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May 3

Why you should get pre-approved for a mortgage

Why you should get pre approved for a mortgage 1

 

Let's be honest—Homes move FAST! We are currently in a sellers’ market, and people are seeking homes for their families at an accelerating rate. Now more than ever, pre-approval is an important factor in getting the home you want when you have the chance.

What is pre-approval?

Pre-approval is part of the mortgage loan process, but it doesn’t have to be a difficult one. It involves meeting with a mortgage lender before an offer is made on a property in order to get approved for an amount that you can then include in an offer to buy a particular home. Many mortgage lenders will be able to grant pre-approval for your home loan within the same day.

Being pre-approved will allow you to make an offer on a home when you are ready without having to wait for mortgage lender approval. Although pre-approval is not necessary to make an offer, most offers without pre-approval will not be taken seriously. Pre-approval shows the seller that your finances have been evaluated by a professional and you are actually in a position to pay the money that you’ve offered for the home. Many sellers and real estate agents won’t review an offer unless it comes with a pre-approval letter from a mortgage professional indicating that you will most likely qualify for a loan and that way the seller knows that the offer is a real opportunity for them to close the sale on their property.

Pre-approval is actually to the benefit of the seller, but it’s useful for buyers to get pre-approved early in the shopping process, especially if they are shopping a competitive market, so that when they find the home they love they can put an offer in and not then have to spend an extra day or two meeting with mortgage professionals to get pre-approved while the seller is potentially reviewing other offers, and likely selecting one to accept.

Make an offer with confidence

Pre-approval will allow you to get excited about the home buying process without having to worry about the possible loss of the property you love. Meeting with a mortgage professional should be a comfortable and easy task, but it should not be part of the process that slows you down.

You can also more confidently look into homes that you are interested in without worrying about your approval because you will better understand your home buying budget. Pre-approvals come with a maximum loan amount that will give the buyer an ideal range for purchasing price. This can also aid in making offers if a listing price is slightly above your pre-approved budget. If the offer is seen as legitimate, the seller may yield to a lower price in order to make the sale.

When is the right time?

Getting pre-approved is free, easy, and should not be time-consuming. If you find the right mortgage lender, which may be the first step towards buying a home, you should be able to ask for a pre-approval at the beginning of the home-buying process. This will give you an idea of your price range, as well as the ability to make an offer at any time when you find the perfect home.

Pre-approvals will often have an “approved” time period of 60-90 days to make an offer on a home. This is negotiable with your mortgage lender and should be an ideal time period during which to find a home. If the home buying process exceeds this time, you will need to reapply for pre-approval.

What will you need?

• Proof of income, either by 30 days’ worth of paystubs, 2 years of tax returns, or 2 years of W2 forms.

• Assets, such as bank statements or other documents that show your savings.

• Good credit. A score of 620 or higher for approval of an FHA loan.

• Documentation. A social security card, passport or ID, or other legal identifying documents.

If you want real speed with the homebuying process, schedule a meeting with a local mortgage lender to get pre-approved. This should be a comfortable, transparent, and informative meeting that will help you to realize your goal of owning a home. Pre-approval is a great time to learn more about mortgages, answer questions about the loan process, and to talk about your loan options.

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Apr 17

What you need to know about mortgage insurance

What you need to know about mortgage insurance header size

 

The first concerns that many people have with mortgage insurance is “Do I need it?” and “How can I get rid of it?” This article will teach you what you need to know about mortgage insurance, such as types of mortgages that require mortgage insurance and how to eliminate the expense as soon as possible.

Many mortgage loans require mortgage insurance, at least for a period of time. These plans can cost between 0.5% to 1% of the entire loan amount on an annual basis. To put that in perspective, if you have a $100,000 loan, mortgage insurance could cost you $1,000 per year! For that reason, choosing the best type of mortgage insurance is an important part of buying a home.

What types of loans require mortgage insurance?

Conventional loans with less than 20% down payment require private mortgage insurance (PMI). The premium will range based on down payment and credit score, similar to the interest rate of your mortgage. Rates are generally lower than that of FHA loans, depending on credit score. Most PMI policies do not require an upfront payment.

FHA loans also require mortgage insurance. This will be charged back as an upfront mortgage insurance premium (UFMIP) paid at the time of closing, and also as an annual MIP, which is paid in monthly installments and recalculated each year. The UFMIP premium can be added to the base loan amount and financed in with the loan. It has the same premium regardless of the mortgage cost but will cost more if your down payment is less than 5%.

The current upfront payment for mortgage insurance on an FHA loan is 1.75% of the loan amount. The current monthly payment for mortgage insurance is between .80% and 1.05% of the loan amount, divided by 12. The monthly payment is recalculated annually, so it will decrease over time.

VA (Veteran’s Affairs) loans have a VA Loan Guarantee fee that replaces the need for mortgage insurance. This upfront closing fee can be added to the base loan amount and financed in with the loan. Remember, VA Loans are only available to active military and veterans, as well as their spouses.

Types of mortgage insurance

There are four common types of payment plans for mortgage insurance:

Borrower paid private mortgage insurance allows the borrower to pay the mortgage insurance premium monthly. This is the most common type of mortgage insurance.

Single premium private mortgage insurance allows the borrower to pay the premium in a single lump sum at the time of closing. This could save you money over time because the percentage paid can be shy of the sum of lifetime payments on the monthly premium.

Split premium private mortgage insurance allows the borrower to pay a portion of the premium at closing, and then make a monthly premium payment afterward. The benefit of which is that the monthly payment is greatly reduced, however, this type of mortgage payment plan is not very common.

Lender paid PMI allows the mortgage lender to assume to cost of the mortgage insurance at closing, which the borrower will “repay” over time in the form of a higher interest rate. This increase is usually one-quarter to half a percentage point higher.

Discontinuing mortgage insurance

Mortgage insurance for conventional loans can be discontinued once the loan repayment has reached 22% so that the borrower owns 22% equity in the home. The remaining 78% of the loan can then be repaid without insurance.

Your mortgage lender may also approve discontinuation of mortgage insurance if you reach an agreed-upon repayment amount, have good equity, and are consistent with payments. However, this is at the lender’s discretion.

 

What you need to know about mortgage insurance

The first concerns that many people have with mortgage insurance is “Do I need it?” and “How can I get rid of it?” This article will teach you what you need to know about mortgage insurance, such as types of mortgages that require mortgage insurance and how to eliminate the expense as soon as possible.


Many mortgage loans require mortgage insurance, at least for a period of time. These plans can cost between 0.5% to 1% of the entire loan amount on an annual basis. To put that in perspective, if you have a $100,000 loan, mortgage insurance could cost you $1,000 per year! For that reason, choosing the best type of mortgage insurance is an important part of buying a home.


What types of loans require mortgage insurance?

Conventional loans with less than 20% down payment require private mortgage insurance (PMI). The premium will range based on down payment and credit score, similar to the interest rate of your mortgage. Rates are generally lower than that of FHA loans, depending on credit score. Most PMI policies do not require an upfront payment.


FHA loans also require mortgage insurance. This will be charged back as an upfront mortgage insurance premium (UFMIP) paid at the time of closing, and also as an annual MIP, which is paid in monthly installments and recalculated each year. The UFMIP premium can be added to the base loan amount and financed in with the loan. It has the same premium regardless of the mortgage cost, but will cost more if your down payment is less than 5%.


The current upfront payment for mortgage insurance on an FHA loan is 1.75% of the loan amount. The current monthly payment for mortgage insurance is between .80% and 1.05% of the loan amount, divided by 12. The monthly payment is recalculated annually, so it will decrease over time.


VA (Veteran’s Affairs) loans have a VA Loan Guarantee fee that replaces the need for mortgage insurance. This upfront closing fee can be added to the base loan amount and financed in with the loan. Remember, VA Loans are only available to active military and veterans, as well as their spouses.


Types of mortgage insurance

There are four common types of payment plans for mortgage insurance:


Borrower paid private mortgage insurance allows the borrower to pay the mortgage insurance premium monthly. This is the most common type of mortgage insurance.


Single premium private mortgage insurance allows the borrower to pay the premium in a single lump sum at the time of closing. This could save you money over time, because the percentage paid can be shy of the sum of lifetime payments on the monthly premium.


Split premium private mortgage insurance allows the borrower to pay a portion of the premium at closing, and then make a monthly premium payment afterwards. The benefit of which is that the monthly payment is greatly reduced, however, this type of mortgage payment plan is not very common.


Lender paid PMI allows the mortgage lender to assume to cost of the mortgage insurance at closing, which the borrower will “repay” over time in the form of a higher interest rate. This increase is usually one-quarter to half a percentage point higher.

Discontinuing mortgage insurance

Mortgage insurance for conventional loans can be discontinued once the loan repayment has reached 22% so that the borrower owns 22% equity in the home. The remaining 78% of the loan can then be repaid without insurance.


Your mortgage lender may also approve discontinuation of mortgage insurance if you reach an agreed-upon repayment amount, have good equity, and are consistent with payments. However, this is at the lender’s discretion.



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Mar 25

Millennials May Be Ready to Buy a Home Sooner Than They Think

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The generation that has graduated from college in the last 5 to 10 years are no strangers to debt, and perhaps have more experience with loans, credit scores, and building credit than any generation to come before them. Student loans were not a necessity 30 years ago, but now require graduates to have a financial understanding of credit, loans, and debt. As they look to become first-time homebuyers, this group may have an advantage.

In a digital age that constantly creates new ways to spend as well as to save, millennial buyers are one of the largest and most sought-after markets. And they know how to spend—and save! It’s true, millennials are not afraid to save money. So why not take this mentality towards building equity, possibly for the first time in your young adult life? Millennials are ready to stop renting and start buying homes.

Here are three reasons buying a home will save money:

1. Start building equity sooner

Don’t just plan for retirement, plan for life. Whether into new investments—creating an estate for your family, refinancing your home to start a business—having reliable equity such as a paid off home will get you ready to begin the next chapter of your life with all of the resources that you need.

2. Pay less over time

Since most mortgage loans have 30-year amortizations, the payments will most likely be lower than a rent payment. This will also be building towards your equity, as opposed to the landlord's equity. Because of this, you will ultimately save a significant amount of cash as opposed to renting.

3. Long term savings

Begin a plan for retirement now. Everyone plans to retire at some point in their life. We all have goals in between now and then, whether it is to own a home, or several homes, to start a company, or to pay for an education. Choosing to buy a home instead of renting will open up income possibilities in the future, and ensure that you become debt-free upon retirement.

Mortgages are designed to meet a client’s specific needs and interest, and will help you to achieve the goal of owning a home of your own. Renting will result in monthly payments with no return, whereas buying a home will pay off now and in the future. Millennial buyers may be ready to search for their dream home sooner than they believe and should be encouraged to meet with a mortgage lender to begin this process.

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Feb 28

Determining Your Down Payment for First-Time Homebuyers

Determining your down payment for first time homebuyers email graph

One of the most important factors for securing your mortgage loan is the down payment. This upfront payment on a home is separate from your monthly mortgage payments. Planning a realistic down payment is important to getting the type of mortgage loan that you want. Because of this, saving the desired sum is important and requires considered financial awareness. Basically, the higher your down payment, the lower your monthly payments, because it is the remaining amount owed divided over the term of your mortgage.

Before you determine how you will make a down payment, it’s important to understand the requirements that certain types of loans will have, as many will require you to pay 3%-5% of the total cost of the home. An FHA loan requires a minimum down payment of 3.5% and is what many first-time homebuyers will end up using. All FHA loans also require home buyers to purchase MI, or mortgage insurance. With a 20% down payment, home buyers can use Conventional financing will not be required to purchase mortgage insurance. A higher down payment will give the buyers more options when it comes to shopping for a mortgage and ultimately with the house they buy.

The down payment is one of approximately 4 factors that will determine if a buyer is pre-approved and ultimately approved for a loan: down payment, credit history, employment and income, and bank statement history. A down payment does not actually have to be available to the buyer at the time an offer is made, so long as the full sum is available at the time of the closing.

The more you put down the lower your monthly mortgage payment will be. USDA and VA mortgage loans are government-backed and do not require a down payment which may be attractive to some customers who have difficulty saving a large sum. Homebuyers with lower credit scores may benefit from providing a larger down payment.

Here are four steps to determining how much money to put down:

1. Plan ahead
Because mortgage loan approval will involve the home buyer’s credit score, income and employment history, and bank history, it is important to evaluate these factors before beginning home buying process. Because the down payment will be provided up front, a large down payment can increase the likelihood of getting the loan that you want if you have a low credit score. However, if you have excellent credit history and income, providing a larger down payment may not be necessary unless you would like to avoid the requirement of purchasing mortgage insurance.

2. Determine what you can pay from savings
After evaluating your credit score and income history, you should determine how much you can provide as a down payment. Savings are important, so be reasonable and realistic about what you can provide. Remember that FHA loans require at least 3.5% down, and when speaking to a mortgage lender, they may provide you with their own, additional requirements. Keeping these
factors in mind will help you determine your home buying budget—but remember, lending is a conversation, and you should feel comfortable working through different scenarios with your mortgage professional.

3. Set a goal for your mortgage terms
It is important to set goals when shopping for a mortgage and one of the most important is your interest rate. If you are seeking a lower interest rate, you may want to provide a higher down payment. Not only will this offset the costs that you will be paying each month because the remaining balance on the loan will be reduced, but it will be a positive factor in evaluating your readiness to repay the loan to the lender. Remember that after a down payment, the remaining balance on the loan will be divided by the loan term, and this will be your monthly payment with interest. Figuring out these numbers with a mortgage lender will allow you to realistically evaluate what you can pay each month, and having that goal in mind will help you take the steps to get there.

4. Meet with a mortgage lender
After setting goals and determining what type of mortgage loan you would like, it is time to visit a loan professional and get a rate quote. Many local mortgage agents are happy to go back to the drawing board and help you to determine your best options for obtaining your ideal interest rate and loan terms. Remember to be open and honest with your mortgage lender, and that a local lender will be able to give you the most time and attention, opposed to large, national lenders or over-the-phone mortgage apps.

Determining your down payment is an important step in shopping for a mortgage. Remember to evaluate all of the factors that will determine your mortgage loan, set goals, and find a local mortgage lender that will work hard to realize your goals.

Click here to get a rate quote from RatePro Mortgage today!

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Feb 9

Advantages of a Local Mortgage Lender

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Quick mortgages are advertised everywhere these days. Large quick approval mortgage lenders portray home buyers signing “instant” mortgages over their smartphone. Corporate structured mortgage lenders advertise that they care about individual success and financial security. Whatever the claim of these large companies, it’s nowhere near the reliability of a local mortgage lender. Here are four reasons why you should work with a local mortgage lender:

1. Have the opportunity to shop rates more closely
Having the availability of a mortgage lender in person will give you the opportunity to view and discuss mortgage rates and loan types more closely. Insider knowledge will allow you to see the variables that are affecting your rates and will help you to understand which mortgage type may be best for you. You won’t be able to get that sort of conversational feedback from an app or large financial institution.

2. Face to face contact unavailable from a website or app
Local mortgage lenders are usually small, personal businesses that value relationship building. Many rely on setting appointments, standing by for phone calls, and giving quick replies to questions. Don’t deal with the contact structures of corporate or online lenders who will reroute you through their customer service department. To them, you’re a number. Local lenders will give you their time and presence in order to ensure that you have a friendly experience.

3. Work with one person who understands your needs.
National banks are giving you scripted information. Their loan types are a part of a system that was built at a corporate office. Mobile apps and websites are even further detached and will allow no options for conversation, feedback, and re-evaluation. Meeting with a local lender will allow you to build a relationship that isn’t possible with online or large corporate lenders. Shop local to meet a real person who will evaluate and value your needs.

4. Local lenders will understand your local market.
Shopping for a mortgage locally will not only make it easier to find a reliable partner in the expenditure of buying a home but will also provide insights into your local real estate market. Real estate agents will commonly have relationships with local lenders and can point you in the direction of someone trustworthy. A local lender will understand your wants and needs better than a large lender or app because they will have worked in your area previously.

Local has meant better for a long time now. Local mortgage lenders are going to give you more time and appreciation, and in turn, you will return more value on your new home. Mortgages don’t need to be a hassle, and lenders don’t need to rush you in and out of their doors. Remember to shop locally when considering a mortgage.

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