Student Loans Can Affect a Mortgage Approval

On March 20, 2014   /   Mortgage, Real Estate News  
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student loans

Student Loans Can Affect a Mortgage Approval

By: Michele Lerner at Realtor.com

Student loans are not necessarily an obstacle to homeownership, but your payments will be taken into consideration when you apply for a mortgage.

The decision of a lender to offer you financing when you apply for a mortgage is based on a variety of factors that are used to evaluate your likelihood to repay the loan. While your credit score, income, assets and job history are all elements of your credit profile, lenders must also check that your debt-to-income ratio falls within their loan programs’ guidelines.

Student Loan Repayment

If you have student loans and want to buy a home, you will need to be vigilant about making your loan payments on time. A delinquency on a student loan will not only damage your credit score, it could also stop you from qualifying for a home loan. This is particularly true if you have a government-backed student loan and apply for a loan from the Federal Housing Administration, Veterans Affairs, or the U.S. Department of Agriculture Rural Development, because your lender will check the federal Credit Alert Verification Reporting System database to make sure you are not in default on any government obligations.

If you can consolidate your student loans or refinance them into a longer repayment term, you may be able to reduce the size of your monthly payments, which will make it easier to qualify for a mortgage. Better yet, pay off your student loan as quickly as possible by reducing other expenses and paying more than the minimum payment.

Mortgage Qualifications and Student Loans

Many young people lack a long credit history, so on-time student loan payments can actually add to a positive credit report. On the other hand, student loan payments are part of the debt-to-income ratio, which compares all recurring minimum monthly payments to your gross income. Most lenders require a maximum debt-to-income ratio of 43%, although FHA lenders are sometimes a little more flexible if you have compensating factors such as a high credit score, a solid job history or additional assets in the bank. For example, if your monthly income is $4,000 and you have a monthly student loan payment of $400, your other monthly bills, including a car payment, credit card payment and mortgage payment including principal, interest, property taxes, homeowners insurance and a condo or homeowners association fee must be less than $1,320 to stay within the 43% debt-to-income ratio.

If your ratio is too high, you will either have to reduce your debt or increase your income or, ideally, do both. It may be possible to pay off your credit card debt or your car loan or negotiate with your student loan provider for a lower monthly payment. Remember, though, that if you reduce your loan payment, you will be paying more in interest over the life of the loan.

Other options to consider include bringing in a co-signer on your home loan or finding a way to make a bigger down payment to reduce the amount of money you need to borrow to finance your home.

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Pay Off Credit Card Debt before Buying a Home: Maybe Not

On March 2, 2014   /   Real Estate News  
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credit cards

Pay Off Credit Card Debt before Buying a Home: Maybe Not

By: Michele Lerner

While getting your financial house in order before you try to purchase a home is an excellent plan, paying off all your credit card debt may not be the best move.

Ironically, some of the steps you take that are great financially (such as reducing debt and canceling your credit cards) are not always helpful when you are applying for a home loan. Reducing your debt will impact your credit score, your debt-to-income ratio and the cash you have in the bank, so consider all three aspects carefully before you make a final decision about your credit card balance.

Cash Reserves and Credit Card Debt

If you are thinking of buying a home, you have likely implemented a robust savings plan to build a fund for your down payment and closing costs. Think hard before you dip into that fund to pay off your debt.

The median price of a home in the United States in 2014 is around $200,000, so you will need at least $7,000 for a down payment for an FHA loan that requires 3.5% down; or $10,000 for a 5% down payment, the minimum required for most conventional loans. In addition, you will need 3% to 5% for closing costs, which comes to another $6,000 to $10,000. So far, you will need between $13,000 and $20,000 in cash to buy a home.

You will also need money for moving expenses and for cash reserves in case of an emergency. Not all lenders require cash reserves, but to be safe you should plan on having at least two months of mortgage payments on hand.

Once you have estimated all these costs and determined that you can cover them and still have cash available, paying off your credit card debt would be smart financially.

Debt-to-Income Ratio

In order to qualify for a conventional mortgage, your monthly minimum payments on all debt must be a maximum of 43% of your monthly gross income. Some lenders require lower debt-to-income ratios, particularly for borrowers with a low credit score or few cash reserves. If your credit card debt is too high, you may not be able to qualify for a mortgage. FHA loans have looser guidelines, so some lenders may allow a higher debt-to-income ratio under special circumstances, but for your own comfort level with your budget it’s best to have a lower debt-to-income ratio.

Credit Score Issues

Lenders rely heavily on consumer credit scores, not only for a loan approval but also to determine the interest rate you will pay for a conventional loan. If your credit score is under 700 or 680, you may want to pay off some or all of your debt to improve your score. If your score is 640 or lower, you may qualify for an FHA loan depending on the rest of your credit profile.

If you decide to reduce your debt, be careful not to consolidate all your debt on one credit card. Doing that can hurt your credit score more than having a low balance on several cards. Even more important, don’t close any credit card accounts. This will reduce your overall credit availability and shorten your credit history, both of which will lower your score.

One of the best ways to make the decision about your individual financial situation is to consult with a mortgage lender who can advise you about the best way to qualify for a loan that’s affordable and fits your money management plans.

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8 Costly Home Seller Mistakes

On February 23, 2014   /   Real Estate News  
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home for sale

8 Costly Home Seller Mistakes

By: Anne Miller at Realtor.com

Homeowners who want to sell their home know they need to get the place spruced up for marketing, but a tougher challenge for some sellers is to get mentally prepared for putting their residence on the market.

After all, if you’ve been happily living in your home for years, it can be emotionally hard to detach yourself from your memories and look at the place as a commodity you’re selling.

For a smoother sales transaction that garners the most possible profit from your sale, avoid these common, yet costly, seller mistakes:

1. Skipping a home inspection. Depending on the age of your home, scheduling a pre-listing home inspection could save you a lot of time and aggravation. You can address issues on your own time and budget before negotiating with a buyer to fix problems.

2. Skimping on your sales prep. While you may be tempted to ?test the waters? and put your home on the market without painting it or making minor repairs, your home is likely to languish on the market and get a reputation for having a major problem. A thorough, professional-level cleaning should be your bare minimum seller prep. Your eventual sales price is likely to be lower if you don’t sell within the first few weeks after you list your home.

3. Choosing the wrong REALTOR®. Instead of picking a REALTOR® who’s a friend of a friend, a relative or perhaps someone who’s great at working with buyers, take the time to pick a REALTOR® with an excellent reputation for listing homes. Your payoff will be much larger if you list your home with a REALTOR® with local market knowledge and sales expertise.

4. Neglecting to ramp up your curb appeal. If you polish and primp inside your home but neglect to pull weeds or paint your front door, you run the risk of potential buyers leaving without ever entering your home.

5. Withholding information from buyers. If you hope that the buyers or their inspector won’t find out about the leak under your bathroom sink or the fact that your basement gets flooded every winter, you run the risk of a nasty negotiating period, or  worse, a lawsuit after the settlement.

6. Overpricing your home. If you’ve hired the right REALTOR®, someone who can give you a strong market analysis and help you determine a reasonable price for your home, then you can avoid overpricing your home. If you don’t listen to your REALTOR® and base your listing price on an inflated view of your home’s value, you’re likely to end up selling after multiple price drops for less than you would have if you priced it right the first time.

7. Being unprepared for your next step. Whether you should buy your next home or sell your current home first is only one part of the preparation you need to make to move. You need a back-up plan in case your transaction on either end takes longer or shorter than you think, and you need to understand your mortgage payoff and the closing costs you must pay.

8. Letting your pets and kids spoil a sale. Part of your emotional detachment from your home is recognizing that while you love Fluffy and your darling twins, buyers want to visualize themselves and their own family in your home. Bribe your kids if you have to, but make sure the house is neat and as neutral-looking and smelling as possible. Take the kids and your pets out (or lock up your pets) when prospective buyers are visiting ? you never know if someone who is terrified of dogs or cats will be turned off from making an offer because of your adorable pet.

Selling a home can be challenging, but with the help of a reliable REALTOR® you can avoid making mistakes and reap the rewards of your sale.

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Make a Great First Impression

On February 16, 2014   /   Lake Martin Real Estate, Real Estate News  
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20 lake vista lane on lake martin alabama

INEXPENSIVE WAYS TO MAKE YOUR HOME SHINE

By Michele Dawson at Realtor.com
Once your home is listed and the for-sale sign is firmly implanted in your front lawn, all is ready for would-be buyers to tour your home. Or is it?
As anyone in the real estate industry will tell you, it’s important to make your home look its best when it comes time to show it. That first impression is everything. Even if you’re in a market where homes are selling quickly and for full asking price, it’s still key to spruce up your home and prove that it’s worth every penny you’re asking. And it doesn’t have to cost you a fortune.
In fact, a great first impression, coupled with the decreasing amount of time the typical home is on the market these days, is sometimes all it takes to see a speedy offer come your way.
So, if you’re in a market with few available homes for sale, you’re probably less likely to spend a lot of money on major aesthetic improvements. But there are a lot of simple, fairly inexpensive things you can do to make a good first impression and attract offers as quickly as possible.
Some things you can do to ensure your home’s exterior lands favorable first impressions include:
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Mortgage Rates Continue Downward Trend

On February 2, 2014   /   Real Estate News  
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mortgage rates

By:

Mortgage rates for the most popular loans decreased this week as reports of a weakening economic recovery showed a decline in December new home sales. Adding to the drop in averages — for the fourth consecutive week — was another study that showed a decrease in November home prices.

The two new reports have furthered the belief among some experts that the economy and housing market may be too weak to handle a large upswing in home prices in the short-term. In the long-term, mortgage rates are still expected to rise considerably in 2014.

This week the average rate on a 30-year fixed loan dipped to 4.32 percent from 4.39 percent, according to the latest survey from mortgage buyer Freddie Mac. One month ago, that rate stood at an average of 4.51 percent. A year ago, the going rate for a 30-year fixed-rate loan was 3.53 percent — 0.79 percentage point below where it stands today.

The average rate on a 15-year fixed loan also saw its fourth consecutive decline, easing to 3.40 percent from last week’s 3.44 percent. A month ago it averaged 3.56 percent, and a year ago 2.81 percent.

Averages on hybrid adjustable-rate mortgages were mixed. After seeing a slight increase a week ago, the average for the five-year ARM fell to 3.12 percent from 3.15 percent. The one-year ARM registered a slight uptick, settling at 2.55 percent from last week’s 2.54 percent.

“Mortgage rates eased somewhat as new home sales fell 7 percent in December to a seasonally adjusted pace of 414,000 units, below the consensus,” said Freddie Mac Chief Economist Frank Nothaft in a statement. “The S&P/Case-Shiller 20-city composite house price index declined 0.1 percent for the month of November, the first decrease since November 2012.”

Mortgage rates had been rising steadily in December after the Federal Reserve announced it would begin to curb its bond-buying stimulus program in January. However, rates have eased over recent concerns that the market would not be able to support a dramatic upward shift in home prices.

The bond-purchase program has helped offset dramatic gains in real estate prices and kept affordability elevated while the market has stabilized. Despite the recent economic reporting, the housing market at large continues to show signs of recovery.

In the latest Mortgage Rate Trend Index by Bankrate.com, 42 percent of the analysts polled believe mortgage rates will continue to drop over the next week, while another 29 percent believe rates will hold steady.

“Weakness in emerging markets over the last week has really changed the markets’ view to a more ‘risk off’ perspective,” said Michael Becker, mortgage banker for Baltimore’s WCS Funding Group. “As a result, Treasuries are benefiting from a flight to safety. This is sending bond yields and mortgage rates lower, and I expect this to continue for a little while longer. This will give us lower rates in the coming week.”

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