Top 8 Mistakes to Avoid When Getting a Mortgage

It’s not every day that you apply for a mortgage, which usually means you won’t accrue a ton of know-how about it. In this article, we will cover some significant don’ts if you ever plan on getting a mortgage to avoid doing them yourself.

1. Neglecting your debt-to-income ratio (DTI)

Being aware of your debt-to-income ratio will let you know how favorable you are in the eyes of lenders. The DTI ratio is a calculation that puts your monthly debt payments to your gross monthly income.

Lenders and various financial institutions use that information to indicate your ability to manage additional debt. That’s why you must know your DTI if you plan on getting a mortgage.

Lenders use this ratio when determining whether you qualify for a mortgage and the terms they are willing to offer you. If you have too much debt compared to your income, it lets lenders know that you have excessive debt, raising concerns about your ability to make timely mortgage payments.

If you don’t know your DTI or know it’s too high, you are at increased risk of lenders denying a mortgage altogether. In a minor scenario, lenders could offer less favorable terms, such as higher interest rates or more significant down payment requirements.

Overall, a poor DTI can impact the affordability of the home you desire and put unnecessary strain on your financial situation.

To avoid this mistake, it is essential to calculate and monitor your DTI ratio before applying for a mortgage. By keeping this ratio within acceptable limits - typically below 36% for most lenders - you demonstrate responsible financial management and increase the likelihood of securing a suitable loan with favorable terms.

2. Plundering your savings

One significant mistake to steer clear of is plundering your savings.

Some people make the mistake of computing exactly how much they need for a down payment on the house as precisely as possible. Thinking that they’ve covered all their bases enough for this, they get tempted to start using their “excess” savings for other expenses. However, this mistake can cost you a good deal on your mortgage.

Using up your savings can leave you financially vulnerable and unprepared for unexpected expenses arising during the mortgage process or once you become a homeowner. You should maintain a financial cushion of savings instead for financial emergencies, regardless if you no longer need them for the down payment.

Additionally, lenders would look at your financial reserves to see your eligibility for a mortgage and whether you can deal with financial setbacks.

Instead of plundering your savings, creating a budget and exploring alternative options for covering expenses related to getting a mortgage is advisable.

3. Not getting pre-approved 

Before you ever consider diving deep into getting a mortgage, it’s in your best interest to go through a pre-approval process from the lender of your choice first.

Not getting pre-approved means you won’t understand your financial standing and how much you can afford. Pre-approval provides a clear picture of your borrowing capacity, allowing you to set realistic expectations when searching for your dream home. The lender would show you the loans they provide that you are more likely to get approval from.

Also, sellers often prioritize buyers who have already secured pre-approval, as it demonstrates their seriousness and ability to secure financing. Without this advantage, you may be waiting for approval longer than you wanted in the purchasing process.

This proactive approach enables you to address any concerns promptly and increases the likelihood of smooth loan approval. Ideally, it would help if you were doing this earlier than when you planned to get the mortgage so that you can prepare for the pre-approval results.

4. Not improving your credit score

If you’re planning on getting a mortgage, then it’s time to take a good hard look at your credit score. That’s one of the first things lenders will look at, after all, so ignoring it isn’t do you any favors.

When you improve your credit score before you consider getting a mortgage, then once you do get a mortgage, your interest rates can be lower. Therefore, this step can save you thousands of dollars on expenditures and monthly payments.

5. Not consulting a mortgage broker

Some people find dealing with finances and mortgages too complicated. Some people, on the other hand, can underestimate the complexity of getting a mortgage and all the paperwork and back and forth with lenders that it’s going to take. In both of these cases, the help of a trusted mortgage broker can help with many of the issues they’re facing.

Consulting with the best mortgage brokers in Tauranga for your needs can help you get the best mortgage rates if you feel like you’re not knowledgeable enough about this to handle yourself.

If you don’t have a mortgage broker acting on your behalf, you might miss opportunities that would only open up because they have an established network with lenders. For example, they can hook you up with better interest rates, terms, and loan options which equals massive savings over the life of your mortgage.

Furthermore, if you don’t know much about finances and mortgages, it can be overwhelming to try and understand the intricacies involved while managing other aspects of your life.

With a mortgage broker, they can uncomplicate your understanding of the different types of mortgages available, guide you through the tedious application process, and negotiate on your behalf with lenders.

6. Taking on new debts

Another apparent mistake you shouldn’t make when getting a mortgage is to take on a different kind of debt while you’re still closing.

As mentioned earlier, fixing your credit score can help you when applying for a mortgage. Well, do you know what negatively affects your credit score? Debt. Therefore, avoid taking in new ones, like buying a car or applying for new credit, when you’re applying for a mortgage.

7. Missing or paying your mortgage late

You’d think that after getting that mortgage approval that your mortgage is safe. Not so.

If you miss the mortgage payment dates consistently, the lender might end up recanting their offer in the first place. You’ll then have a more challenging time getting another lender to give you a mortgage at a lower rate or the same rate as your first one. Therefore, make sure to track your payment deadlines to avoid missing them.

8. Skipping the home inspection

Another step before getting a mortgage for the house you want to buy is skipping the home inspection on the place you want to get.

The inspection might unearth issues you don’t want to deal with and have failed to account for that you’ll have to manage in the future. That’s why before applying for a mortgage, ensure that the home in question has been through a home inspection first.

Conclusion

These mistakes are avoidable once you know them. It’s all about managing your finances wisely and in a way that makes you look good in the eyes of lenders. Therefore, make sure that you keep these in mind so that you don’t end up fumbling your mortgage application process.

How Can Retirees Make The Most Of Home Equity

Retirement is an exciting and rewarding time to relax and enjoy the fruits of your labor after decades of hard work. If you’re retired or you’re about to retire, you may be wondering what’s next. If you’re thinking about how you can make the most of your assets, you’ve come to the right place. Let’s take a look at how retirees can make the most of home equity. 

What is Home Equity?

Home equity is the difference between the current appraised value of your home and the outstanding balance of your mortgage. To put it simply, home equity is the amount of ownership you actually have in your home. For example, if you owe $200,000 to your lending institution for your mortgage loan and your home is worth $250,000, you have $50,000 equity in your home. 

Can equity increase or decrease? Yes, your home equity can both increase and decrease, depending on different circumstances. With each mortgage payment, you make your equity rise. Mortgage payments increase equity by decreasing the amount owed on your mortgage and increasing the true amount of homeownership. 

Equity can decrease if your home value drops at a faster rate than you’re making your mortgage principal payments. Home value can decrease for the following reasons:

• Natural disasters

• Consistent foreclosures in your neighborhood

• Lack of community maintenance and upkeep

• Lack of amenities, etc.

Now that we’ve taken a look at what home equity is and how it works, let’s take a look at how you can make the most of home equity. 

Cash-Out Refinancing

Cash-out refinancing is replacing your existing mortgage with a new one that reflects the current appraised value of your home. With this method, you’re able to cash-out with your equity difference. The exact amount you’re able to get depends on your specific agreement with your lending institution. With the cash you receive you can pay off credit card debts, improve your home, or meet other financial needs that you may have.

Sell Your Home

Retirement is a perfect time to sell your home. More often than not, your need for a daily commute will be eliminated, as well as, your need for living close to business establishments. Get away from the hustle and bustle and consider selling your home. 

When you sell your home, you can downsize with cash on hand from the sale. With the additional cash from your sale, you can invest in rental properties or other businesses that will guarantee a sure monthly income with minimal effort. You may also want to consider moving to a cheaper retirement-friendly neighborhood. Neighborhoods like these are perfect for hosting intimate birthday parties and gifting sentimental gifts to your loved ones.

Selling the home you’ve lived in for many years may seem scary. But remember, making a house a home is simple. All you need is love and a few personal touches. Make your new retirement home extra cozy with furniture for your grandkids or framed birthday cards. Items like these will ensure that your new home feels just right.

Home Equity Borrowing

A home equity loan is a second mortgage that gives you access to a lump sum payment. With your lump sum payment you can:

• Remodel your home to make it retirement-friendly. This is a perfect option if selling your current home is non-negotiable for you

• Finally have the kitchen, bathroom, or living space of your dreams

• Make your backyard an ideal hang out spot for yourself, your grandkids, or friends to enjoy time outdoors

• Make your home a loving oasis of beautiful memories of the people closest to your heart

Reverse Mortgage

Typically, homeowners age 62 and above and are eligible to take out a reverse mortgage. When you take out a reverse mortgage, you’re borrowing against the value of your home. Depending on your agreement with your lending institution, you will receive one lump sum payment or monthly payments over an extended period of time. Reverse mortgages tend to be more complex and are not the right fit for everyone. However, they are still an option nonetheless. 

Conclusion

After spending a long time contributing to the workforce, your retirement period should be as stress-free as possible. Before deciding which method of home equity cashing out you’d like to pursue, you should always:

• Research extensively - Make sure you fully understand all of the pros and cons of a potential agreement before signing off on it. Alongside doing your own research, you should also speak to a loan specialist from at least one or two lending institutions. Each institution will have different rates and agreements.

• Be responsible - It’s easy to get carried away when you are granted access to large amounts of money. However, it’s important to remember that with most of these agreements you are putting your home up for collateral. Before making a final decision, ensure that you can effortlessly keep up with your loan payments.

Congrats on your retirement! Enjoy it, you deserve it. 

Forget Perfect Financial Records: Avoid These Mistakes To Become a Homebuyer With Bad Credit

If you’re a renter, you likely don’t want to forever. After all, wouldn’t you rather build equity than pay a landlord? Unfortunately, some believe they are trapped in a rental cycle. If you have a bad  credit score or have made financial mistakes in the past, you might feel bogged down by your financial record. However, the housing market is not closed off to you. As you branch out to see if homeownership is in your future, steer clear of these first-timer mistakes.

Let House to Home Organizing create a clutter-free sanctuary in your home. Call 203.571.9412 to schedule an appointment. 

Mistake #1: Not Applying for a Mortgage First

In a competitive market, if you put an offer on a home, you could lose it if you haven’t already applied for a mortgage. It may be tempting to negate this first step, but you risk missing out to another buyer, and wasting the seller’s time. 

To make yourself an attractive buyer, the best thing to do is to get pre-approved by a lender. This shows a buyer you’re legitimate, and it can help you lock in a desirable interest rate. Of course, with so-so credit, it’s possible you’ll be assigned a higher interest rate. You can rectify this if you opt to buy points (aka “buy down the rate”) from your lender to help lower the rate. It’s important to determine if this is financially beneficial first, so do the math to calculate whether it makes sense for your situation. How long you plan to own the home, your loan and your current finances will dictate whether you should use points.

Mistake # 2: Go With the First Lender You Talk To

To secure a low home loan rate, you should never go with the first lender you talk to. Try to talk to a few different lenders and a mortgage broker. A mortgage broker can help you locate the best terms and rates and, in some cases, you may have better access to lenders.

First-time homebuyers have access to a few different programs. These programs include FHA loans, USDA loans and Good Neighbor Next Door programs. In an FHA loan, the Federal Housing Administration insures a portion of the loan so lenders are more comfortable lending to you. USDA loans are for those in USDA-eligible rural areas. Good Neighbor Next Door programs are for teachers, public servants and police officers. It helps pillars of the community affordable housing.

Mistake #3: Ignore Your Credit Report

According to the Consumer Financial Protection Bureau, your first step to buying a home should be to pull your credit report. Even if you know your credit score, this number does not tell you the full picture. The three major credit bureaus, Equifax, TransUnion and Experian, collect data on your credit, and they use this data to calculate credit scores, which help lenders make decisions.

Examine your report for any inconsistencies. If there are errors, send a letter to the credit bureau to dispute the inaccuracy. For credit reports with a high balance compared to income, try to pay your credit cards down to raise your score.

Mistake #4: Miscalculate the Costs of Homeownership

Finding a low mortgage rate is only one part of the hurdle. When it comes to your monthly budget, you have to take into consideration all of the different costs of homeownership. Owning a home comes with a lot of hidden expenses. Property taxes, HOA fees and homeowners’ insurance are only three of the common expenses you’ll encounter. Homeowners’ insurance costs, in particular, vary based on your location. Disaster-prone areas cost more to insure, and this will add to your overall mortgage payment. 

Common misconceptions and mistakes can inhibit your ability to achieve homeownership, so you use these tips to help you see the forest for the trees. While poor credit history may force you to make some concessions to buy a home, you can still see your dreams come true.

How to Buy a House with Student Loans

For many college graduates, graduating with student debt is fairly common. However, this is a great time to start investing your money early, such as investing in a starter home. Buying a home with student loan debt is not impossible, but there are financial factors you should consider when applying for a mortgage.

Here are a few steps you should take that will improve your chances of qualifying for a home loan as a college student, even with loan debt. 

• Pay off as much debt as possible: The most important step to take when working to qualify for a mortgage is lowering your debt-to-income ratio. The earlier you can start paying off your student loan debt, the better. If you have another source of debt, such as a credit card bill, this is a good time to pay it off if you can.

• Improve your credit score: A healthy credit score is one of the more important factors lenders will look at when determining if you are qualified enough for a home loan. Be sure to make your student loan debt payments on time to avoid dragging down your credit score. Set a reminder on your phone or calendar to submit your payment even before the due date. 

• Increase your income: Increasing your income will help lower your DTI ratio and look better when lenders view your income history. Look for a new side hustle or two to bring additional income in, or ask for extra hours at your current job. 

If you aren’t too sure if post-graduation is the best time to invest in a new home, you can always start by renting a home first to get your feet wet in the homeowner’s pond. This can also be a good time to pay off as much student loan debt you can, and then start searching for your ideal home in your price range!