City Creek Mortgage News

For many individuals, taking out a loan is the only way to afford a property and an interest rate is applied to this loan which acts as a cost against borrowing the money. However, this interest rate will change from one loan to the next and certain factors determine the percentage of a mortgage interest rate.

 

But how are mortgage rates calculated exactly?

 

Let’s take a look at the role of interest rates and the most common factors which determine the cost of borrowing money to pay for a property. But before we take a closer look at factors that dictate mortgage rates, it’s important to be clear on the basic role of an interest rate.

 

The Role and Intricacies of Mortgage Rates

 

It should be known that this “cost” is also insurance for the lender against the money being borrowed. In short, a mortgage interest rate is the price of the money that you might wish to borrow against the security of a property. However, this interest is a form of insurance for the lender, this also means that interest rates are non-refundable for the person borrowing the money.

 

When it comes to most home loans, this rate is paid monthly but quoted by the lender as an annual rate. For instance, an interest rate of 3% on a $200,000 mortgage will require the borrower to pay mortgage interest of $500 per month ($6,000 per year). But interest is just one of several costs as fees are also needed to cover the title insurance and “points” in the form of a percentage of the loan. What’s more, a mortgage insurance premium is required and included as part of mortgage rates.

 

You will also see an APR alongside a mortgage interest rate and this is an adjusted rate that includes the other charges cited above. It’s reasonably accurate but not exact because the APR assumes these charges are spread out over the remaining lifespan of the mortgage. Also, mortgage rates are either adjustable or fixed. Adjustable rate mortgages (ARMs) have a fixed period of between six and ten years but the rate can be adjusted over time. Meanwhile, fixed-rate mortgages have an interest rate which stays the same for the duration of the loan.

 

As for why so many fees and costs are needed, lending institutions are taking on risk when they loan money and this risk extends to both the borrower and wider economy. That is to say, you might receive a high or lower rate of interest due to your finances or circumstances but the economy as a whole is also a risk to the institution.

 

3 Main Factors that Dictate Mortgage Rates

 

Although a complex system of factors will affect mortgage rates, three factors will essentially determine how much investors might be willing to pay for shares in a mortgage-backed security – inflation, the Federal Reserve and the price of U.S Securities:

 

Rate of Inflation – Inflation is a phenomenon where prices rise across the board in the economy as a whole. Consistent inflation is a sign of a healthy economy. However, this also poses a problem for lenders as the money being borrowed today will be worth less by the time it’s being paid back. For this reason, investors will only consider high mortgage rates to make up for any loss related to inflation.

 

Federal Reserve – The Federal Reserve can make rate adjustments which indirectly impact mortgage rates. As you know, the federal funds rate is the rate which banks will use when providing loans to other banks and a rise or drop in federal interest rates will lower or higher the supply of money available.

 

Price of U.S. Treasuries – The price of U.S treasuries is also highly influential because other investment opportunities can distract investors from mortgage backed securities. In other words, investors compare these tranches of mortgages to bonds, funds and traditional stocks.

 

About Calculating the Rate of Mortgage Interest

 

A lending institution will use a specific formula to create a suitable payment schedule which accounts for paying back both the principal and interest each month. The length of a loan will also dictate how much is needed to be paid back each month. For “fully amortizing payments”, the loan is paid back in full by the end of a set term. With a fixed rate mortgage, each payment is for an equal amount but the payment will change according to the interest rate with an adjustable rate loan. When a mortgage is stretched out to thirty years, the payments are usually lower but the longer this period, the higher the overall cost.

Final Thoughts

 

For many families and first time buyers, taking out a loan is the only option when it comes to buying a property. However, this is also a realistic way to achieve safety security without risking your finances. Finally, the intricacies of the secondary mortgage market can be somewhat confusing but understanding mortgage rates is often the key to finding the best possible mortgage provider for your dream home. To learn more about mortgage rates, call City Creek Mortgage and speak to one of our salary-based loan officers. 

Refinancing can help you obtain a better interest rate and reduce the monthly payments on your mortgage. If you have a decent credit rating, refinancing is also an opportunity to move from a variable loan rate to a fixed-rate mortgage or even raise finance for an upcoming purchase. And these are just a few of the reasons you might want to refinance your mortgage in the near future.

  

Is Refinancing Your Mortgage the Right Option for You?

 

Refinancing is when the initial mortgage is paid off and a second loan is created with new terms and conditions. It’s especially enticing during times of economic or financial stress, for keeping up with mortgage payments is a challenge and refinancing can help relieve some of these persistent strains.

 

However, refinancing is not always a good idea and this is certainly true for borrowers that might have a significant amount of debt. It’s true, even if your friends or family have found “the best interest rate”, this is not an indication that refinancing is good for you, or anyone else for that matter.

 

There are also certain pitfalls that might not make refinancing a financially sound idea. For instance, stretching out payments over a longer period might reduce payments in the short term but you will still end up paying more interest on the principal later on.

 

That being said, here are some of the most common reasons why people turn to refinancing.

 

Why You Might Want to Refinance Your Mortgage

 

  1. Funding a Purchase – Some homeowners decide to refinance in order to raise money for home remodeling, while just as many use this process to pay for a child’s schooling. Instead of taking out another loan with higher interest rates, refinancing can make a lot of financial sense.

  2. Variable Rate to Fixed Rate – If you plan to stay in the home for the foreseeable future, changing from one type of loan to the other is another reason to refinance your mortgage. Proper guidance (and math) is needed for this option but this should go without saying for refinancing in general.

  3. Personal Emergency – Refinancing is sometimes the fastest way to raise money to cover a financial emergency. Now, that’s not to say you should refinance your mortgage for this reason but rather to explain how refinancing is occasionally a better option than taking out a separate loan.

  4. Consolidating Debt – You can also consolidate debt when you refinance your mortgage. Most debt comes with high interest rates which will often make refinancing a more sensible option. That being said, it’s important to deploy discipline and not waste this opportunity by generating more debt.

 

With this in mind, the overall purpose of refinancing is to provide some kind of financial benefit and careful consideration is needed to determine whether this is the best option in each circumstance. As for the process, it’s necessary to collect bank statements, pay stubs and any other documents to support a refinancing application. The lender will also require an application fee before proceeding with an appraisal and other formalities that take place when you refinance your mortgage.

 

Final Thoughts 

 

It should go without saying that your own personal finances and circumstances will dictate whether or not you should refinance your mortgage. But careful consideration is necessary and expert advice will bring peace-of-mind at the very least. After all, without the right guidance or knowledge, there is always more risk but the above reasons should tell you why refinancing can make a lot of sense.

 

If you’re considering a mortgage or refinance, or to learn about any of our home loan services, speak to the pros at City Creek Mortgage today. 

At City Creek Mortgage, we’re proud to offer quality mortgage purchase programs to a wide variety of buyers and their varying needs. Our mortgage brokers work with everyone from first-time buyers to experienced real estate flippers, plus another group that’s growing in popularity every year it seems: Potential landlords.

If you’re interested in real estate investment or are already involved in some area here, becoming a landlord may hold several benefits. Let’s look at several of the reasons why more and more people in this situation are considering renting out their properties.

Simple Financing

For starters, as long as your credit and other basic financial factors are in good shape, getting financing for a loan when you plan to become a landlord tends to be a breeze. Property rentals are considered relatively safe investments by most lenders, and the kinds of homes that are usually used for rentals are single-family homes or multi-unit apartments – both easy to finance.

Generally speaking, lenders are highly willing to offer funds to those in these situations. They know that not only will the borrower’s own finances assist with repaying the sum, but proceeds from the rental will provide another revenue source.

Profit and Equity

The simplest reason many people choose to become a landlord? To make money. If you get the math right and charge the proper amounts while providing the necessary services, you’ll turn a nice little profit each month – money you can use to pay down the mortgage, invest in other properties or several other areas.

In many cases, borrowers use this additional profit to build equity in the home. Paying down the home faster opens up several potential areas, from buying additional property to having funds in reserve for repairs or other needs.

Retirement Funding

Another long-term use of rental property funds? To begin building and adding to retirement funds. In fact, many people begin renting out properties in the years just before retirement hits, then hire a property manager when retirement age comes – allowing for continued profits even once you’re not working.

Tax Deductions

Finally, becoming a landlord comes with several potential tax benefits as well. There are several tax deductions that might be available, including interest paid on the mortgage, depreciation, repairs on the property, and even insurance premiums purchased for the rental. Several of these areas are those you wouldn’t normally be able to take advantage of in most standard mortgage situations, and there’s no addition cost for these beyond the duties you take on as a landlord (or duties you pass on to a property manager if you choose to hire one).

For more on why becoming a landlord might make sense for you, or to learn about any of our landlord-friendly mortgage programs or other mortgage services, speak to the staff at City Creek Mortgage today. 

There are a few standard pieces of documentation that are generally used when applying for a home mortgage, and one such piece is the W-2. A W-2 is a basic tax form that allows you to properly report salary and wage information to the IRS, plus contains tax withholding information and other vital data, and it’s a very common document required by lenders to get a picture of your finances while assessing your application.

At City Creek Mortgage, we’re proud to help you find the best mortgage rates no matter what your buying or application position is. What if you’re someone who owns your own business, does contracting or does not receive a W-2 for one of a few other reasons? Luckily, there are several options available for you in this case. Let’s go over everything you need to know. 

Applying Without a W-2

There are a couple important tactics to take if you’re applying for a home loan without a W-2:

  • Tax returns: In these cases, lenders will lean heavily on your tax returns to prove you’re receiving steady income. They’ll want at least two years of such returns, if not more. These returns won’t necessarily indicate the sort of monthly income lenders need to see, but they will show that you earn money and are able to pay off a loan on a yearly basis. They’ll combine this info with areas like your credit score and your debt-to-income ratio to get a good idea of your finances and creditworthiness.
  • Home loan types: It’s important to research the loan types that might be available to you, which will differ from a conventional situation. For first-time buyers, many FHA loans are available if you can provide solid tax returns and 1099s. In other cases, many states have Bank Statement loan programs that work for self-incorporated individuals, looking at monthly deposits over time rather than W-2s.

Improving Qualifying Likelihood

Some basic tips to help your chances of approval if you aren’t including a W-2 in the application:

  • 89/Pay down debt: Your credit situation and debt-to-income ratio are vital factors that become even more important without a W-2, and paying down debt helps improve them.
  • Down payment: The more you can put down up front, the less you need to borrow and the better your chances.
  • Savings: Another way to improve your debt-to-income ratio is to have a large amount of savings built up.
  • Co-signer: In some cases, a co-signer with a steady income stream will help push you over the top and receive approval from a lender.

At City Creek Mortgage, we’ll help you understand which programs you can qualify for even without a W-2. For more on this or any of our other mortgage services, speak to our staff today. 

At City Creek Mortgage, we’re proud of our reputation as a reputable mortgage company. We’ve been helping clients in Utah get the money they need for the home of their dreams for decades, and our mortgage and refinance services are second to none.

Unfortunately, like many popular industries, the mortgage world has its share of unscrupulous scammers. One popular mortgage-related scam? The down payment wire fraud. Hundreds of millions of dollars have been stolen using this fraud, and we want to help protect you from it. Here are some basics to be aware of.

How it Happens

In general, these scams will take place while you’re in the process of buying a home – the timing is important for scammers, to make it feel as real as possible. You’ll receive an email that appears to be from your actual real estate agent, telling you that instructions for wiring the down payment had changed, and giving you a new account number to send money to. A few possible red flags here:

  •     You may be asked for an incorrect down payment amount. There’s very little reason to ever pay a partial down payment, and no reason to ever pay more.
  •     The down payment is usually wired the day before closing. If they’re asking for a different date, this is suspicious.
  •     The email address will be almost your real estate agent’s, but not quite the same.

Rising Rates of Fraud

The rate of this wire fraud exploded by nearly 500 percent in 2016, and it became the 16th-highest form of reported complaint, with over 12,000 complaints that year. However, it held first place overall for total dollar losses.

How to Stop It

The simplest way: Call your real estate agent right away. Ask them if they sent that email, and if they say no, inform them that it’s likely their records have been hacked. If you happen to get tricked and fall for the scam, drop everything and call your bank immediately. From there, contact the FBI and the Federal Trade Commission, in that order.

Spotting Fakes

Most financial institutions will have a signature block at the bottom of every email and document indicating that the company will never change its wiring instructions for any reason. Anytime you get an email with money-wiring instructions and an account number, this is a red flag on its own – most institutions would never consider this form of communication for such an issue.

When you’re wiring money, ask your bank to confirm the account number and name on the receiving end just to be safe. After you’ve finished, contact your agent or the title company to verify that the money was received.

For more on spotting and avoiding down payment scams, or for any of our other mortgage services, speak to the brokers at City Creek Mortgage today.

Both today and for much of the last couple years, the real estate world has been in what most would call a “seller’s market.” This means there’s lower inventory available than there is demand across the country. This situation usually leads to rising prices and sellers who cam exert a bit more influence and leverage on the process.

That doesn’t mean you can’t get a great deal on a home, though, and we’re here to help at City Creek Mortgage. This market simply puts more emphasis than ever on making attractive offers to sellers – and this means more than just getting the financial details right. Let’s go over a few factors that will help you present a strong offer and increase your chances of acceptance.

Strong Numbers

Of course, the numbers themselves are still the strongest factor in any mortgage situation, and there are ways to set yourself apart here. A few tips:

  •       Pre-approval: This is a process where you submit your financial information and credit score to a lender, and a third party assesses your situation and gives a general range of prices you’re likely to qualify for. Pre-approval shows sellers you’re prepared in the financial area, and also strengthens your buying power.
  •       Simplicity: Wherever possible, remove contingencies and make your offer as simple as you can. Try to avoid repair demands or any other areas that will create more hassle for the seller.
  •       Amount: There isn’t much negotiation wiggle room in today’s market, but there may be times where you can squeeze a slightly larger offer than the asking price into your budget. If your realtor thinks this makes sense for you, it can be a good way to push you over the top.

Advisory Team

You want to have a few folks on your side when it comes to making offers:

  •       Loan advisor: This is where our City Creek mortgage pros can help. We’ll help you with pre-approval and several other big areas of the home buying journey.
  •       Realtor: Look for a local, experienced realtor who can help make the entire process smoother.
  •       Friends or family: If possible, look to family or close friends who have been through the process recently for some advice. They can help you with both details and overall confidence.

Personal Narratives

Some sellers will have several very similar offers to consider, so setting yourself apart might come down to a bit of a personal touch. A few options here:

  •       Perks: Offer the seller some additional perks if appropriate, such as paying typical seller fees or arranging for your own cleaning instead of asking the seller to do so. They might appreciate this more than you think.
  •       Personal note: Many sellers appreciate a personal note or letter explaining your situation and why you think the home will be a great fit for you and your family.
  •       Flexibility: In general, show sellers you’re flexible and will accommodate any unique needs they have within reason.

For more on how to make your offer stand out, or to learn about any of our mortgage loan services, speak to the pros at City Creek Mortgage today.

At City Creek Mortgage, we regularly give our clients basic information on why it often makes  more sense to own a home than to continue renting. Homeownership comes with several financial perks, even if the up-front price may seem imposing at first, and our loan advisors can help get you the best mortgage loan that will show you major financial benefits as the years go on.

One of the primary plusses here? Tax breaks, which are possible in several areas for homeowners. Let’s look at some of the major deductions you should be prioritizing when it comes to tax season if you own a home.

Interest

The primary tax benefit to think about here is deductions from any interest that you pay on your mortgage throughout the course of the year – often significant amounts. These deductions can include not only primary mortgages, but also second mortgages, home equity loans, lines of credit and even other forms of interest.

Do know that these extensions are limited here – you cannot deduct interest for a third or fourth home. But if you’re married and filing jointly, you can deduct payments up to $1 million dollars per year, or up to $500,000 per year if married and filing separately.

Points

Another form of paying interest for some people is purchasing points, which can also be used for refinancing. Both of these point formats may be tax deductible, though know that points purchased for refinancing purposes can only be deducted over the life of the loan, rather than all at once. You can write off the balance of old points at tax time, then begin to amortize the new points.

Property Taxes

You’ll pay basic city and state property taxes as a homeowner, and these can be deducted in full on your tax return. Your property taxes will show up on your escrow statement annually if you use an escrow account for these payments.

Moving Costs

In certain cases, you’ll be able to deduct moving costs from taxes at the end of the year. This is usually only possible if your move was necessitated by a job change, and you’ll have to meet a few additional requirements as well (regarding the distance from your old job to your new one and similar factors). If you qualify, however, you can deduct things like transportation costs, lodging expenses and storage fees.

Home Improvement Loans

In some situations, you might be taking out a loan to make major home improvements. In these cases, any interest paid on these loans can also be deducted – so long as the work is considered a “capital improvement.” Here’s what qualifies you for this category:

  • Adds to the value or prolongs the useful life of part of the property
  • Becomes part of the property in a way that removal would cause damage
  • Is intended as a permanent installation

For more on the kinds of tax breaks you qualify for as a homeowner, or to learn about any of our mortgage services, speak to the pros at City Creek Mortgage today. 

Within a mortgage or home buying situation, there are a couple types of insurance that may come up. One of these is mortgage insurance, also called private mortgage insurance (PMI).

At City Creek Mortgage, we’re happy to explain the ins and outs of mortgage insurance wherever it applies, from conventional mortgages to FHA loans and many other programs we offer. How does it differ from other insurance types that you might have to think about? How is it paid? Does it benefit you? We’ll answer all those questions here for you.

Difference Between Mortgage and Homeowner’s Insurance

It’s important to differentiate between private mortgage insurance and homeowner’s insurance, which are entirely different things. The former is mostly to safeguard the lender, while the latter is for the benefit and protection of the borrower.

As the name suggests, homeowner’s insurance is for the buyer – to protect their essential belongings and the home itself from burglary, natural disaster and other potential issues. Private mortgage insurance, on the other hand, is a form of insurance paid by the buyer that protects the lender in case of default, typically used in loan situations in exchange for a smaller down payment or allowance of purchase with a lower credit score.

In essence, think of PMI as the balancing factor for you getting a better deal. Your lender is helping you out by allowing a lower down payment or approving you with a lower credit score – in turn, you’re offering them protection by paying private mortgage insurance (until you own enough equity in the home, which we’ll discuss below).

 

Payment Formats for Mortgage Insurance

There are several ways mortgage insurance might be paid, whether to a private mortgage insurance company or to a government agency like the FHA or VA:

  • Monthly: The most common format, monthly PMI payments come with no upfront premium, and are generally lumped in with the overall mortgage payment and paid all at once. They offer plenty of flexibility.
  • Single: Some buyers choose a single PMI payment, which can be either refundable or nonrefundable. This amount will sometimes be financed into the loan amount, but may also be kept separate. This option does involve an upfront premium.
  • Split: Some portion is paid up front, plus a premium, but a lower monthly renewal amount is then also paid.
  • Outside party: In some special circumstances, the lender or a separate third party will pay PMI.

Canceling Mortgage Insurance

As we noted above, PMI is in place to protect the lender against default. But as you pay down more and more of the mortgage, therefore building your equity in the home, the risk of default to the lender goes down – and as such, you can cancel PMI partway into nearly all mortgage situations.

In nearly all cases, you can request a cancellation of PMI once you’ve got the mortgage balance down to 80 percent of the home’s original value. The lender doesn’t necessarily have to approve this request, but once the balance drops to 78 percent instead, it’s an absolute requirement that PMI be cancelled. There are also additional situations where PMI must be cancelled after new appraisals, mostly based on loan-to-value ratios.

For more on private mortgage insurance, or to learn about any of our mortgage loan services, speak to the staff at City Creek Mortgage today. 

 

If you spend enough time speaking to folks about the home market and mortgages, chances are you’ll hear references to various “buying seasons.” We all like to get a great deal, and there are certain factors at various points in a given calendar year that may make these periods more or less attractive depending on your needs.

At City Creek Mortgage, we have a huge variety of great mortgage rates regardless of the time of year. Let’s go over some of the traditional benefits and drawbacks of considering a home purchase during each of the major seasonal areas – spring and summer are generally lumped together, while fall and winter also are grouped as one.

Spring and Summer

Spring and summer are generally considered the “busy” season for the real estate market. More homes are listed and sold during these seasons than during the other half of the year, meaning more options available. Some of the additional benefits of hitting the market during this part of the year include:

  • Higher inventory: As we just noted, more homes available means a greater number of options to choose from. The majority of sellers list their properties in spring, and those that linger on the market a bit longer remain during summer.
  • End-of-summer discounts: Down similar lines, homes that remain on the market all the way through the summer may see a small dip in price by the time you reach August and September, and you might be able to get a good deal.
  • Family considerations: The summer is the ideal time to move for many families – kids aren’t in school and there aren’t as many scheduling items to worry about.
  • Selling old home: If you’re selling an old home and buying a new one, the spring and summer will feature more buyers for the old one.

At the same time, there are some downsides of buying during this season:

  • Competition: More homes available also means more buyers and offers on the table.
  • Pricing: Sellers recognize that this is the busier season, and may price their homes accordingly.
  • Time to consider: Homes will move faster during the spring and summer, so you’ll have less time to sit on decisions.
  • Realtor availability: Realtors will also be busier and less able to devote time to you.

Fall and Winter

Fall and winter, on the flip side, are slower seasons in general for home sales – but they do still take place, of course. Some positives of buying during this period:

  • Deals: Prices are often lower, and more motivated sellers may be more willing to negotiate.
  • Competition: There won’t be as many buyers on the market.
  • Cold weather open houses: Visiting during the cold months gives you a better idea of how the home handles the more stressful season from a maintenance and expense standpoint.

There are also some cons to the fall and winter:

  • Inventory: There are fewer homes available, as many listings are removed by the holiday season if they don’t sell before then.
  • Weather: Both searching for homes and moving may be more difficult in winter weather.
  • Holidays: Both sellers and realtors are busier during the holidays, and may not be as available.

For more on choosing which season to buy a home in, or to learn about any of our mortgage loan services, contact the pros at City Creek Mortgage today.

Improving Home Equity – Tips and Benefits, Part 2

In part one of this two-part blog, we went over some of the basics of what home equity means and how you can begin to build it. Equity is a vital area to understand for anyone purchasing a home with a mortgage, as it can have a big impact on your future finances.

At City Creek Mortgage, we can help you understand how equity works for any of our emortgage loan programs from conventional options to FHA, VA and others. Let’s look at a few other areas where you can raise or otherwise bolster your equity as you pay down your mortgage over the years.

Retaining Equity

As we touched on in part one, a common use of equity for some is what’s called a cash-out refinance – this is where you leverage the equity you’ve built up over time to take a new mortgage where you pay the same amount, but receive a cash payment that represents this equity.

And while this format may indeed be the right route to take in some situations, it has been badly misused by some. During the housing crash of the late 2000s, so many people attempted this form of refinancing that equity began to go the other way, not providing the same benefits. Many would refinance over and over again anytime they built a little equity, which sucked theirs dry long-term. If you choose to keep your equity in your home, it will be retained and can be used in the future.

Making Smart Home Improvements

The name of the game when it comes to home improvements and equity is return on investment, or ROI. You want the kinds of improvements that impact home value at a greater level than the cost they bring – kitchens and bathrooms are the most common areas here, with stainless steel and stones like quartz always popular. If you’re able to take things a step further and install certain upgrades yourself, you can save the cost of hiring contractors and build equity even further.

Rental Options

Another way to build equity is renting part or all of the property to tenants. There are plenty of fair rental situations that benefit everyone, allowing the renter a great place to live while helping you build equity through their monthly rent.

Down Payment Size

One area you can consider at the very beginning of your mortgage if you want to start out on a good foot equity-wise is making a larger down payment. A down payment is absolutely part of your immediate equity gained in the home – the higher it is, the lower your loan-to-value ratio, the lower your interest rates might be, and your equity will both begin higher and rise faster.

Maintenance and Home Presentation

Home equity grows as your home value increases, so keeping your property in great shape is a good idea here. This is particularly important if you’re considering selling soon, though home values can fluctuate based on appearance even during stages where you aren’t actively looking to sell.

For more on how to raise your equity in your home, or to learn about any of our mortgage rates or loan options, speak to the staff at City Creek Mortgage today.