The Top 7 Mistakes That May Prevent You From Getting a Mortgage

Yikes!!  Today in my FB news feed I saw that one of my clients bought a new vehicle….(yes, I love that my clients are my friends and my friends are my clients!!!)  I was thrilled they were able to get a shiny new car…BUT.....I gasped a little as I knew this may have an effect on their pre-approval.  I made a few quick calculations and then a phone call …. Phew…. All was well but – "No more buying cars in the midst of our transaction please" -- this little seemingly unrelated event could have prevented my clients from getting a mortgage.   Do you know what could prevent you from getting a mortgage?  Here is a list of the top 7 mistakes that may prevent you from getting a mortgage.

1-      Your credit score.  I’m pretty sure that everyone is aware of the importance of a high credit score but did you know that it can also make a difference in your rate?  This will factor into how much your mortgage payment will be and if your score is a little low, making your rate a little higher… you may have a problem with your debt ratio….. we’ll talk about that next.  Moral of this story…. Understand how your credit score is driven so that your credit actions drive it up!

2-      Your debt ratio. Your debt ratio is the amount of your monthly credit payments… like your car payments, credit card payments and your proposed mortgage payment…. Divided by your monthly income (gross…before taxes and deductions).  Most lenders want your debt ratio to be under 45.  If you buy a car in the middle of the mortgage pre-approval process it could possibly bump your debt ratio up.  This may result in not being able to qualify OR having to lower your purchase price.  Make sure that you talk with your mortgage professional before making any new credit actions while you are in the process of getting a mortgage.  Your mortgage professional will be able to give you the guidance you need so you don’t make a mistake and cost yourself the loan.

3-      No credit.  Gone are the days when it was ok not to have any credit.  If you want to obtain a mortgage you will have to demonstrate you are responsible with credit.  In order for a lender to give you a loan, they must know what your credit habits are.   The lender does this by looking at your credit history.  To be an ideal candidate a lender would like to see that you responsibly pay your installment loans on time as well as your revolving credit.  They also prefer to see that you keep your revolving balances managed…. (this will also help keep your credit score higher...bonus).  Check with your mortgage professional to get the specifics details of credit requirements if you have never had credit or you don’t have any credit reporting currently.  A mortgage professional will be able to guide you in the best way to obtain credit or possible ways of using alternative credit.

4-      Down Payment.  Most lenders require you to put a down payment in order to get a mortgage.  Talking to a mortgage professional before buying a house will give you the details of how much of a down payment will be required, if it can be gifted or how long it needs to be in your bank account before it is an acceptable source for a down payment.  Of course there are some FABULOUS down payment assistance programs available so make sure you talk with a mortgage professional to get pre-approved before you start shopping for the perfect home.  Also, you may need to have some savings (reserves) in the bank, a mortgage professional will be able to let you know if this is a requirement of your specific loan program.

5-      Closing Costs.  When you are saving for a down payment also remember there will be some closing costs involved.  Many times your realtor can negotiate with the seller to pay some of these closing costs.  The amount of closing costs the seller can pay will depend on your loan program so make sure your mortgage professional is involved and is communicating with your Real Estate Agent right from the beginning.  You don’t want to get to the end of the deal and be short on your funds to close.

6-      Job history.  Believe it or not you do need to have income coming into your household when you obtain a mortgage so just because you are pre-approved does NOT mean you can now quit your job.  It is possible that a lender may ask for a paystub or do a quick verbal verification to your employer right before the funding of your loan to make sure you are employed.  If you are anticipating a job change before you close on your mortgage, make sure you speak to your mortgage professional to make sure there won’t be anything that will hold up your transaction.

7-      Mortgage Pre-approval.  I can’t express enough how important it is to meet with a mortgage professional before beginning the process of buying a home.  I know sometimes it feels scary because you might not be ready to buy right now but by meeting with a mortgage professional you can put together a road map with all the details in place so when you FALL IN LOVE with that PERFECT house.  You can be confident that you are ready to move forward and there won’t be any anxiety in losing your Earnest Money Investment. 

Buying a house is exciting and there is a lot to know.   Find a mortgage professional you feel comfortable with and ask a lot of questions.  This is likely going to be one of the largest purchases you ever make, you owe it to yourself to do the homework and understand what you are about to step into.  I’ve been in the mortgage industry for 20 years and the reason I started was because I truly wanted to understand what the process of getting a mortgage was all about, I love to answer my clients questions and help them feel comfortable about making this fantastic step into home ownership.  Call or email me to set up a mortgage consultation.  –Sheri Joi,  sherijoi1972@gmail at gmail dot com

Mortgage Insurance Vs Mortgage Hazard Insurance….it’s so confusing!

"I can get rid of
Mortgage Insurance?!?
Whhhaaattt???"

We don’t usually talk about refinancing much because the purchase market is so fantastic right now but I wanted to share an experience I recently had with a client that was confused about Mortgage Insurance……………..

My client was referred to me because she had been making her monthly mortgage payments for over 5 years and she was still paying monthly Mortgage Insurance, which was included in that payment.  My referral source wanted her to sit down with me and see what options she might have to remove the monthly Mortgage Insurance.  When I talked to the client about doing this I could tell she was a little hesitant so I asked more questions to make sure she understood what I was talking about.  I discovered that she thought that Mortgage Insurance was the insurance that would cover the costs if a natural disaster happened to her house.  This is a VERY common misunderstanding.  I explained that there is a difference between Mortgage Insurance (Also known as PMI – Private Mortgage Insurance on a conventional loan and MIP – Mortgage Insurance Premium on an FHA loan) and Hazard Insurance.  Let me share how I explained the difference to my client.

Home insurance, also called hazard insurance or homeowner’s insurance, is a type of property insurance that covers a private residence.  It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.  It is always a good idea to sit down with your insurance agent and find out exactly what your home owners policy covers.  I have a client I’m working with right now that had experienced a fire several months ago and she is in the midst of working with the hazard insurance company to get the contents and structure of the home covered….. I’ll write more about this as it unfolds but this gives you an idea of what the purpose of Hazard Insurance is. 

Now the confusion I find is usually about Mortgage Insurance.  What the heck is that and why do you pay that every month?  What does it do for you?  The answer is, unfortunately, it does nothing for you.  Mortgage Insurance is about the lender.  It protects the mortgage lender against losses that may result from you defaulting on your mortgage.  The benefit to you in having mortgage insurance is that you probably didn’t have to come up with a giant down payment.  You were able to put less money down as a down payment in exchange, you pay a monthly Mortgage Insurance payment.  This extra insurance allows the Mortgage lender to feel more comfortable lending on your home with less equity investment from you.   The important thing to remember is that once your home has at least 20% equity in it, either from you making all your payments on time or market appreciation…. Or both…. You will want to do yourself a favor and get rid of that monthly Mortgage Insurance payment. 

In my client’s case we were able to refinance her into a 15 year fixed loan, cutting 10 years off her mortgage and saving her about $50,000 in interest payments and the great news is that her mortgage payment only went up about $12/month.  “What???  It went up???  You’re supposed to say it went down!!”  Well, think about it…. We were able to get rid of the monthly Mortgage Insurance Payment (usually anywhere from $150-$200 a month) and we shortened the amount of years she will now be paying her mortgage.  This is why there was an increase in the payment.  Would you pay an additional $2160 (that's $12 a month for 15 years) to be able to pay off your mortgage 10 years faster and save yourself $50,000 in interest payments??  Well, my client thought it was a great idea.  She was already used to her payment so it wasn’t a stretch to add an additional $12 to her payment each month and now she’s on track to pay off her loan in 15 years (or sooner if she makes additional payments) as opposed to 25-30 years.

If you are wondering about whether you have mortgage insurance or not….. or if you have enough equity to get rid of that monthly Mortgage Insurance payment then reach out and let’s see what your options are.  – Sheri Joi,  email sherijoi1972 at gmail dot com

5 Tips for Buying a Home

The New Year has just begun and for many that means making goals and resolutions.  If one of your New Year's Resolutions is to buy a house here are a few tips to keep in mind.....

1- Buy a house priced no more than 2.5 times you annual salary.  This is a realistic guideline to ensure that you are not overextending yourself on your mortgage.  Even with this guideline though.... use your inner barometer of what you feel comfortable paying each month with a mortgage.

2- Buy a house in an excellent school district, even if you don't have children.  This will increase the resale value, as many home buyers do have children.

3- Before you buy, hire your own home inspector to detect any potential problems. This report could be a negotiating factor on the price of they home.  You'll want to do this before your due diligence date is expired on your purchase agreement to get maximum negotiating power.  Talk to your realtor (or mine...*wink*) to get more information on this.  A good realtor will be able to refer you to an inspector they trust to work hard for your best interest.

4- Getting pre-approved on a mortgage will give you more negotiating power with the seller. (I promise I'm not just saying that because I want you to come and see me soon.... but I would love that too.)  Getting a pre-approval let's the seller know that you are serious about this transaction and are ready to move ahead quickly.  That is joy to their little selling hearts.

5- Get a realistic view of the neighborhood before you buy.  Drive from your potential home to work and shops at "key" hours to evaluate traffic and make sure you know what it will be like for your commute.

If you or anyone you know is getting ready to buy a home, pass this along to them along with my name and number.  I'd be happy to discuss the first few steps of buying a home....whether this is your first home..... or your 15th investment. -Sheri Joi ,e mail, sherijoi1972 at gmail dot com