Enjoy Neighborhood News & Financial Hacks…

Financial Hacks…

What’s the difference between an FHA Loan vs a Conventional Loan? One of the main differences is the down payment amount.

Financial Hacks…

Enjoy Neighborhood News & Financial Hacks…

Everyone wants to know where the FICO Score originated from and what in the world is an actual FICO Score?

A FICO Score was created by the Fair Isaac Company, which is a data analytics company based in San Jose. A FICO Score is a three-digit number based on the information in your credit reports. It helps lenders determine how likely you are to repay a loan, which also determines how much you can borrow, how many months you have to repay and how much the interest rate will be.

Building and maintaining your credit score helps you qualify for loans or credit cards.

Check Credit Reports for Any Errors

Yes, you read that correctly. Always go over all 3 credit bureau reports (Equifax, Experian, Transunion), there is a possibility that there is small or large discrepancy that can affect your credit score. A lot of times we neglect viewing an actual credit report until it’s time to purchase a home, then become surprised about an error and are rushing to get it fixed. It is recommended to check your credit at least once a year. Federal law allows you to request a free report from each of the national credit reporting companies once every 12 months at www.annualcreditreport.com. It can help you detect and dispute errors, stop identity theft and credit card fraud early on and save you money. If you do ever come across any discrepancies, immediately contact the credit bureaus and provide accurate documents to maintain everything up-to-date.

Reduce the amount of Debt

• Lower your balances.
• Don’t keep opening new credit cards.
• Tip: Ask your credit card companies if they can lower your interest rate.
• Try to move some balances over to a low interest rate credit card.
• Ask credit card companies to raise your credit limit.

Removing a Collection on Credit Report

• Contact the lender and offer to make a payment plan if they agree to remove it from your credit report. Always request a “Pay for Delete Letter” as proof of the agreement.
• If a collector keeps a debt on your credit report for an extended period of time (past 7 years) you can dispute the debt and have it removed, especially if you have proof of the start of the delinquency.

Keep Credit Cards Open

Closing a credit card can lower your score. Use the cards occasionally so the issuer won’t close it.

Always Pay Bills on Time

Tip: If you ever accidentally forget to pay your monthly credit card bill, call the creditor and request to not report the missing payment to the credit bureaus. Also request to get the late fee waived, a lot of times they honor this request if you have never been late.

Revolving Credit

Try to keep your credit utilization below 30% (or lower) on any single credit card and across all of them together.

DTI Ratio (Debt-to-Income Ratio)

Is a calculation of how much of your monthly income is devoted to debt payments and other financial obligations. Your DTI is a big factor that lenders use to decide whether to lend to you because it indicates shows how you will be able to take on another financial obligation.

Become an Authorized User

Ask a relative or a friend with a long record of responsible credit card use to add you to his or her card as an authorized user. This account holder doesn’t even have to let you use the card or even disclose the number to you.

Financial Hacks…

Mortgages and Refinancing can be complicated to understand and very intimidating. The good news is that there are guidelines that lenders must follow, but if you’re fortunate enough, you will have a great experience with an excellent lender. Buying a home shouldn’t intimidate you, it should excite you, because you worked for it and you deserve it! Not only is purchasing a home a great accomplishment, but a wonderful investment. Earn equity on a property instead of renting and helping someone else pay off their loan. Let’s dig into the 21 most common mortgage questions that you may have!

How much of a down payment do I need to buy a home?

It’s a myth that you need at least 20% down to purchase a home, you actually only need at least 3.5%. If your FICO (Credit Score) is below 580, that minimum could rise as high as 10%.

How great does my credit score (a.k.a. FICO Score) have to be?

Your FICO Score can be as low as 500 and of course can be higher. Try to aim to increase your credit score to at least be 620 or higher before purchasing a home, assuming you are not in a rush to purchase a home, because this will help you out in the long term. Sometimes it’s best to work on your Credit Score until you reach a better FICO. Your Credit Score is what determines if you qualify for a loan to begin with, but it also has an impact on your mortgage terms.

What documentation does a mortgage broker or financial institution request in order to get you pre-approved for a mortgage, also known as a home loan?

Be prepared to show all of the following:

• Income verification (Last two years of tax returns, W-2s, 1099s, and your last few pay stubs)
• Driver’s license and Social Security card (or alternative ID)
• Bank statements
• Proof of funds to close (and an explanation of where they came from, if it’s not obvious)
• If some or all of your down payment is coming from a gift, you will need gift letter from the source of the funds that confirm they are gift, not a loan.

Should I get quoted from a Mortgage Broker or a Bank?

The MAIN difference is that a bank mortgage officer represents ONLY products their financial institution offers, but a mortgage broker is an intermediary who works with MULTIPLE lenders, getting wholesale rates and prices for each product, which allows them to find you a better rate. That means that a mortgage broker can search multiple programs from different lenders, which maximizes the chances of finding a better program for you. Mortgage Brokers are a popular choice because they may provide you with better products and specialized programs that banks may not offer or even know about. Keep in mind, banks ONLY provide you with their options, those options are limited, so why limit your mortgage options? It’s also easier to negotiate profit margins with mortgage brokers, because mortgage brokers (a.k.a. loan brokers are required by law to disclose all fees upfront and can charge ONLY that disclosed amount.

Should I get pre-approved for a mortgage or find a realtor?

If you are ready to purchase a home, the best step is to get pre-approved first. This way you know how much of a home you can truly afford and do not waste your time or the realtors. This also gives you the opportunity to fix or change anything on your credit report. Sometimes we never look at our credit report and find something that should not be on there, it’s best to get any hiccups out of the way. Once you get pre-approved you can go find a realtor and they will take you more seriously, because you will have an approval letter and they will know what you can truly afford. A lot of realtors will not begin working with you until you get pre-approved. This also allows you to make an offer on a home immediately.

What should I do after I get pre-approved for a mortgage?

Find a realtor and also start looking for homes on different websites. This way you will be able to show your realtor what you like so when they find homes for you, they have an idea of what to look for. You will definitely discuss the primary requirements, but sometimes a visual is better than verbally expressing oneself. Don’t forget that there is a beautiful home out there with potential, even if it is not perfect, you can always renovate. Any property can become your dream home once you add your special touches!

How long is my mortgage rate good for, should I “lock” it in?

Usually, a rate lock is good for 30, 45 or 60 days, though that time period can be shorter or longer; once that period expires, the borrower is no longer guaranteed the locked-in rate unless the lender agrees to extend it.

If you’re approved for a home loan at an interest rate you’re comfortable with, and the resulting monthly payment fits your budget, that’s the time to consider locking your rate.

What are closing costs and how are they calculated?

Mortgage closing costs range between 2%-5% of the loan cost, including property taxes, mortgage insurance, title insurance, and other fees. It all depends on the home’s purchase price, discount points, transfer taxes and other factors.

What are mortgage points or discount points?

Mortgage points, also known as discounted points, are fees that you pay the lender to lower your interest rationed minimize your monthly payment.

How long does it take from beginning an application for a home loan, to actually funding on a mortgage?

From start to finish, it takes approximately anywhere between 15 days (for clients that provide all requested documents quickly and encounter no hiccups during the process) to 45 days to complete the approval and funding process.

What does it mean to be in escrow?

Now that the seller and buyer have agreed to transfer the ownership of property, a third party will handle the actual transaction of exchanging money and and related documents. “Being in Escrow” is a legal procedure that is used when real property requires a transfer of title. The process ensures that funds aren’t distributed until both buyer and seller meet the terms and conditions of the purchase agreement.  Escrow closes when the deed gets recorded in the buyer’s name.

How do you calculate a mortgage payment?

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

The variables are as follows:

• M = monthly mortgage payment
• P = the principal amount
• i = your monthly interest rate. Your lender likely lists interest rates as an annual figure, so you’ll need to divide by 12, for each month of the year. So, if your rate is 5%, then the monthly rate will look like this: 0.05/12 = 0.004167.
• n = the number of payments over the life of the loan. If you take out a 30-year fixed rate mortgage, this means: n = 30 years x 12 months per year, or 360 payments.

Try our Mortgage Payment Calculator to get an estimate.

What is included in my mortgage payment?

Mortgages consist of four main components: Principal Balance, Interest Rate, Taxes and Mortgage Insurance.

Financial Hacks…

What is the literal meaning of the word Mortgage?

Mortgage derives from two Latin words, “Mortuus”, which means death and “Gage”, which means pledge. It’s safe to say that one is pledging until death to pay their loan.

Now let’s talk about what it actually is. A Mortgage Loan, also known as Home Loan, also known as a Mortgage, is a Loan from a financial institution or a bank granted to a borrower(s) to purchase real property. It is a legal document one signs when purchasing a home or refinancing a home. The borrower(s) are obliged to payback the loan for the predetermined set of payments. You’ll make regular monthly payments until you pay off the balance of your loan. If one does not pay their mortgage as agreed, it gives the lender the right to take back the property.

Mortgages consist of four main components: Principal Balance, Interest Rate, Taxes and Mortgage Insurance.

A loan’s Principal balance is the amount owed after you’ve already made payments against the original amount that was borrowed from the lender. For example, if you borrow $350,000 and repaid $50,000 dollars, towards the original amount, the remaining principal balance is $300,000. The more you pay off the loan, the more equity you gain on your property.

Tip: Financial savvy borrowers choose to pay extra payments towards the principal balance every month, called “prepayments”. Doing so, will allow you to pay off the loan sooner, gain equity on the property, and avoid paying too much interest. Just paying an additional $100 per month towards the principal of the mortgage reduces the number of months of the payments. A 30 year mortgage (360 months) can be reduced to about 24 years (279 months) – this represents a savings of 6 years!

The Interest Rate on your mortgage is the amount charged on top of the principal by a lender, to a borrower, for the money that was lent.

Homeowners Insurance is a type of property insurance, that is usually required by mortgage lenders, which covers losses and damages to an individual’s house and to assets in the home.

Mortgage Insurance is usually required on a Conventional Loan if your down payment is less than 20% of the purchase price of your home. Mortgage Insurance is typically required on FHA and USDA Loans. Mortgage Insurance is an insurance policy that protects a mortgage lender or a title holder if the borrower defaults on payment, dies or is otherwise unable to meet the contractual obligations of the mortgage.

What is a Promissory Note?

A Promissory Note is exactly as it sounds, a promise to pay back the money that was borrowed.

Financial Hacks…

It’s a myth that you need at least 20% down to purchase a home, you actually only need at least 3.5%. If your FICO (Credit Score) is below 580, that minimum could rise as high as 10%.

Your DTI (debt-to-income) ratio is a major determining factor in how much you can borrow from a lender. Your Debt-to-income(DTI) ratio is the amount of your total monthly bills divided by how much money you make a month.

For instance, if you pay $2,000 a month for a mortgage, $300 a month for an auto loan and $700 a month for the rest of your bills, you have a total monthly debt of $3,000. If your gross monthly income is $8,000, you divide that into the debt ($3,000 / $8,000) and your debt-to-income ratio is 37.5%. Most lenders would like (would like as in not necessary) your DTI (debt-to-income) ratio to be under 35%. The good news is that, you can receive a qualified mortgage with as high as a 43% debt-to-income ratio.

Let’s not forget that there are other loan options available. There are also loans that cater to seniors and anyone that has served in the military. For seniors there are Reverse Senior Mortgages available and for anyone that has served in the military, the the Veterans Affairs Loan is available.

The minimum down payment required to buy a home in California is determined by several factors. Your credit score determines what type of loan you will be qualify for, then depending on the type of loan, you will have to meet certain requirements. For example, for a 30 year Conventional Mortgage, with a fixed rate, it is usually required to have a minimum down payment of 5% of the home purchase price. So if you are interested in buying a home that is $350,000, then 5% of the purchase price would make the required down payment to be at least $17,500. Let’s also assume that your FICO Score meets the requirements for a Conventional Mortgage, which is a minimum credit score of 580 or more. For an FHA Mortgage, which is federally backed up, the minimum requirement of a down payment is 3.5%, but your credit score has to be 580 or higher to put this amount down. If your credit score is lower than 580, then you will have to put at least 10% down payment for your home.

Let’s not forget that there are other loan options available. There are also loans that cater to seniors and anyone that has served in the military. For seniors there are Reverse Senior Mortgages available and for anyone that has served in the military, the the Veterans Affairs Loan is available.

Financial Hacks…

Financial Hacks…