City Creek Mortgage News

Buying a home is often a long process and this is certainly true when you might have delays relating to applying for a home loan. While you might want “as much home as possible”, it’s important to remember that your credit score is there for a reason. In other words, it always serves better to be realistic with your budget and you shouldn’t want a home loan that you simply cannot afford.

In this article, we try to keep things realistic and help you get to the bottom of how much home you can really afford, while keeping an eye on the monthly payments:

 

How Much Home You Can Afford at a Glance

As a rule, you can calculate how much home you can afford by using the 36% calculation. This rule essentially means that your total monthly debt and projected payments, taxes etc should never exceed 28% of your gross or pretax income.

This monthly debt should include all expenses including credit card debt, student loans or car notes. It also makes sense to keep this percentage in mind, for you want to be able to afford whatever mortgage payments are coming your way.

Another way to approach your budget is to ensure that you have three months of total costs and debts in reserve. In this sense, if anything goes wrong during the loan, you will always have a fund on which you can fall back on in times of emergency.

 

How Lenders Will Determine Your Monthly Line of Credit 

Mortgage lenders have a series of ratios which they use to determine your eligibility for a home loan. Each lender has a different set of ratios, but they are mostly within the same range. If your monthly mortgage payment does not exceed 28% of your monthly gross income, they can quickly determine how much home you can afford as follows:

  If you have an annual salary of $100,000, the mortgage payment should not exceed $2,333. This is 28% of the combined monthly income. 

Another way to calculate this figure is to ensure the total housing payments including insurance, taxes and mortgage payments is not above 32% of the total gross income. And finally, lenders will sometimes use the “rule of 40” which increases this figure to 40% which makes it much harder to acquire a large line of credit for your home loan. It also means that if you have an existing loan or lots of debt, you won’t be able to afford as much for your monthly mortgage payments.

  

Final Thoughts

 It’s true, buying a home is often delayed by the home loan process and this is certainly true when the borrower has a poor credit score. In terms of how to improve your chances of affording more home, the only way is to reduce debt and increase income. In fact, many lenders will often refuse to lend any amount of credit for a home loan until the borrower has eliminated all of their existing debt. To learn more about how much home you can afford, contact a salary-based loan officer at City Creek Mortgage today.

What Role Does a Prequalification Letter Play When Buying a New Home?

While some might wonder how important a prequalification letter is, sellers’ ask for this letter by mistake. It’s true, a prequalification letter is not concrete approval but it at least lets the seller know that a lender is willing to loan a certain amount to the respective borrower.

But what else should you know about a prequalification letter? 

 

What is a Prequalification Letter? 

 

A prequalification letter is a document that confirms a lender is willing to lend you up to a certain amount. This is a tentative offer based on certain stipulations and not a guaranteed offer which is why some might say the document “doesn’t really mean anything”! 

However, this document is certainly the closest thing you will ever get to concrete approval. What’s more, a lender will carry out an investigation before issuing this letter which at least suggests there should be no major obstacles once other areas of a sale have been sorted.

With this in mind, a prequalification letter is always taken into account at the very least

The Role of a Prequalification Letter When Buying a New Home 

 

If for nothing else, a prequalification letter is a document that shows the realtor or seller that you are serious about buying the home. It includes such information as the loan type or program, the loan amount and purchase price, and the expiry of the pre-approval letter. 

While this prequalification letter is not guaranteed, it’s the best peace of mind for sellers and something that will certainly ensure your bid is taken seriously. It’s also a great sign of confidence from your lender and an indication that your probability of receiving a loan for the stated amount is very high. 

Receiving a Prequalification Letter from Your Lender 

 

It’s worth asking your lender questions about the process and anything along the way that they think might hinder your chances of official approval. At the same time, you can only apply and leave this decision in the hands of your lender. During this time, a lender will check your credit score and basic circumstances, and then issue a prequalification letter for 30 or 60 days. That is to say, this letter has an expiry date and every letter has a different time frame.

As part of the application process, you will also need to provide a set list of documents. You can ask your lender ahead of time for this list in order to save time on waiting for approval.

Final Thoughts

 

Buying a home is a process that consists of much uncertainty but a prequalification letter can remove many questions from the mind of a realtor or seller. Similarly, this is one less thing for you to worry about and when it comes to the application, you should find this letter will not only expedite the process but also improve your chances of buying the actual home. To learn more about prequalification letters or to obtain one, contact a salary-based loan officer at City Creek Mortgage today.

Saving for a down payment is always a good idea but not always an option for home buyers that want to get on the property ladder sooner rather than later. It’s also challenging to save at a time when the cost of living is so high and rent seems like a rather pointless expense when you might be ready and able to buy your own home. 

But how can you purchase a home with no money down?

Zero-money down mortgages were made available in the wake of the subprime crisis for low income households and people with lower credit scores. Let’s take a look at the two programs you might consider for a home purchase with no money down payment.

Zero-Money-Down Mortgages (Government Backed Loan)

Zero-down mortgages are government backed loans from commercial lenders. Select individuals can apply for these loans with a sufficient income and credit rating, not to mention documentation to support the application. Just so you know, the federal government commits to covering the cost of any repayments should the buyer stop paying back the mortgage. 

While this option is not readily available like it was during the financial crisis, this option allows lenders to assist borrowers that might have a somewhat riskier finance or credit profile. More importantly, these loans can sometimes allow applicants with a high credit score (620+) to purchase a home with no money down payment. Needless to say, not everyone has such an impressive credit score and this is precisely where VA and USDA loans come into play…

 

Home Purchase with VA Loans and USDA Loans 

 

VA Loans (Veteran Affairs Loans )

VA loans are available to military veterans and families and this insurance program usually covers up to $420,000. Mortgage insurance can be wrapped into the loan and no down payment is required. In order to qualify for a VA loan, proof of military service is required and a debt-to-income ratio of 41% is standard. However, qualifications of a VA loan change from one lender to the next. 

USDA Loans (US Department of Agriculture)

People in specific regions of the United States may be eligible to apply for a USDA loan. These loans are mostly intended for designated remote areas but some residents living close to small towns might still be eligible for the program. As part of the application process, you must also fall within certain thresholds as the loans are designed for low-income households. You must also have a credit score in excess of 600 points but no down payment is required for this option. 

Should You Purchase a Home with No Money Down? 

Home purchase with no money down payment will mean higher interest rates and the fact that you do not own any of the home outright. However, saving for a down payment is a major hurdle and one that can take years to achieve. With this in mind, a home purchase with no money down is never easy but the above options provide a starting point for buyers that want to get started, regardless of their financial circumstances. 

To learn more about no-money down loans, call City Creek Mortgage and speak with one of our salary-based loan officers.

The Federal Housing Finance Agency announced an additional fee for refinances on Wednesday August 12th. The new fee applies to refinances and is 0.5% of the loan amount. Fannie Mae and Freddie Mac have also announced they will implement this new fee.

Unfortunately, this is something we have no control over.

That means an additional $500 for every $100,000 borrowed.

Loan Amount Additional Fee*
$200,000 $1,000
$300,000 $1,500
$400,000 $2,000

*This fee may be reflected in higher rates, or higher fees, or some combination.

Lenders could potentially ease some of the burden on homeowners hoping to refinance, but what will happen is yet to be seen.

Sources: Bloomberg, CNBC

Choosing a home lender can be an intimidating process, especially for first-time buyers. However, the same hallmarks can be found with the most reliable lenders and basic research such as comparing rates is the key to finding the best possible home lender.

 

At the same time, you need to pick out a lender that can provide you with a loan to match your criteria. After all, you will be paying back this loan for many years to come and the last thing you want is a loan which is not designed to meet your future needs.

 

In this article, we consider what you should know about choosing the best home lender for you. 

 

What You Should Know Before Choosing a Home Lender 

The truth is, not all mortgage products or home lenders are created equal. Some lenders will have stricter guidelines than others, and some institutions require as little as 3% of the purchase price in terms of the down payment. What’s more, some lenders insist on an immaculate credit score, while others focus on borrowers that might not have the most impressive credit profile.

 

As for the types of mortgages, you will find six main types of mortgage with USDA loans and VA loans being the most common alternative to a conventional mortgage. Just so you know, USDA and VA loans refer to zero-down payment loans which the federal government guarantees for individuals that meet a very specific eligibility criteria. When it comes to conventional loans, most home buyers choose between an adjustable rate mortgage (ARM) and a fixed-rate mortgage.

 

Adjustable mortgages have a fixed rate at the beginning but this rate will fluctuate according to market conditions after a specified number of years. ARMs are considered riskier in this regard as some buyers may not be able to keep up with the payments when this happens. However, ARMs have a lower rate of interest in the first few years which means they are often more suitable for buyers that wish to refinance before the initial loan has reset. Meanwhile, fixed rate mortgages have a set time frame and monthly payment. While the monthly payments are higher, the loan can be paid-off much faster.

 

Either way, before you proceed with a home lender, it’s important to crunch the numbers and know the best type of mortgage to suit your circumstances.

 

5 Quick Steps to Choosing a Home Lender

You will find many institutions operating in the home lending industry but not every organization will be able to help you. For instance, Mutual Savings Banks are “thrift” institutions that focus on assisting individuals in the local community and Correspondent leaders are loan companies which rely on bigger lenders. Meanwhile, mortgage bankers package loans for specific financial companies and credit unions can also help members with sizable loans and competitive interest rates.

 

Here’s a quick guide to picking a home lender that will suit your needs:

 

  1. Know the Score – Check your credit score before you do anything. It’s important to know where you stand before approaching a home lender for advice or assistance.

 

  1. Check Registration – Check the license registry to ensure each lender is fully registered in your state.

 

  1. Compare Rates – Request quotations from as many mortgage lenders as possible and compare rates at the very least. Remember that finding the cheapest lender is not the aim but price certainly matters. Use this research as leverage to acquire a better price.

 

  1. Consult Friends/Family – It’s not a guarantee but testimonials are often helpful for finding a decent home lender. As friends and family, and check online reviews for first hand feedback.

 

  1. Ask the Right Questions – Ask as many questions as you possibly can. What is the turnaround time for approval? What commission, points or lender fees will you need to pay upon closing? Can these fees be rolled into your mortgage? What is the requirement for down payment?

 

As you can see, finding a suitable home lender is all about research. It’s best to start this process long before you even think about making any offers on a home and this will also help with speeding up the actual buying process. After that, comparing rates is the first step toward choosing the best institution and product, and taking your first steps toward owning your very own home.

To learn more about mortgage rates, call City Creek Mortgage and speak with one of our salary-based loan officers.

If you worry that rates might rise between the closing date and time of application, you might be thinking about locking the interest rate on your home loan. It’s important to pay close attention to this rate because even the smallest rise in percentage can result in thousands of dollars in interest.

That is to say, you can potentially pay less by locking your interest rate on your home loan. In fact, if you get the timing right, this interest lock might save you many thousands of dollars at the very least!

But what is a rate lock exactly?

Understanding the Rate Lock on Your Home Loan 

A rate lock refers to an option in which you can freeze the interest rate on your home loan. Your lender will essentially guarantee this rate until the end of a specific period. With a lock in place, this simply means that you also don’t need to worry about any fluctuation in the interest rate of your loan.

Interest rate locks last for up to three months or more but this is entirely dependent on your lenders conditions. It might also be free but then some lenders change a fee for this rate lock and further fees for longer periods.

Now, let’s consider the best time to lock the interest rate.

The Best Time to Lock the Interest Rate on your Home Loan 

You will almost always need to wait until the loan period is finished to request a rate lock on your home loan. For this reason, many homeowners have no option but to wait but then there’s also the risk of locking an interest rate too early. That is to say, if you request a rate lock too soon, you might miss out on an even better rate lock a short time later. At the same time, if you wait too long, you might also miss out on a more favorable rate lock in the near term.

A rate lock is usually more expensive when the period of time is longer. For example, a 60-day rate lock is more expensive than a 30-day rate lock, while a 120 day rate lock is even higher. With this in mind, it’s always a good idea to ask your lender for clarification about the rules and stipulations for a rate lock.

According to many experts, provided you are okay financially, it’s usually best to lock this rate as soon as possible. It’s a reasonably fast process but the idea for locking the rate quickly is that this is historically the best option.

Final Thoughts

Every circumstance is different but a rate lock can end up saving you thousands of dollars on your home loan. It’s also a very quick process and one that many experts insist should happen as soon as possible. At the same time, it’s best to ask your lender for clarification around the rules and when it comes to timing a rate lock, there’s really no viable way to enact perfect timing. To learn more about locking your interest rate and the pros and cons to waiting, contact a salary-based loan officer at City Creek Mortgage today.

 

Your credit score is an influential factor when it comes to taking out a loan. If you have a high credit score, you are more likely to qualify but a low credit score can leave you high and dry in a time of need.

In this article, we take a look at what you might do to improve your credit score:

 

5 Things You Can Do To Improve Your Credit Score

As you know, a credit score is a number rating that depicts your “worthiness” of gaining a line of credit. Lenders will take these numbers into account when making a decision and the following are just a few ways to improve this score before a lender sees it.

 

1.Pay Your Bills on Time (Every-Time)

Most people manage to pay their bills on time and this is an excellent habit from the perspective of a lender. Just so you know, a lender views this consistency as an insight to future performance and late payments are a red flag that damage your credit score.

For this reason, try to make a concerted effort to pay your bills on time in the future. Whether this refers to loan repayments, telephone bills or utilities; each of these repayments can contribute to your credit score and ability to gain credit in the future.

 

2.Pull Credit Reports to Identify Any Weaknesses

It might seem like a scary prospect but you simply cannot fix what you do not know about. In other words, if you pull your credit report from TranUnion, Experian or Equifax, you can at least identify what you need to improve in terms of your credit score.

In case you might not know, this report can be pulled once a year and outlines any issues relating to your crest cards, bill payments or even loan enquiries.

 

 3. Pay Off Any Debt and Reduce Credit Card Balances

Credit utilization is something most folk do not know about. As a rule, this number is the combined balance of your credit card balances which is then divided by your credit limit. Simple enough, right? You can find this number using your credit card statements but either way, it’s essential to keep this ratio below 30% at all times. You can pay off debt and reduce your credit card balance to ensure this ratio is kept below 30%.

 

4. Stop Asking for Loans and Credit

Hard enquiries for loans or credit is also taken into account by your lender. That is to say, checking your credit balance is fine but making an application for a loan will be taken into account when looking for credit elsewhere. Needless to say, any rejection in this regard will be viewed as a negative sign and reason to refuse your request.

 

5. Keep Old Accounts Open (Delinquent Accounts)

Believe it or not, you can improve your credit rating by keeping old accounts open. You see, having more than one or two accounts will be used during the credit utilization calculation and hence, reduce the ratio. Either way, you have nothing to lose and there is no downside or penalty to having delinquent accounts to your name.

 

Final Thoughts

It can take many years to rebuild your credit score but the above steps are sure ways of improving this score over time. In terms of specific time-frames, this means you can potentially improve your credit score within just a matter of weeks and months. At the same time, there is no quick fix for a credit score and the best way to build an impressive score is to deploy efficient payments, positive cash flow and good habits. To learn more about your credit score and the role it plays in qualifying for a home loan, contact a salary-based loan officer at City Creek Mortgage today.

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.