Amy Uliss' Blog
Of course, you want to stay within your budget when buying a house. You certainly want value for your dollar. But a buyer should never lose sight of the fact what they truly desire is getting the home they want and that fits their needs. To that end, potential buyers may put in a “low-ball” offer on a house they truly want. They may risk losing a home that meets all of their qualifications by placing an offer that is five or ten thousand dollars less than a price the seller is willing to accept. What can be even more frustrating is that even if a buyer's offer is accepted by a seller, the buyer may just waste that money, or more, on the mortgage they acquire.
Buyers may be surprised to learn how much even a half of one-percent difference in a mortgage rate can make.
In our first example, after a down payment, a buyer gets a mortgage for $250,000 over 30 years at 4.5% interest. The monthly payment would be about $1,267 monthly. Over the course of 30 years, those payments would total $456,120. The net cost of the loan is $206,120.
In our second example, we take that same $250,000 mortgage over 30 years, but the buyer compared mortgage rates and was able to find a lender offering that same loan at 4.0% interest, one-half of one-percent less. The monthly payment would now be $1,194, totaling $429,840. The net cost of this loan is $179,840. The difference between the two loans is $26,280. All because of a .5% interest rate difference.
The Best Way to Save Money on a Home
Rather than chancing to lose a home you really like by making an offer that is too low, consider instead performing due diligence on mortgage rates. Seeking out a lower rate can be critical in saving you five, ten or twenty thousand dollars or more. That's a far better solution than losing a home you really wanted.
There are a lot of factors that go into determining loan rates for mortgages. These include the buyer's credit rating, work history, income to debt ratio and loan to value ratio. The bottom line is the better your credit the more options you will have in securing a mortgage loan.
One of the best ways to save money on buying a home is saving money on your mortgage rates. The best way to do that is by monitoring your credit rating and working to build it. When it comes time to buy a home, get pre-qualified and compare mortgage rates. You can even use an online calculator to compare rates on your own. Need further assistance in determining how to find the right mortgage for you? Feel free to reach out, and we can embark on your mortgage and home journey together.
Ready to buy a home? You'll likely need a mortgage to ensure you can afford your dream residence. Lucky for you, many banks and credit unions are happy to help you discover a mortgage that suits you perfectly.
Ultimately, meeting with a mortgage lender may seem stressful at first. But this meeting can serve as a valuable learning opportunity, one that allows you to select a mortgage that is easy to understand and matches your budget.
When you meet with a mortgage lender, here are three of the questions to ask so you can gain the insights you need to make an informed decision:
1. What mortgage options are available?
Most lenders offer a broad range of mortgage options. By doing so, these lenders can help you choose a mortgage that meets or exceeds your expectations.
Fixed-rate mortgages represent some of the most popular options for homebuyers, and perhaps it is easy to understand why. These mortgages lock-in an interest rate for a set period of time and ensure your mortgage payments will stay the same throughout the duration of your mortgage.
Meanwhile, adjustable-rate mortgages may prove to be great choices for many homebuyers as well. These mortgages may feature a lower initial interest rate that rises after several years. However, with an adjustable-rate mortgage, you'll know when your mortgage's interest rate will increase and can plan accordingly.
2. Do I need to get pre-approved for a mortgage?
Pre-approval for a mortgage usually is an excellent idea, and for good reason.
If you get pre-approved for a mortgage, you may be able to enter the homebuying market with a budget in mind. That way, you can pursue houses that fall within a set price range and avoid the risk of overspending on a home.
On the other hand, you don't need to be pre-approved for a mortgage to submit an offer on a home. But with a mortgage in hand, you may be able to gain an advantage over the competition, one that might even lead a home seller to select your offer over others.
3. How long will a mortgage last?
Many mortgages last 15- or 30-years – it all depends on the type of mortgage that you select.
A lender can explain the length associated with various mortgage options and highlight the pros and cons associated with these mortgages.
Moreover, you should ask a lender if there are any prepayment penalties if you pay off your mortgage early. This may help you determine whether a particular mortgage is right for you.
When it comes to finding a lender, don't forget to meet with several banks and credit unions. This will allow you to discover a lender that offers a mortgage with a low interest rate. Plus, it enables you to find a lender that makes you feel comfortable.
If you need assistance in your search for the right lender, be sure to reach out to a real estate agent. This housing market professional can provide details about local lenders and ensure you can accelerate your push to acquire your dream residence.
Preparing to buy a home is a long and stressful process for many. You’ve spent months, or even years, saving for a down payment, planning your future, and building your credit to ensure you get the best possible interest rate on your loan.
Then you find out, when getting preapproved for a mortgage, that your credit score dropped by a few points. So, what gives?
There’s a lot to understand about how credit scores affect mortgages and vice versa. In today’s post, I’m going to attempt to cover everything you need to know about how applying for a mortgage can affect your credit score so you’ll be prepared when it comes time to buy a home.
Prequalification, preapproval, and credit checks
There are a lot of misconceptions about what it means to be preapproved or prequalified for a loan. Some of it is due to the jargon that is used in real estate transactions, and some of it is just a marketing technique on the part of lenders.
So, what does it mean to be prequalified and preapproved?
The short version is that getting prequalified is a quick and easy process to determine whether you’re eligible to lend to and how much you’re likely to receive. It involves a quick review of your finances, and often includes either a self-reported or soft credit inquiry.
A “soft inquiry” is the type of credit check that employers typically use for a background check. It doesn’t affect your credit score, as you are not applying to open a new line of credit. In fact, many lenders’ process for prequalification is a simple online form that doesn’t even require a credit check. We’ll talk more about the difference between soft inquiries and hard inquiries later.
The simplicity of prequalification makes it a simple and easy way to get started. But, it isn’t always accurate in how well it predicts the type of mortgage and loan amount you can receive. That’s where preapproval comes in.
When you get preapproved for a loan you fill out an official application (you often have to pay for these). This will request documentation for your finances and assets, and will ask your approval to run a detailed credit report.
These credit reports are considered “hard inquiries” and are a vital step in getting approved or preapproved for a mortgage. However, they also, at least temporarily, lower your credit score.
Why hard inquiries lower your credit score
When any creditor, be it a bank or credit card company, is determining whether to lend to you, they want to know that you are a safe investment. To determine this, they want to know how frequently you pay your bills on time, how much you owe to other creditors, and how financially stable you are right now.
When you make multiple inquiries in a short period of time, it’s a red flag to lenders that you might be in trouble financially. Thus, hard inquiries will lower your credit score for 1 to 2 months.
Applying to multiple lenders: the silver lining
When borrowers apply for a mortgage, they often shop around and apply to multiple lenders. While it may seem that all of these hard inquiries will add up and drastically lower their credit score, this isn’t the case.
Credit bureaus take into account the source of the inquiries. If they realize that you are applying for mortgages, they will typically recognize this as rate shopping and group these applications together on your credit report, counting them only as a single inquiry. This means your score shouldn’t drop multiple times for multiple mortgage preapprovals that were made within a small time frame.
Now that you know more about how mortgage applications affect your credit score, you can confidently shop around for the best mortgage for you and your family.
There are a number of programs, government-sponsored and otherwise, that are designed to help aspiring homeowners find and get approved for a mortgage that works for them.
Among these are first-time homeowner loans insured by the Housing and Urban Development Department, mortgages and loans insured by the USDA designed to help people living in urban and rural areas, and VA loans, sponsored by the U.S. Department of Veterans Affairs.
In today’s post, I’m going to give you a basic rundown of VA loans, who is eligible for them, and how to apply for one. That way you’ll feel confident knowing you’re getting the best possible deal on your home mortgage.
What is a VA Loan?
VA loans can provide soon-to-be homeowners who have served their country with low-interest rates and no private mortgage insurance (PMI).
If you’re hoping to buy a home soon and don’t have at least a 20% down payment, you typically have to take out private mortgage insurance. This means paying an extra insurance bill on top of your monthly mortgage payments. The downside of PMI is that it never turns into equity that you can then use when you decide to move again or sell your home.
Loans that are guaranteed by the VA don’t require PMI because the bank knows your loan is a safer investment than if it wasn’t guaranteed
VA loans may also help you secure a lower interest rate, or give you some negotiating power when it comes to discussing your interest rate.
Finally, VA loans set limits on the number of closing costs you can pay in your mortgage. And, if you’ve ever bought a home before, you’ll know how quickly closing costs can add up.
Who is eligible?
There are some common misconceptions about who can apply for a VA loan? So, we’ll cover all the bases of eligibility.
If you meet one of the following criteria, you may be eligible for a VA loan:
You’ve served 90 consecutive days during wartime
You’ve served 181 days during peacetime
You’ve served six or more years in the Reserves or National Guard
Your spouse died due to their work in the military
There are some restrictions to these eligibilities. For example, your chosen lender may still have credit score minimums.
Applying for a VA Loan
There are two main steps for applying for a VA Loan. First, you’ll have to ensure your eligibility. You can do this by checking the VA’s official website. Be sure to call them with any questions you may have.
Next, you’ll need a certificate of eligibility. The easiest way to acquire one is through your chosen lender. If you haven’t chosen a lender, you can also apply online through the eBenefits portal, or by mailing in a paper application.
Once you have a certificate, you can apply for your mortgage and you’ll be on your way to buying a home.
What do buying a house, opening a credit card, and getting approved for an auto loan have in common? They all depend on your credit score.
Building credit is a multifaceted undertaking. In a way, this is a good thing--you wouldn’t want lenders to base their opinions solely on one aspect of your financial history. The downside is that understanding just what makes up your credit score can be difficult.
To complicate matters further, there isn’t one standard method for scoring your credit, and different credit bureaus each use their own criteria.
In this article, we’re going to talk about some of the factors the major credit bureaus use to calculate your credit, and give you some ways you can boost your credit.
But first, let’s talk about some of the implications of having a good credit score.
Why credit matters
Typical credit scores range anywhere from 250 to 850. The three main reporting agencies (Equifax, TransUnion, and Experian). Most lenders use a combination of those scores that is reported by FICO.
Most credit reports will rank your category from “bad” to “excellent.” Here’s an example of what a credit ranking might look like:
Good: 700 - 749
Fair: 650 - 659
Poor: 550 - 649
U.S. legislation makes it possible for Americans to receive a free report of their credit score and to challenge and correct the score if it contains inaccuracies.
If you’re thinking about buying a house, opening a new line of credit, or taking out a loan of some kind, then the provider will likely run your credit score. Those providers are going to want to see a return on their investment, so they’ll charge interest.
If you have a high credit score, it tells the lenders that you are a low-risk investment, and therefore they can offer you a lower interest rate, saving you money in the long run.
Components of a credit score
There are five main factors that credit bureaus take into consideration when formulating your credit score. Not all of the factors are treated equally. Your ability to pay your bills on time, for example, is considered to be more important than the types of bills you have. Here’s a breakdown of the five components that make up a credit score:
35% - Bill and loan payments
30% - Current total amount of debt
15% - Amount of time you’ve had credit (since you took out your first loan or opened your first credit card)
10% - Types of credit (cards, loans, etc.)
10 % - New credit inquiries
Quick tips for building credit
It takes time to build credit and improve your score. So, if you’re hoping to buy a home within the next few years, now is the time to start working on your credit. Here are some best practices for building credit:
Set up autopay for your bills to avoid late payments. Even if the service doesn’t offer autopay, you can likely set up recurring payments through your bank.
Settle outstanding debt. Avoiding debt that you can’t pay off will only hurt you more in the long run. Call your creditor and see if they offer debt relief programs. More likely than not they’d rather work with you to ensure they receive some repayment rather than none at all.
Start budgeting the right way. New budgeting software like Mint and “You Need a Budget” are easy to use and link up with your accounts. They’ll help you monitor your spending and start paying off debt.
Don’t open new lines of credit close to when you want to take out a loan. New credit inquiries can briefly lower your credit, especially if you make more than one. Viewing your free credit reports doesn’t count as an inquiry, so feel free to do that as often as needed to check your progress.
Get credit for bills you’re already paying. You can report your monthly rent payments, switch bills into your name that you contribute to, or take out a credit builder loan. All three will help you build rent without changing your spending habits.