Mortgage 101

One of the most common questions I get is:

How can I refinance my loan without increasing my principal balance?

There are three things that go into establishing a loan amount:

  1. The principal balance on the existing loan – Which will also include any payoff fees they charge as well as interest due on the loan.
  2. The amount of closing costs for the option you choose.
  3. The pre-paid set up, which includes establishing an escrow account for tax and insurance payments as well as interest from the day you close through the end of the month. Mortgage interest is always paid in arrears.

Step 1 – Choose a No-Cost Loan

The first step is to choose an interest rate that has $0 fees which will equate to zero closing costs. This is what we term a “no-cost loan”. This will eliminate option #2 above.

Step 2  – Escrows

The second step is to avoid having to bring cash to close. I suggest adding the new escrow account set up to the new mortgage. Then, when you receive your current escrow refund, you can apply this as a principal reduction on your first payment of your new loan. If you do not currently have an escrow shortage, the amount needed to establish an escrow account should be in line with the amount you have in your current escrow account. This takes away the escrow part stated in c above.

Step 3 – Interest

And lastly, the interest due on the current loan (a), as well as the interest due on the new loan (b), will account for just over one month of interest. Since this is interest that you would pay regardless, it isn’t a fee for doing a new loan. It is just changing where the current payment due on your existing loan is being sent. As a result, you will end up missing one mortgage payment. The solution to not have this one month of interest impact your ending mortgage balance is to make the additional payment that you will be missing as a principal reduction to the first mortgage payment due on your new loan.

In short, by choosing a no-cost loan and applying the escrow refund as well as the missed payment to the first payment on the new loan, you will owe no more on your new loan that you owe on your current loan. In the end, it will not have impacted your expected cash flow, so you will be in the exact position as you are in currently.

A VA loan, or a mortgage backed by the Department of Veteran Affairs, can be an enormously beneficial part of buying a home for a veteran or their family. These loans come with lower interest rates than conventional loans and often no down payment, despite the fact that there’s no mortgage insurance requirement.

At City Creek Mortgage, we’re proud to provide the ability for you to get or refinance a VA mortgage loan. We often get questions from veterans or their families about standard eligibility for these loans – let’s take a look at some of the basics.

Basic Eligibility

You’re entitled to apply for a VA loan if you’re on active duty or have separated from military service under an “other than dishonorable discharge,” per the VA. In addition, some other requirements:

  • Veterans must meet length-of-service requirements
  • Service members on active duty must serve for a minimum period
  • Reservists and National Guard members may be eligible
  • Surviving spouses of deceased veterans may qualify

General Requirements

While the requirements for VA loans are much more relaxed than in a conventional loan, there are still a few important areas to consider:

  • Credit score: The VA doesn’t set a minimum credit score, but it requires lenders to review a full financial profile. Each lender will have a different exact minimum score.
  • Debt-to-income ratio: The VA also doesn’t specify a number here, but if this figure is over 41 percent, the lender will need to provide proof of the borrower’s ability to repay.
  • Lender requirements: Lenders can add overlays, or additional requirements, to VA loan qualifications.
  • Down payment: In most cases, you don’t need to make a down payment for a VA loan. If the purchased price of the home is greater than its appraised value, though, you may have to make up this difference.
  • VA limits: The maximum VA loan limits the value of a home that can be purchased without a down payment. In 2017, this number has been $424.100, though the exact figure varies by county.
  • Property requirements: The VA has strict property requirements, including safety, living conditions and compliance with building codes.
  • Fees: There will be a funding fee for VA loans, even though there’s no mortgage insurance requirement. This amount will range from 1.25 percent to 3.3 percent of the total loan amount. This fee is often simply added to the loan amount, rather than being paid up front.

Certificate of Eligibility

To get a VA loan benefit, you have to get a certificate of eligibility from the VA. There are three ways to do this:

  • Use your eBenefits account
  • Get a VA-approved lender to obtain it for you
  • Complete a request for certificate of eligibility form and mail it to a regional loan center

For more on VA loan eligibility, or to find out about any of our other mortgage services, speak to the experts at City Creek Mortgage today.

The homebuying world is exciting, but it can also be complex and somewhat imposing for first-time homebuyers. At City Creek Mortgage, we’re here to make everything as simple as possible for you as you go through the mortgage loan and home search process.

Unfortunately, a large amount of misinformation spreads across our field easily – there are a lot of amateurs posing as real mortgage experts. Let’s look at a few of the things many first-time homebuyers miss or pass over during their home search process, plus how you can avoid these issues.

Down Payments

Traditionally, it’s been expected that you pay 20 percent of the principal loan amount in a down payment up front. A recent survey showed that over a quarter of all homebuyers think this 20 percent number is a hard, fast requirement – this simply isn’t the case, and getting a home with a much lower down payment is possible in a variety of ways.

There are several loan options with lower down payments, even some that don’t involve a much higher mortgage rate moving forward. If you can get 20 percent down for the home you want, that’s fantastic; if you can’t, there are still options at your disposal.

Real Estate Agents

Many younger homebuyers don’t really understand what’s needed to facilitate buying or selling a property, and they conclude that due to the online resources available to them, they don’t need a real estate agent.

While this might rarely be true, it’s often a detriment to your search. Someone who knows and studies the market is still vital – you don’t just need that information you can find online, you need an expert who knows how to interpret it as well.

Open Houses

Another trend for younger homebuyers is a feeling that an open house isn’t needed. This may be a trend highly impacted by digital tour services now available online, but nothing can replace getting the true feel of the home by seeing it in person.

For more on avoiding common first-time mistakes when searching for a home, or to find out more about any of our mortgage services, speak to the pros at City Creek Mortgage today.

First-Time Homebuying Misconceptions

 

The homebuying world is exciting, but it can also be complex and somewhat imposing for first-time homebuyers. At City Creek Mortgage, we’re here to make everything as simple as possible for you as you go through the mortgage loan and home search process.

Unfortunately, a large amount of misinformation spreads across our field easily – there are a lot of amateurs posing as real mortgage experts. Let’s look at a few of the things many first-time homebuyers miss or pass over during their home search process, plus how you can avoid these issues.

Down Payments

Traditionally, it’s been expected that you pay 20 percent of the principal loan amount in a down payment up front. A recent survey showed that over a quarter of all homebuyers think this 20 percent number is a hard, fast requirement – this simply isn’t the case, and getting a home with a much lower down payment is possible in a variety of ways.

There are several loan options with lower down payments, even some that don’t involve a much higher mortgage rate moving forward. If you can get 20 percent down for the home you want, that’s fantastic; if you can’t, there are still options at your disposal.

Real Estate Agents

Many younger homebuyers don’t really understand what’s needed to facilitate buying or selling a property, and they conclude that due to the online resources available to them, they don’t need a real estate agent.

While this might rarely be true, it’s often a detriment to your search. Someone who knows and studies the market is still vital – you don’t just need that information you can find online, you need an expert who knows how to interpret it as well.

Open Houses

Another trend for younger homebuyers is a feeling that an open house isn’t needed. This may be a trend highly impacted by digital tour services now available online, but nothing can replace getting the true feel of the home by seeing it in person.

For more on avoiding common first-time mistakes when searching for a home, or to find out more about any of our mortgage services, speak to the pros at City Creek Mortgage today.

If you’re looking to buy a home but have less than perfect credit or lack the cash for a down payment, an FHA loan might be a perfect choice for you. Backed by the Federal Housing Administration, an FHA loan is a type of mortgage loan that allows for purchases with low down payments and closing costs.

At City Creek Mortgage, we’re proud to provide FHA loans in both fixed rate and adjustable rate formats. These loans are among the easiest loans to qualify for, but they do have a few important requirements that buyers and the new home must pass. Let’s look at these.

Basics

Some basics on the FHA loan:

  • Buyers can purchase a home with a down payment as low as 3.5 percent of the home’s value.
  • Pre-payment penalties do not apply.
  • Interest rates are around 4 percent on average.
  • Buyers need a FICO credit score of 580 or better to qualify.

 

Requirements

Some important credit and financial requirements for FHA loans include:

  • You’ll have to provide a Social Security number or proof of lawful residency, along with steady income over the last two years.
  • Your front-end ratio (cost of the mortgage payment plus mortgage insurance, taxes and other fees) should be less than 31 percent of your gross income, but it can be up to 40 percent in some cases.
  • Your back-end ratio (mortgage costs in addition to spending on other debt from credit cards, student loans, etc.) cannot exceed 43 percent in most cases, or 50 percent in others.
  • If your FICO score is between 500 and 580, you can still get an FHA loan if you make a 10 percent down payment or larger.

In addition, the FHA imposes limits on the kinds of houses that you can get on an FHA loan:

  • The borrower must live in the property as their primary residence.
  • There may be limits on loan value, depending on your area – usually 115 percent of the county’s medium home price.
  • The property must be appraised by an approved appraiser in most cases.

 

Mortgage Insurance

In most cases when a borrower can’t put 20 percent down on the house, a conventional loan will require private mortgage insurance that will drive up the monthly payments. With FHA loans, mortgage insurance will come in two forms:

  • Upfront mortgage insurance may be paid as a lump sum or rolled into monthly costs, but will be 1.75 percent of the loan value.
  • Annual insurance premiums will be added to monthly payments. These will vary, and can range between 0.45 percent to 1.05 percent of the loan value.

For more on FHA loan requirements, or to find out about any of our other mortgage loan services, speak to the pros at City Creek Mortgage today.

Real estate agents have a responsibility to do what is best for their clients. However, this doesn’t always happen. Getting a mortgage is a significant decision for a homebuyer. In many cases, the real estate agent will pressure clients to use their preferred lender. Unfortunately, a referral is often made to a lender that is financially or professionally supporting the real estate agent, rather than because it is the most cost-effective solution for the homebuyer.

The Truth Behind Mortgage Rates
One of the reasons other lenders have higher rates than we do is due to the level of compensation the loan officer is making. If a loan officer wants to make more money,
they simply sell their clients a higher interest rate. When this happens, the client pays more than they need to. Clearly, a real estate agent who wants the best for their clients would not want to add this additional financial burden to people they care about.

For example, a client recently called into City Creek Mortgage to compare the loan offer they received from their real estate agent’s preferred lender. The client was looking to borrow $350,000. When I shared with the client that there was enough income in the rate they were being quoted to purchase a brand-new Toyota Corolla, they were upset. Generally, we can save most clients between 20-50%. In this case, it was much more.

Lenders Who Serve The Agents
Most mortgage lenders market their services to real estate agents under the premise that they will help them grow their businesses. A business model that is designed to provide the benefit to the real estate agent generally comes as a cost to the homebuyer. For example, there are some mortgage companies that have several offices in a community just to provide the convenience to their real estate partners. Clearly, the agent’s convenience provides no value to the homebuyer. However, the homebuyer is the one paying the price each month in the form of a higher mortgage payment.

A Consumer-Focused Model
I believe the right business model for a mortgage company is designed with the homebuyers’ best interests in mind. At City Creek Mortgage our promises and guarantees are to our clients, not to real estate agents. We are a low-cost provider that is designed to keep more money in the pockets of hard working Utah families. For 20 years, this has kept our clients coming back and referring their family and friends to us for their mortgage needs.

If you need help evaluating the price offering of another lender, we can help you. We can estimate the amount of commission income priced into the loan and compare that
to what is priced into a loan offering with City Creek Mortgage. We do what is best for the homebuyer, with the long-term goal of squeezing out the margins in a mortgage industry and eliminate the over-compensated loan officer. As a result, we are the most feared second option by our competitors.

Help us get the word out. When you hear that your family and friends need a mortgage, have them call us. By simply having salaried loan officers and a commitment to make less off each loan, we save people a lot of money. We are Utah’s best mortgage choice and appreciate your continued support.

Some people assume that they cannot take out a mortgage or own a home if they have major debt on their books, but this simply isn’t true. While there are limits to how much debt you can carry while getting a mortgage, and while your debt may affect your mortgage rate and certain other factors, there are absolutely allowances that allow you to purchase a home while still diligently managing other debt.

At City Creek Mortgage, we’re a mortgage company that’s here to help. Let’s look at how lenders calculate your debt in this kind of situation, and what sort of debt levels might affect the kinds of loans you can apply for.  

Types of Debt

When measuring debt levels, mortgage lenders view debt specifically in relation to your total income. In short, this is referred to as “debt-to-income” ratio, or DTI. There are actually two forms of DTI that are relevant for mortgages:

  • Front-end ratio: Only looks at income compared to housing-related costs such as mortgage payments.
  • Back-end ratio: Considers all monthly debs, including housing-related costs but also including others like credit cards, car payments, and more. This is generally the more meaningful ratio.

DTI Ratio Allowances

In most conventional loan situations, you can have somewhere between a 43 percent and a 50 percent DTI ratio. This means you can spend just under half your monthly income to cover various debts after taking on the new loan.

This remains true for the FHA loan program, though this program also has “compensation factors” that allow someone to have a DTI ratio well above 43 percent – things like great credit scores or a minimal increase in borrower housing costs might count here. In addition, Fannie Mae and Freddie Mac – two government-sponsored agencies that buy loans from lenders to help keep the market robust, both allow limits up to 50 percent in most cases.

Additional Factors

In addition, things like credit score and ability to repay are important factors in how much debt you can carry. Debt is also just one factor in whether you can get approved for a mortgage – there are several others.

To learn more about these additional factors, or for any of our mortgage services, contact the pros at City Creek Mortgage today.

 

When it comes to a new mortgage loan, the down payment amount is often the largest financial concern for many buyers. This lump sum, paid up front as a percentage of the principal loan amount, can be a struggle for many buyers to come up with all at once.

At City Creek Mortgage, we’re here to help. Did you know that most common loan types allow you to receive a gift from a parent or family member that can be put toward your down payment, all without raising your mortgage rate? Let’s go over the steps to making this happen.

Talk to Lender

Firstly, speak to a mortgage officer about the programs that allow down payment gifts, which include conventional programs and FHA loans. There may be a few minor differences when it comes to sources of funds, how long the money needs to be in your account, and other details. Just have a basic conversation to ensure you’re on the right track.

Gift and Gift Letter

Once you’re sure you’re on track, your parent or other family member provides the gift money. It’s best to deposit this into your bank account as soon as possible – mortgage underwriters want to see copies of bank statements that show the funds, so the sooner the better. Deposit verification requirements will vary between lenders, and between types of loans.

At the same time, the person providing you with the gift must also send along a letter that specifically confirms the status of this money as a gift. They must state that they expect no repayment on this money – the deal can’t happen otherwise.

Underwriter Verification

From here, a third-party underwriter who is involved to check on various financial aspects of the transaction will verify your down payment funds. They’ll look at bank statements for how much money you have in the bank and how long it’s been there. Generally, as long as the funds have been in your account for at least a month, you’ll be fine.

Deal Closes

Once your funds have been verified by an underwriter, the rest of the deal proceeds as it normally would. You’ll get the home appraised, the underwriter will finish his or her full review, and you’ll move to closing on the loan.

For more on down payment gifts, or to learn about any of our mortgage services, speak to the pros at City Creek Mortgage today.

 

For many people, especially first time homebuyers, the process of obtaining a mortgage loan may seem daunting. While the process is actually simpler than you might think, it’s common for the raw scope of it all to be a bit intimidating.

At City Creek Mortgage, we’re here to help. Here are each of the basic steps of the mortgage process, from pre-approval to closing day.

Pre-Approval

Pre-approval is basically a financial screening – it happens before you technically apply for any loan. It’s a process whereby a lender reviews your financial situation to give you a basic idea of how well you’ll qualify for certain loans and loan thresholds. They might tell you what sort of mortgage rate you’re likely to be approved for. This step can help you narrow your home search and make sure you’re in good financial shape.

Purchase Agreement

Once you’ve been pre-approved for a given amount, you can begin shopping around for homes within that price range. Once you’ve found a home you want to buy and signed a purchase agreement, you can move to the loan application stage.

Loan Application

This is when you’ve made an offer on a home that’s been accepted, and you have your pre-approval for a loan in hand. From here, you fill out a basic form (Fannie Mae form 1003), which asks for basic information on the property, the loan type, and your personal details.

Mortgage Processing

Once you’ve filled out your application, loan processors will collect a number of documents that relate to both your finances and the property you’re buying. They’ll review these documents to ensure you’re ready for underwriting, and may order credit reports, verify income, or order a home appraisal to determine exact property value.

Underwriting

This is the stage where an independent third party, known as an underwriter, will come in and examine all loan documentation. This is to ensure everything is compliant with lending requirements and guidelines – the underwriter has the authority to reject the loan if either the borrower or lender doesn’t meet various requirements. In some cases, the underwriter will give the borrower or lender a list of conditions that needs to be resolved before the loan can be completed – this is called a conditional approval.

Closing

Finally, you’ll be at the loan approval and closing stage if the underwriter is satisfied with both parties. Closing involves sending all relevant documents to the title company handling the process – it varies by state, but it’s mostly paperwork-oriented.

For more on the basic mortgage process, or to learn about any of our mortgage services, speak to the pros at City Creek Mortgage today.

 

At City Creek Mortgage, it’s our mission to get you the best mortgage rate as you search for your home. Especially for first-time buyers looking to become homeowners, this is a vital consideration.

Why should you want to become a homeowner? There are numerous benefits, from the independence and space you’ll find to the kinds of areas you might be able to live in. But perhaps the biggest benefit, and one many folks often overlook or become confused on, is the financial side – two recent studies helped illustrate the net worth and ROI gap between homeowners and renters. Let’s look at the results, and what they might mean for you.

The Stats

As of December 2013, the US Census Bureau reports the median net worth of homeowners at $199,557. This is in comparison to the net worth of renting households, which is just $2,208 on average, or nearly 100 times less. In addition, the recovery of the economy during the years in between makes it likely that the gap is even larger today.

Another study from the Federal Reserve effectively confirmed these findings, noting that the gap in homeowner and renter net wealth rose from a difference of $182,000 to over $220,000 during the period between 2010 and 2013.

How to Interpret Them

It’s important to remember that in many situations, this disparity was due to more than just a housing situation. Many homeowners are in that situation because they’re more well-off to begin with, allowing them to invest in a home.

However, this is something of a self-fulfilling prophecy in some ways. Homeowners enter into debt just like renters, but they do so in an investment – renters do not. Since home prices continue to rise faster than interest on a basic home loan, homeowners are building equity over time and can often make a significant profit on the back end. This is without even considering all the tax advantages that come into play, none of which are available to renters.

To learn more about why you should favor homeownership over renting if you have the choice, or to learn about any of our other mortgage loan services, speak to the pros at City Creek Mortgage today.