reasons You Might Consider Refinancing Your Mortgage in Early 2018

3 Reasons You Might Consider Refinancing Your Mortgage in Early 2018If you are a homeowner who has had their mortgage for a few years, you may be starting to wonder about refinancing. In essence, this is the process of retiring your current mortgage and taking out a new one because the terms are more favorable to you. Below we will share three reasons why you might want to look at refinancing your mortgage this year. Let’s get started.

Can You Use Some Extra Cash?

Ask yourself: if you had some extra money on hand, how would you use it? Many homeowners refinance to pull out some of the equity value that they have built up in their home over time. You might use this cash for a major renovation, or to upgrade your furnishings, or even just for a nice vacation.

Of course, you should keep in mind that you are borrowing a brand-new mortgage loan that will replace your old one. You will still need to pay attention to your credit score, monthly debt load and other personal finances.

Can You Get A Better Interest Rate?

Moving to a mortgage product with a better interest rate is another reason that homeowners refinance. Mortgage interest rates tend to fluctuate over time and it is possible that you may be able to get a lower rate, which in turn lowers your monthly payments. If your credit score has improved significantly since you first borrowed your mortgage, you may find that you have access to favorable interest rates as well.

Would You Prefer A Lower Monthly Payment?

Finally, an efficient use of refinancing is to reduce the amount you have to pay for your mortgage each month. For example, if you owe $60,000 and you have five years remaining, that ends up being about $1,000 per month. However, depending on your circumstances it may be possible to extend this out to 8 or 10 years, which means that you will pay a lower monthly payment for a longer time period.

The above are just a few of the many good reasons that you might consider refinancing your mortgage sometime in 2018. To learn more about the benefits of refinancing, or to get the process started, give us a call today. Our friendly team of professional mortgage advisors is ready to share our experience and help you get the most out of your refinancing.

Speed Your Mortgage Approval by Following This Checklist

In a Hurry to Buy a Home? Speed Your Mortgage Approval up by Following This ChecklistHave you finally found your dream home after months of searching, only to discover that the seller has received other offers? Few circumstances can raise your stress level as much as finding yourself in a bidding war against another buyer. However, being unprepared by not having your finances in order can make the situation even worse. Let’s take a quick look at a few ways that you can speed up your mortgage approval if you are in a hurry to buy your next home.

Pull Your Credit Report ASAP

The first step you will want to do is check your credit report so you have an idea what your mortgage lender will be seeing. You can get a free copy from the major credit reporting agencies up to once per year, so take advantage. There are scams out there, so be sure to only request a report from a government-approved credit agency.

Get All Of Your Paperwork Ready Before You Go In

You will want to gather up as much financial documentation as you can before heading in to meet with your mortgage advisor. Pay stubs, tax forms, and bank statements are all going to be required to prove that you are accurately reporting your current financial situation. You will also want to be able to provide reasons for any substantial loans or other transactions that have taken place in the past couple of years.

Share It All And Keep No Secrets

If you want your mortgage approval to come back quickly, it’s best to be truthful and hold nothing back during the application process. If you lie or try to gloss over areas that you feel are a bit negative, it can end up delaying your approval. Be straight with your advisor and don’t keep any secrets from them.

Work With A Professional Team

Last but not least, if you want the fastest possible mortgage approval you will want to work with a professional team. An experienced mortgage advisor knows the ins-and-outs of the mortgage marketplace. They know which lenders will be able to process quickly and which tend to be on the slower side. If you try to borrow a mortgage from a bank or large lender, you are tied into their process which may not be as quick as you would like.

When you’re ready to buy a home, give us a call. Our mortgage team is happy to help you secure your financing, no matter how much of a hurry you might be in. We look forward to assisting you!