Category: Home Buying Tips

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Can I Get a Mortgage if I have a Low Credit Score? Copy

Mortgage with Low Credit Score

Many of today’s first-time buyers worry about their credit scores. Whether you have student loans you just can’t shake or you’re still plagued by a few missed payments from a college-era utility bill, don’t assume you will be locked out of the market forever due to your FICO score.

Here are insights you can use as you determine if you are eligible for a mortgage despite your low credit score.

If you have a low credit score, pay higher interest rates

Pay higher interest rates

You’ve likely heard that interest rates remain low by historical standards and you may be counting on the low rates you’ve seen quoted online. It’s important to remember that mortgage interest rates vary for each buyer and are closely tied to the risk they represent for the lender.

In other words, those with a lower credit score can still qualify for a loan, but they may have to pay a higher interest rate. Borrowers with a credit score of 740 or higher are likely (but not guaranteed) to obtain the lowest mortgage rates available. Meanwhile, those with a lower score could be approved at a higher interest rate.

 

Consider FHA loans

Buyers with low credit often opt for a Federal Housing Administration (FHA) loan. FHA loans are designed to act as “helper loans” to those who earn enough to pay a monthly mortgage, but lack the long-term credit history that would prove they are low-risk borrowers. 

As a result, FHA loans are often approved for borrowers with lower credit scores and they may require smaller down payments than conventional loans. Buyers with a credit score of 580 or above may be eligible for a home loan with a 3.5 percent down payment.

 

Show your credit score is on the mend

While your credit score may seem like a hard-and-fast number that will determine the fate of your approval, the reality is that two people with the same score can appear very differently to lenders.

Consider these two scenarios:

After losing their job during the Great Recession — and making a few late student loan payments as a result — Candidate A has not missed a payment of any kind in 25 months. They have a solid job history and their monthly rental payments to their landlord are comparable to what they would pay in a mortgage payment. As a result of their hard work and on-time payments, Candidate A has a credit score of 625.

 

Candidate B is forgetful and they have paid two car payments late so far this year. They carry a high balance on their credit card from month to month and tend to pay the required minimum at billing. They have changed jobs three times in the last two years but they pay a monthly rent that is comparable to what they would pay for a mortgage loan. As a result of their high credit card usage and shaky payment history, Candidate B’s credit score has slipped from 700 to 625 in the last year.

As you might imagine, Candidate A would likely be considered a less risky loan prospect than Candidate B — even though they have identical credit scores.

 

What happens if I’m not approved?

If you aren’t approved for a mortgage, it’s time to work diligently on increasing your credit score. You can also speak to a Rector Hayden Mortgage loan officer to determine how you can get on track for approval and formulate a plan to put you on the path to home-ownership.

 

 

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Home Buying Tips Home Insights Newsletter Featurettes

Considering Buying a Condo or Townhouse?

Here's What You Need to Know About Buying a Condo or Townhouse

Here’s what you need to know

Any homeowner shoveling several inches of snow, or addressing roof damage caused by a storm, has probably experienced thoughts of buying a condo or townhouse. The principal benefit of these types of properties is that much of the maintenance is handled by an Association — or in other words, someone other than you!

Should you decide to buy a condo or townhouse, you’ll want to review all the Association rules, policies and all documents carefully. Here are a few insights on what you should look for.

Look for potential costs of owning the unit

The freedom from certain maintenance obligations doesn’t come free of cost. Here are some things you should look for to better understand those costs:

  • Check the documentation to see what the regular Association fee is, and the due date. Typically, fees are charged monthly.
  • See if there are any plans for large improvements or repair projects. A share of these costs could be assessed to you in addition to your typical monthly fees.
  • You should be given a current budget for the Association. Review the budget to determine if there are sufficient reserves to handle unexpected maintenance costs.
  • Understand what the Association is required to maintain, and what is considered your responsibility as an owner.

 

Look for rules that may affect how you wish to use your home

Unlike a traditional single-family home, there may be restrictions on how you can use your townhome or condo. Some key restrictions may include:

  • A prohibition or limitation on pets
  • Restrictions on how your unit can be altered or improved
  • Limitations on renting the property
  • Not allowing the property to be used for a home business

The documents you receive as part of your townhome or condo purchase contain vital information.  Be sure to take the time to read them, so you can ensure that you’re able to use the residence as intended.

 

 

Get an idea of what your perfect condo or townhouse may look like!
Browse Rector Hayden’s current condo and townhouse listings:
http://www.rhr.com/condos-and-townhouses-for-sale.aspx

 

Categories
Home Buying Tips Home Insights

How Much of My Income Should I Spend on My Mortgage Payment?

Understanding your housing expenses

When a lender reviews your loan application, their main job is to verify that you are a low-risk candidate who will be able to cover your monthly housing expenses for the full life of the loan. To do this, they will first calculate your monthly PITI:

  • Principal of the loan
  • Interest on the loan
  • Taxes (estimated from annual payment)
  • Insurance (estimated from annual payment)

While every lender is different, and every loan application is reviewed independently, the general rule of thumb is that your monthly PITI should be between 28-35 percent of your monthly income before taxes. This number is known as your front-end debt-to-income ratio.

 

Understanding your debt obligations

Of course, you may have other long-term loans or debt obligations that you pay each month. Lenders will also take these debts into consideration as they review your loan application.

The easiest way to think of a debt obligation is to consider who you are paying back. Common debt obligations include:

  • Student loans
  • Car payments
  • Child support payments
  • Credit card minimum payments (if you have a long-term balance you are paying off)
  • Medical or hospital bills

To calculate your back-end debt-to-income ratio, the lender will add up your monthly debt obligations, including your hypothetical monthly PITI. They will divide that by your total monthly income before taxes.

Typically, lenders are looking for a back-end debt-to-income ratio of 35-45 percent. But again, every lender varies and your personal financial history and income history will also be factored in.

 

What about other expenses?

You have daily, weekly and monthly expenses that won’t necessarily be taken into account by a lender — but that doesn’t mean you shouldn’t think about them as you begin the path to home ownership.

Before you apply for a mortgage, take stock of your monthly expenses, including:

  • Groceries
  • Gas or transportation costs
  • Restaurants, coffee shops and gas station pit-stops
  • Mobile phone plans, cable television plans and streaming services
  • Shopping and gifts

It’s likely that you could tighten up one or two of your spending categories without too much effort. Your lender may not notice, but you’ll find it easier to afford your monthly PITI and debt obligations when you minimize your other expenses.

 

How can I calculate my buying power?

If you’re looking for an easy-to-use tool that takes into account your front-end and back-end debt-to-income ratios, check out these great calculators from Prosperity Home Mortgage, LLC.

 

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Home Buying Tips Home Insights Home Selling Tips Newsletter Featurettes

What You Need to Know Before Purchasing Summer 2019

What You Need to Know before Buying this Summer

With consumer confidence high and mortgage rates low, our local home-buying market is hot!  Here are some essential tips to get prepared and stay ahead of the pack as multiple offers and quick sales will rule the summer.

Get pre-approved

The first step in the home-buying process is getting pre-approved with a top lender.  That way, you’ll be all set to make a strong, serious offer when you find the right property.  Contact out in-house lenders at Prosperity Home Mortgage for great rates and service!

Be the first to know

With homes selling quickly, you’ll want to be the first to know about new listings as they hit the market.  Rector Hayden’s top local home search website – RectorHayden.com – is updated at the top of every hour, as is our mobile home-search app.

Do smart searches

It’s easy to do your home search, no matter where you are or how you like to get your information. Download the Rector Hayden Home Search app for iPhone, iPad and Android to get access to every home for sale on our Central Kentucky MLS. Our mobile app allows you to search based on plenty of different criteria. Use our app and find homes that fit within two different commute times (ex: close to work and close to school!).

Download our mobile app here on Google Play or here and here on Apple Store. You can save searches and receive alerts for homes that match your criteria!

Get to know your ideal location

As you narrow things down, visit your preferred neighborhoods and talk with neighbors and local businesses. To learn more about current issues and any concerns, contact the local neighborhood association.

Open House season is upon us

It’s an exciting time of year to explore your options. Check out our upcoming Open House list anytime at RectorHayden.com.

Make your first offer your best offer

It’s a seller’s market. You’ll want to discuss with your Rector Hayden Agent how to tailor your offer to appeal best to a seller.   An experienced agent can make all the difference in your negotiations!

Estimate the Value of your HOME

Click here to see an estimate or call your Realtor at Rector Hayden to get a more specific home value report.

Know your Market

Ask your Realtor to investigate our neighborhood, community trends, and give you a market report. You can also see the month of June’s market trends here!

 

curated by Keith Rector

 

 

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Home Buying Tips Home Insights Newsletter Featurettes

5 Questions First-Time Buyers Can Ask When Hiring a Real Estate Agent

Buying your home is likely the biggest decision you’ve ever made, and it makes sense that you would want to partner with a trusted, professional REALTOR® who has your back and your best interests at heart.

Key insights:

  • Make sure your Realtor knows specifics about your market area. Even a personal referral or family friend should dig deep into your preferred neighborhood’s stats before expecting your business.

  • Ask if the Realtor works with a trusted lender who will get you pre-approved for a loan.

  • Go with your gut; even if a Realtor has all the right answers, half the battle of this working relationship is hiring someone you truly like and trust. If you’re not feeling it, then keep interviewing until you find the right fit.

1. How long have you been a real estate agent and do you typically work with first-time homebuyers?

Unlike the other questions we’ll share, there’s actually no wrong answer to this question – BUT it’s information you need. Most Realtors start by working with buyers, including first-time buyers, and as they begin to know more local homeowners, they transition their business to representing both buyers and sellers. Still others might continue to work only with buyers decades after they have been in the business.

2. I prefer to communicate via (phone calls, emails, texts). Can you work this way?

In our low-inventory market for starter homes, fast-paced communication will be necessary to getting an offer accepted on your dream house. For this reason, it’s important to discuss how you prefer to be contacted – and to share any communications restrictions you have.


3. How long do you expect the home buying process to take?

Whether you have a tight timeline or need to move when your current lease expires, you likely have an idea of when you want to buy a home. Don’t be afraid to express that desire with your potential agent so you can all get on the same page from day one.

4. What do you know about the area I want to live in?

If you’re like most first-time buyers, you’ve probably been searching for available homes online to determine the city or even neighborhood where you’d most like to live.

If the agent is very familiar with the area already, you can continue to ask questions about the market, including if homes are selling quickly or for more than asking. If the agent doesn’t know about your preferred area, request that they get up to speed and get back to you within a day or two with their initial thoughts. Part of being a great advocate is doing the research, so it’s okay to request that your Realtor put in some work before getting hired.

5. What kind of loan options are best for me, and which preferred lender do you use for first-time buyers?

First-time buyers have myriad loan options available to them, from government-backed FHA loans to VA loans (for military veterans) to more traditional private loans. The best way to determine your buying power, and which loan is right for you, is to get pre-approved on a loan as soon as possible.

When meeting to interview a Realtor, ask if they have a preferred lender they work with for first-time buyers and ask if they typically get their buyers pre-approved. Pre-approval is a smart step that helps you understand the loan package that would work best for you, gives you a great starting place for a budget and can give you an advantage over other buyers who aren’t pre-approved.

 

 

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Home Buying Tips Home Insights Newsletter Featurettes

How Might Changing Interest Rates Affect Home Buyers?

How Might Changing Interest Rates Affect Homebuyers

Do fluctuations in rates have a big impact on homebuyers?  Here’s the scoop on rates, affordability – and why now is the time to buy.

How affordability is affected by changing rates

As interest rates increase, the buying power of a borrower is lessened. Let’s say a homebuyer has $1,200 to spend on their monthly mortgage payment. If rates are 4 percent and the borrower secures a 30-year fixed conforming loan, their loan could total around $250,000. The monthly mortgage payment in these conditions would be $1,194.

Now let’s say rates rise 1 percentage point to 5 percent. With all the mortgage terms remaining equal, the borrower would pay $1,208 monthly for a loan totaling $225,000. That’s a difference of $25,000, or 10 percent, in buying power.

Many first-time buyers do not have a large down payment, and government and private lenders have changed their standards in order to accommodate these high earners with minimal savings. FHA loans can now be secured for as little as 3.5 percent down, while conventional (private) loans have a minimum of 3 percent down.

While these newer minimums have prompted many first-time buyers to enter the market, it also means these buyers are relying heavily on financing. And if rates increase slightly, they may need to look at adjusting their home buying budget a little.

 

The silver lining

The reality is that our local market is still a great place to buy!  Mortgage rates have risen slightly…but remain historically low.  During the last economic expansion from 2001-2007, mortgage rates hovered between 5% – 7%.  And in the 1990’s, rates were even higher, skirting between 7% – 9%.   Even with a slight uptick in rates over the past few months, it’s a great time -right now- to buy a home in Lexington and Central Kentucky!

Wondering What Current Rates Are?

Visit our partners over at HomeServices Lending to see current rates for multiple loan types. https://kentucky.homeserviceslending.com/rates

Do You Know The Different Types of Loans?

Check out our previous article, “Loan Types: Insights for Home Buyers”

 

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Home Buying Tips Home Insights Newsletter Featurettes

Loan Types – Insights for Home Buyers

If you’re considering buying a home, having a knowledge of basic mortgage terminology can help prepare you for meeting with a mortgage consultant. Here are insights you can use to understand basic loan types and how they affect different types of borrowers.

 

Fixed-rate vs. adjustable-rate mortgages

One of the first choices you’ll make when applying for a loan is if you want to have a fixed-rate mortgage or an adjustable-rate mortgage.  A fixed-rate mortgage has an interest rate that does not change for the life of the loan, so it provides predictable monthly payments of principal and interest.

An adjustable-rate mortgage typically offers an initial introductory period with a low interest rate. Once this period is over, the interest rate adjusts periodically, based on the market index. The initial interest rate can sometimes be locked in for different periods, such as one, three, five, seven or ten years. Once the introductory period is over, the interest rate typically readjusts annually.

Government-backed loans vs. conventional loans

There are two primary types of government-backed loans: FHA loans and VHA loans.

FHA loans are insured by the Federal Housing Administration and are typically designed to meet the needs of first-time homebuyers with low or moderate incomes. FHA loans can be approved with a down payment as little as 3.5 percent. Because the agency is taking on more risk by insuring these loans, the borrower is expected to pay mortgage insurance and the property must be owner-occupied.

VA loans are backed by the Department of Veteran’s Affairs and they are guaranteed to qualified veterans and active-duty personnel and their spouses. VA loans can be approved with 100% financing, meaning VA borrowers are not required to put down a down payment. Unlike FHA loans, borrowers do not have to pay mortgage insurance on VA loans.

Want more information on FHA and VA loans? Visit: https://kentucky.homeserviceslending.com/pages/fha-and-va-loans

 

Conforming loans vs. jumbo loans

Fannie Mae and Freddie Mac are two government-owned institutions that buy and sell mortgages on the aftermarket. By selling the loans to “Fannie and Freddie,” lenders can free up their capital and return to issue more mortgages than if they had to personally back every loan that they approve.

If a loan meets the standards that Fannie and Freddie have set, then it is considered to be a “conforming loan.” More than 90 percent of loans that are issued in the U.S. are conforming loans.

One main standard for conforming loans is that the loan must be under a certain amount. While loan limits can vary by county, the conforming loan limit for all counties in Central Kentucky is currently $484,350. If a buyer asks to borrow more than $484,350 in Lexington or Central Kentucky, the loan is considered a “jumbo loan.”

Jumbo loans are considered to be riskier for the lender, so the bank will typically require a higher down payment. Additionally, the interest rate on a jumbo loan may be higher than if the same borrower applied for a conforming loan.

Want more info on Jumbo or Non-Conforming Loans? Visit: https://kentucky.homeserviceslending.com/pages/jumbo-financing

Need help financing a new home? Understanding the loan types is step one. Step two is getting pre-qualified or pre-approved, so you know where you stand. Reach out today to get connected with a HomeServices Lending expert who can help you, no strings attached!

Second Opinion Incentive

We’ll give you a $100 Target Gift Card just for coming to us and getting a second opinion on your pre-approval.

Step 1: present a copy of the loan estimate or pre-approval letter from a non-affiliated lender

Step2: Obtain a pre-approval letter from us, allowing you to compare offers

https://kentucky.homeserviceslending.com/uploads/pages/2nd_Opinion_0_All_03312019_v2.pdf

 

 

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Home Buying Tips Home Insights Newsletter Featurettes

Can I Get a Mortgage if I have a Low Credit Score?

Mortgage with Low Credit Score

Many of today’s first-time buyers worry about their credit scores. Whether you have student loans you just can’t shake or you’re still plagued by a few missed payments from a college-era utility bill, don’t assume you will be locked out of the market forever due to your FICO score.

Here are insights you can use as you determine if you are eligible for a mortgage despite your low credit score.

If you have a low credit score, pay higher interest rates

Pay higher interest rates

You’ve likely heard that interest rates remain low by historical standards and you may be counting on the low rates you’ve seen quoted online. It’s important to remember that mortgage interest rates vary for each buyer and are closely tied to the risk they represent for the lender.

In other words, those with a lower credit score can still qualify for a loan, but they may have to pay a higher interest rate. Borrowers with a credit score of 760 or higher are likely (but not guaranteed) to obtain the lowest mortgage rates available. Meanwhile, those with a lower score could be approved at a higher interest rate.

 

Consider FHA loans

Buyers with low credit often opt for a Federal Housing Administration (FHA) loan. FHA loans are designed to act as “helper loans” to those who earn enough to pay a monthly mortgage, but lack the long-term credit history that would prove they are low-risk borrowers. 

As a result, FHA loans are often approved for borrowers with lower credit scores and they may require smaller down payments than conventional loans. Buyers with a credit score of 580 or above may be eligible for a home loan with a 3.5 percent down payment.

 

Show your credit score is on the mend

While your credit score may seem like a hard-and-fast number that will determine the fate of your approval, the reality is that two people with the same score can appear very differently to lenders.

Consider these two scenarios:

After losing their job during the Great Recession — and making a few late student loan payments as a result — Candidate A has not missed a payment of any kind in 25 months. They have a solid job history and their monthly rental payments to their landlord are comparable to what they would pay in a mortgage payment. As a result of their hard work and on-time payments, Candidate A has a credit score of 625.

 

Candidate B is forgetful and they have paid two car payments late so far this year. They carry a high balance on their credit card from month to month and tend to pay the required minimum at billing. They have changed jobs three times in the last two years but they pay a monthly rent that is comparable to what they would pay for a mortgage loan. As a result of their high credit card usage and shaky payment history, Candidate B’s credit score has slipped from 700 to 625 in the last year.

As you might imagine, Candidate A would likely be considered a less risky loan prospect than Candidate B — even though they have identical credit scores.

 

What happens if I’m not approved?

If you aren’t approved for a mortgage, it’s time to work diligently on increasing your credit score. You can also speak to a Rector Hayden Mortgage loan officer to determine how you can get on track for approval and formulate a plan to put you on the path to home-ownership.

 

 

Categories
Home Buying Tips Home Insights Newsletter Featurettes

Considering Buying a Condo or Townhouse?

Here’s what you need to know

Any homeowner shoveling several inches of snow, or addressing roof damage caused by a storm, has probably experienced thoughts of buying a condo or townhouse. The principal benefit of these types of properties is that much of the maintenance is handled by an Association — or in other words, someone other than you!

Should you decide to buy a condo or townhouse, you’ll want to review all the Association rules, policies and all documents carefully. Here are a few insights on what you should look for.

Look for potential costs of owning the unit

The freedom from certain maintenance obligations doesn’t come free of cost. Here are some things you should look for to better understand those costs:

  • Check the documentation to see what the regular Association fee is, and the due date. Typically, fees are charged monthly.
  • See if there are any plans for large improvements or repair projects. A share of these costs could be assessed to you in addition to your typical monthly fees.
  • You should be given a current budget for the Association. Review the budget to determine if there are sufficient reserves to handle unexpected maintenance costs.
  • Understand what the Association is required to maintain, and what is considered your responsibility as an owner.

 

Look for rules that may affect how you wish to use your home

Unlike a traditional single-family home, there may be restrictions on how you can use your townhome or condo. Some key restrictions may include:

  • A prohibition or limitation on pets
  • Restrictions on how your unit can be altered or improved
  • Limitations on renting the property
  • Not allowing the property to be used for a home business

The documents you receive as part of your townhome or condo purchase contain vital information.  Be sure to take the time to read them, so you can ensure that you’re able to use the residence as intended.

 

 

Get an idea of what your perfect condo or townhouse may look like!
Browse Rector Hayden’s current condo and townhouse listings:
http://www.rhr.com/condos-and-townhouses-for-sale.aspx

 

Categories
Home Buying Tips Home Insights

How Much of My Income Should I Spend on My Mortgage Payment?

Understanding your housing expenses

When a lender reviews your loan application, their main job is to verify that you are a low-risk candidate who will be able to cover your monthly housing expenses for the full life of the loan. To do this, they will first calculate your monthly PITI:

  • Principal of the loan
  • Interest on the loan
  • Taxes (estimated from annual payment)
  • Insurance (estimated from annual payment)

While every lender is different, and every loan application is reviewed independently, the general rule of thumb is that your monthly PITI should be between 28-35 percent of your monthly income before taxes. This number is known as your front-end debt-to-income ratio.

 

Understanding your debt obligations

Of course, you may have other long-term loans or debt obligations that you pay each month. Lenders will also take these debts into consideration as they review your loan application.

The easiest way to think of a debt obligation is to consider who you are paying back. Common debt obligations include:

  • Student loans
  • Car payments
  • Child support payments
  • Credit card minimum payments (if you have a long-term balance you are paying off)
  • Medical or hospital bills

To calculate your back-end debt-to-income ratio, the lender will add up your monthly debt obligations, including your hypothetical monthly PITI. They will divide that by your total monthly income before taxes.

Typically, lenders are looking for a back-end debt-to-income ratio of 35-45 percent. But again, every lender varies and your personal financial history and income history will also be factored in.

 

What about other expenses?

You have daily, weekly and monthly expenses that won’t necessarily be taken into account by a lender — but that doesn’t mean you shouldn’t think about them as you begin the path to home ownership.

Before you apply for a mortgage, take stock of your monthly expenses, including:

  • Groceries
  • Gas or transportation costs
  • Restaurants, coffee shops and gas station pit-stops
  • Mobile phone plans, cable television plans and streaming services
  • Shopping and gifts

It’s likely that you could tighten up one or two of your spending categories without too much effort. Your lender may not notice, but you’ll find it easier to afford your monthly PITI and debt obligations when you minimize your other expenses.

 

How can I calculate my buying power?

If you’re looking for an easy-to-use tool that takes into account your front-end and back-end debt-to-income ratios, check out these great calculators from Home Services Lending.