Determine Your Mortgage Budget
Before ever speaking with a mortgage officer, youll want to determine how much house you can afford and are comfortable paying .
A good rule is that your total housing payment should be no more than 35% of your gross income.
For example, if together you and a co-buyer earn $80,000 a year, your combined maximum housing payment would be $2,333 a month. Thats an absolute, max, however. I recommend sticking with a total housing payment of 25% of gross income. Youll find other readers here who are even more conservative.
It can be difficult to equate this monthly payment to a fixed home price, as your monthly housing payment is subject to variables like mortgage interest rate, property taxes, the cost of home insurance and private mortgage insurance , and any condo or association fees.
Benefits Of Homeownership In Your 20s
Buying a home in your 20s could make sense if it would save you money compared to paying rent and if youre looking for a long-term investment. The longer you plan to stay in the home, the longer your time frame for gaining equity as your homes value increases.
If you choose a fixed-rate mortgage, then your payments will remain consistent for the life of the loan, rather than being subject to price hikes the same way you might be as a renter. Youll be able to customize the property according to your tastes and make improvements or renovations as you see fit. And youll get the benefits of a tax deduction for mortgage interest while youre paying on the loan. Of course, there are some potential downsides to consider.
Owning a home could be less expensive than renting, and a fixed-rate mortgage could offer stability and predictability with payments.
The younger you are, the longer you have to build equity in the home as the propertys value increases.
Paying a mortgage on time each month could help to improve your credit score and make it easier to qualify for other types of credit.
You may not recoup your down payment or closing costs in the form of monthly savings if you dont stay in the home for the long term.
Qualifying for a mortgage as a twentysomething can be challenging if neither your credit history nor your work history is solid.
Having student loan debt, credit cards, or other debts could make meeting monthly mortgage payments more difficult.
Get Preapproved For A Mortgage
Getting preapproved for a mortgage gives you a good idea of how much you can borrow and shows sellers you are a qualified buyer. To get a preapproval, a lender will check your credit score and proof of your income, assets, and employment. Even though a preapproval letter doesnt guarantee youll qualify for financing, it shows the seller you have your finances in a place to pass an initial cursory examination from a lender.
Most preapproval letters are valid for 60-90 days, and when it comes time to apply for a mortgage all of your information will need to be reverified. Also, dont confuse preapproval with prequalification. A prequalification is a quick estimate of what you can borrow based on the numbers you share and doesnt require any documentation. So its less rigorous than a preapproval and carries less weight.
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Things To Know Before Getting A Mortgage
The United States’ mortgage debt totaled more than 15.5 trillion in the first quarter of 2019, making it the most substantial debt for American households. Conventional wisdom tells us mortgages are good debt because homes typically appreciate in value, but that doesn’t mean you should get a mortgage without careful research. Make sure you understand the following points before buying a home.
How To Get Approved For Your First Mortgage
Modified date: May. 31, 2021
As the U.S. economy continues to rebuild from the recession that was almost nine years ago, lots of people are looking to buy homes after years of renting or staying put in a previous house. As a result, the real estate market is competitive in many parts of the country, requiring buyers to put in aggressive offers and, in some places, compete with deep-pocketed investors paying cash.
What this means is thatnow more than everyou need to be qualified for a mortgage before you shop for real estate.
If youre looking for a mortgage lender, is free, online, and convenient.
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Your Credit Score Matters
Before applying for a mortgage, get a copy of your credit report which is held by credit reference agencies such as Experian or Equifax. This will allow you to see what lenders see when they review your application.
If your credit rating isnt looking that great, there are lots of simple things you can do which can give your score a boost. For example, check you are on the electoral roll and close down credit card accounts which you no longer use. Find out more here
Hard Money Loans: What To Watch Out For
If the phrase hard money loan makes you think of quick and easy business deals that end in cold, hard cash, youre not too far off the mark. However, just because this type of loan offers fast financing doesnt mean its a good, safe option for everyone.
What are hard money loans and are they something to be wary of? Lets take a look.
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Shop Around For A Home Loan
Just like all mortgages arent alike, all lenders also are not the same. Its important to shop around for different mortgage options so you can compare interest rates and fees. A difference of even half a percentage point could substantially increase or decrease the amount of interest that you pay for a mortgage over the life of the loan.
Also, consider getting pre-approved for a mortgage. This process involves having a mortgage lender review your finances and make you a conditional offer for a loan. Pre-approval can make it easier to have your offer accepted when you try to buy a home, which could be especially crucial if youre the youngest bidder.
Why Lenders Dont Like Providing Small Mortgage Loans
So why is it so difficult to find a lender offering small mortgage loans under $50,000 in the first place? Generally, its just not worth it to the bank .
Thats because whether your mortgage is for $50k or $500k, loan origination and servicing costs are about the same. A loan of several hundred thousand dollars over couple of decades provides the lender a nice profit from interest, while a much smaller loan requiring the same amount of money and effort to fund it yields significantly less. Often, its not cost-effective for a bank to provide such a small home loan.
If lenders lose money providing extremely small home loans, they are certainly not going to go out of their way to advertise their availability, much less the higher rates associated with these loans. That does not mean, however, that there are no lenders out there who will provide one.
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How To Find Out If You Can Get A Mortgage
If youre curious about your standing when it comes to getting a mortgage, there are ways you can check this before going through the rigorous process.
Many lenders offer a so-called decision in principle also sometimes called mortgage in principle where you submit brief details about the property you want to buy, your annual income and deposit, and will then be presented with the amount you could potentially borrow.
Dont worry, this wont affect your credit score and you can change the details on your DIP at any point.
You can use a DIP if youre planning to buy at auction, as a way to prove that youre able to get the loan for the property.
Reach Out To Local Banks And Credit Unions
Dont expect to walk into a BofA or Chase mortgage office and be approved for a $50k mortgage. To find small home loans, you have to go to small institutions.
Your first stop should be your local bank an existing relationship with a community bank or membership with a credit union is a great in to negotiating a small home loan. Financial institutions are much more willing to work with customers who have proven their loyalty and responsibility with money.
If you dont bank with a community institution, however, or you do, but are rejected for a loan, you should continue to meet with representatives from local banks and CUs near you and have them review your financial situation to find out if a small mortgage loan is a possibility. Keep in mind, it could take some time before finding a lender who is willing to work with you.
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Difficult To Get Mortgages
Tougher new rules mean more and more borrowers are finding it difficult to get a mortgage. But there are options for those who no longer fit lenders criteria
Houses and high-rises the wariness about lending on certain types of properties means many applicants are being turned down.
Are you over 45? Self-employed? Divorced and remortgaging late in life? If you are in any of these groups, you are likely to be among the growing number of people struggling to find a lender willing to offer a loan.
Tough restrictions imposed by the City regulator to ensure borrowers can really afford a mortgage and wariness about lending on certain types of properties mean that many applicants are being turned down.
Mortgage Solutions has access to products that can accommodate credit problems and other unusual circumstances, some with well-known lenders for people who need a mortgage.
People who have been unfortunate with such problems know all too clearly how, in some cases, banks & building societies are unable to assist them.Do any of the following circumstances applies to you? Let Mortgage Solutions help:
- County Court Judgments Considered up to 70%. LTV
- Bankruptcies, discharged less than 1 year
- Been in arrears with a loan or mortgage?
- Self Employed
- You want to purchase a building of unusual construction
It is always difficult to quote exact rates in an adverse lending situation, without knowing your circumstances. Please contact us to discuss your own personal situation.
Is It Hard To Get A Mortgage
Standards have tightened from the prehousing-bubble days, but are they actually tough?
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From the early 2000s through the housing bubble’s burst in 2006, mortgages were extremely easy to get for anyone with even decent credit.
Back in those days, legitimate banks and lenders offered no-documentation loans — mortgages where the consumer tells the bank how much he or she makes, which is then not verified — and low-documentation loans, where some checking was done, but not much. Less-scrupulous lenders even offered something known as a “NINJA” loan, or a “no income, no job, no assets” mortgage.
It’s easy to see why standards needed to be tightened up from those days. People were getting loans to buy houses they could not afford based on banks’ accepting their word that they would be good for the money. That, as you might imagine, led to huge numbers of defaults, which caused housing prices to collapse in many markets.
Now, while the no-doc days have not returned, standards are looser than they were in the aftermath of the bubble’s burst. It’s not easy to get a mortgage, but it’s certainly easier than it has been.
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Mortgage Declined After Agreement In Principle
An âagreement in principleâ is given by lenders to say that, based on basic information about you, they believe they would give you a mortgage if you applied for one. It can be useful to have an agreement in principle when youâre house-hunting, as it gives you an idea of what you can afford, and some housing agents will check you have one before letting you view property. But it doesnât guarantee you a mortgage, and it is possible to be refused by a mortgage provider after theyâve given you an agreement in principle.
If this happens, itâs often because the lender found something that didnât meet their criteria when they did a full search of your information. You may be able to find out what it is by asking the lender. You may also find it helpful to use a mortgage broker, whoâll be able to assess your financial and credit information and find a mortgage thatâs likely to fit.
You’ll Pay More Without A Minimum 20% Down Payment
Experts continue to encourage buyers to save a down payment of at least 20% before applying for a mortgage. It makes sense, as the larger your down payment, the smaller your mortgage and the less interest you’ll pay over the life of your loan. However, with the rise of FHA loans, which require as little as 3.5% down, and VA loans, which may not need any down payment, many buyers wonder whether a 20% down payment is as important as it used to be.
Keep in mind that you must pay private mortgage insurance if you put less than 20% down on a conventional loan. PMI covers the lender if you stop paying your mortgage and default on your loan. The yearly cost of PMI is about 1% of your outstanding loan balance and is added to your monthly mortgage payment. You can request to have PMI removed once your outstanding balance reaches 80% of the original loan amount. You also might not realize that applicants with smaller down payments usually have a higher interest rate. A small down payment might let you enter the homeowner market sooner, but it can cost you in the long run.
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How Difficult Is It To Get A Second Mortgage
second mortgagemortgagemortgagegetting a second mortgagedifficult
. Keeping this in view, how long does it take to get a second mortgage?
In order to qualify for a second mortgage, most lenders will require your loan-to-value ratio be 80 percent or lower. So long as you reach that goal, it doesn’t matter whether you’ve owned your home for five years or five minutes.
Also, can I get approved for a 2nd mortgage? To qualify for a conventional loan on a second home, you will typically need to meet higher credit score standards of 725 or even 750, depending on the lender. Your monthly debt-to-income ratio needs to be strong, particularly if you are attempting to limit your down payment to 20%.
Likewise, how much of a 2nd mortgage can I get?
Some lenders allow you to take up to 90% of your home’s equity in a second mortgage. This means that you can borrow more money with a second mortgage than with other types of loans, especially if you’ve been making payments on your loan for a long time. Lower interest rates than credit cards.
How much deposit do I need for a second mortgage?
Many second home mortgages require at least a 25% deposit, and you may need even more than that if your current income won’t cover both mortgages at the same time. In addition to this, your income will be even more important in the application for a second home mortgage.
What Is A Hard Money Loan
A hard money loan is a short-term, non-conforming loan that does not come from traditional lenders, but rather individuals or private companies that accept property or an asset as collateral. Borrowers may turn to hard money loans after a loan or mortgage application is denied, or to avoid the lengthy process of getting approved for a loan through traditional means.
Like a traditional mortgage, a hard money loan is a secured loan, guaranteed by the property it is being used to purchase. The hard part of hard money refers to the tangible asset being used to back the value of the loan. When a person defaults on a secured loan, the lender can take over ownership of the asset to recoup its losses.
Unlike traditional mortgages or other types of secured loans, hard money loans come with a fast and typically less stringent approval process, making them ideal if you need to make the purchase happen fairly quickly.
With a mortgage, it often takes more than a month, from application to close, to purchase a property. With hard money loans, its possible to close in just a few days.
Get approved to buy a home.
Rocket Mortgage® lets you get to house hunting sooner.
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What Else Do Lenders Look At When You Apply
As we mentioned, your credit score is not the only factor lenders examine before they approve or decline your application. They also want to see a favourable history of debt management on your part. This means that on top of your credit score, lenders are also going to pull a copy of your to examine your payment record. So, even if your credit score is above the 600 mark, if your lender sees that you have a history of debt and payment problems, it may raise some alarms and cause them to reconsider your level of creditworthiness.
Other aspects that your lender might look at include, but arent limited to:
- Your income
- The amount youre planning to borrow
- Your current debts
- The amortization period
This is where the new stress-test will come into play for all potential borrowers. In order to qualify, youll need to prove to your lender that youll be able to afford your mortgage payments in the years to come.
Theyll also calculate your monthly housing costs, also known as your gross debt service ratio, which includes your:
- Potential mortgage payments
- Potential cost of heating and other utilities
- 50% of condominium fees
This will be followed by an examination of your overall debt load, also known as your total debt service ratio, which includes your: