A mortgage is a loan that you use to buy or refinance a one to four unit single family home. The lender gives you the money to finance the home, and you agree to pay it back over time, plus interest. The home that you buy serves as collateral for the loan, which means that if you don't make your payments, the lender can take your home.
Qualification for a mortgage is dependent on several factors
If you meet all of these requirements, you will be considered a qualified borrower and you will be able to apply for a mortgage.
Here are some additional tips for qualifying for a mortgage:
In addition to the monthly mortgage payments, there are other costs associated with buying a home, such as:
If you are thinking about buying a home, it is important to do your research and understand the different options available to you. Working with a qualified mortgage lender can help you find the right mortgage for your needs and budget.
Buying a home is a big decision, and it's important to make sure you're ready before you start the process. Here are a few things to consider:
If you can answer yes to all of these questions, then you may be ready to start looking for a home. However, if you're not sure, it's a good idea to talk to a financial advisor or a mortgage lender. They can help you assess your financial situation and make sure you're ready for the commitment of homeownership.
Your income is also a factor that lenders will consider when determining how much money you need to put down for a home. Lenders want to make sure that you can afford to make your monthly mortgage payments, even if your income changes.
The answer will depend on your individual circumstances. It is a good idea to talk to a mortgage lender to get an accurate estimate of how much money you need to put down.
Our company is well equipped to assist families utilizing down payment assistance programs. We have a team of experienced loan officers who can help you find the right program for your needs. We also offer a variety of other services to help you through the homebuying process, such as pre-qualification, home search assistance, and closing assistance.
We understand that buying a home can be a daunting task, but we are here to help you every step of the way. Contact us today to learn more about how we can help you achieve your dream of homeownership.
If you are considering buying a home, be sure to explore all of your down payment assistance options. Down payment assistance can make it easier to afford a home and can help you achieve your dream of homeownership.
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f you are a renter who would like to get into homeownership yet fear how you will be able to afford one with today’s interest rates… then Trust Us, The Loan Nerd has created this page just for YOU! And if you are not a renter but know of one… please feel free to share this page!!
You are interested in purchasing a home that is listed for $400,000 and decide to put in a full purchase price offer of $400,000 with a loan amount of $360,000 and an interest rate of 6.5%.
In case you believe I am biased in favor of buying, I will make this home purchase example as ugly as possible.
Let’s begin with the assumptions on the ‘buy’ side:
If you were to rent a comparable $400,000 house:
Now, let’s look at the math.
There are 3 components: total cashflow, appreciation gain, and amortization gain
Total Cashflow
When we look at the monthly expense in year 1, you pay $3,386 per month to buy your home and $2,940 per month to rent your home. This is an additional $446 per month to buy your home. Because you purchased your home with a fixed rate mortgage, the principal and interest portion of your payment will never go up. Looking at the graph above, your rent payment dramatically outpaces your mortgage payment. At the end of the 9 years, you will have paid a total of $371, 984 to buy your home and $372,601 to rent a comparable home. The cashflow difference is a mere $617 at the end of 9 years. You can see that, by staying in your home longer, the cashflow savings of buying vs. renting would weigh heavily in favor of buying.
Amortization Gain
Amortization gain is like a savings plan. You borrowed money from the lender to purchase your home. Every time you make a payment on your mortgage loan, it is like you are transferring money from your checking account into home equity/ownership.
As I mentioned, every time you make a loan payment a portion of your payment goes to principal and interest. The principal payment reduces the amount of money you owe (principal or loan amount) and the interest payment is the cost of borrowing the money from the lender. Overtime, a larger part of your payment goes toward principal repayment and a smaller part of your payment goes toward interest. This is called amortization. In this example, it is called positive amortization and results in a gain for you.
In our example, your original loan amount was $360,000. At the end of 9 years, instead of owing $360,000, you only owe $312,405. This amortization gain is like a cash savings of $47,595! It is drastically different than making a rent payment to your landlord.
Appreciation Gain
Appreciation is the change in property value over the 9 year period. We can add this to your wallet in favor of buying your home – and it is a BIG deal!
Let’s remember that I forecast the annual increase in value (appreciation) very conservatively. I chose to use 4.75% per year because this is the historical average appreciation per year over the last 63 years. In recent years, we know that increases in home values have far outpaced the historical average, presenting a challenging position for the homebuyer.
Generally, appreciation and interest rates are related so that when home values increase dramatically, so do interest rates. Conversely, when home values slow, interest rates decline. This means that, if the housing prices slow you may have the opportunity to refinance your mortgage at a lower rate. Either way, this is a winning situation for a homeowner!
In our example, your initial purchase price was $400,000. With an annual appreciation of 4.75%, your home will be worth a whopping $607,360 at the end of 9 years – a gain of $207,360!
Let’s keep in mind that you will need to sell your house to realize the appreciation gain and you will need to pay the an agent commission, estimated at 6% of the sales price. 6% of a $607,360 sales price is $36,442. This reduces your appreciation gain to $170,918, which is still a very respectable gain.
Bonus - Tax Benefit
You will want to check with a tax professional on this one… mortgage interest on your residence is tax deductible! Based on a 22% tax bracket, this would save you $5,142 over the standard deduction after 9 years.
Let’s put it all together…
The above graph includes all the costs we talked about. It shows homeownership can generate personal wealth over a period of time.
Remember that when we looked at the cashflow, we only saved $617 over the course of 9 years. When we add in the amortization and appreciation gains and subtract out initial closing costs and cost to sell, we save $216,272 over the same 9 years!
You may be thinking, ‘Of course I want to buy a home! Where do I sign up?’
Let’s slow the horses. It might not be the right time for homeownership for you, right now.
According to the above graph, if you sold your house at the end of year 1, you would lose $14,624. This is because the cost to buy and sell overwhelmed the benefit of homeownership in the short term. By the end of year 2, you would have been ahead $5,037. Given this scenario, if you planned to stay in your home less than 2 years, I would recommend that you continue to rent at this time.
The bottom line is that making a decision about when and if to purchase a home can be tricky. Your experienced Loan Nerd is here to discuss your personal and financial goals with you and help you navigate the path to homeownership. We can tailor a scenario specific to your needs.
It is generally best to meet with a Loan Nerd first, before hunting for houses. Your Loan Nerd can help define your budget – including purchase price, tax and special tax districting, homeowner’s and flood insurance, and even homeowners’ association fees. We can outfit you with a pre-approval letter to share with your real estate agent so they have the information to help you find your perfect ‘right now’ home and the ammunition to make sure your offer is accepted.
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Do's:
Don'ts:
By following these do's and don'ts, you can increase your chances of qualifying for a mortgage and buying the home of your dreams.
Here are some additional tips that may be helpful:
Buying a home is a big decision, but it can also be an exciting one. By following these tips, you can increase your chances of getting approved for a mortgage and finding the perfect home for you.
Buying a home is a big decision, but it can also be an exciting one. By following these tips, you can increase your chances of getting approved for a mortgage and finding the perfect home for you.
Interest rate or cost of ownership? – the right financing is critical to your family’s financial health.
Your credit score is a number that lenders use to determine how likely you are to repay a loan. It is based on a variety of factors, including your payment history, the amount of debt you have, and the length of your credit history.
There are two main types of credit scores: FICO® scores and VantageScore® scores. FICO® scores are the most commonly used credit scores, and they are used by Mortgage Lenders. VantageScore® scores are a newer type of credit score, and they are yet to be adopted by the Mortgage Industry.
Your credit score can range from 300 to 850. A higher credit score means that you are a lower risk to lenders, and you may qualify for lower interest rates and better loan terms.
There are a few things that you can do to improve your credit score:
If you are looking to improve your credit score, there are a few things that you can do:
By understanding credit use and how it affects credit scores, you can take steps to improve your credit score and get approved for the loans that you need.
Contact our team today to learn more about how we can help you improve your credit score and get approved for a loan.
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Investor Loans
Asset Qualifying Loans
Asset qualifying: Asset qualifying is a type of mortgage that allows borrowers to qualify for a loan based on their assets, such as cash, investments, and retirement accounts. This can be a good option for borrowers who have a high debt-to-income ratio or who have a history of bad credit.
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