Mortgage Challenges For Self-Employed Home Buyers

Mortgage Challenges For Self-Employed Home BuyersIt’s no secret that mortgage lending institutions look favorably on steady paychecks and positive debt-to-income ratios. That can leave many self-employed prospective home buyers feeling anxious about getting approved for a mortgage. But just like the 9-to-5ers who get regular paychecks, self-employed people earning a good living can get approved with a little due diligence.

The primary concern of mortgage lenders is not necessarily where your revenue comes from, it’s confidence that you can meet the monthly obligations. A lender probably wouldn’t see a significant difference between someone who was paid every two weeks and another paid monthly. Why should a self-employed earner be any different? While there are differences, that doesn’t necessarily have to be a bad thing.

Self-Employed Mortgage Applicants Face ‘Different’ Scrutiny

When reviewing a self-employed person’s mortgage application, the lender can expand their consideration to items related to your business. Factors such as stability, longevity, location, and viability are issues that can come into play.

This type of review mirrors that of steady paycheck earners in terms of length of employment, history of layoffs and other potential revenue setbacks. There really isn’t a higher standard than for self-employed mortgage applicants. You enjoy a different professional life, and the process reflects those differences. That being said, there are a number of things you can do to put your best foot forward toward mortgage approval.

Strengthen Your Self-Employed Mortgage Application

First and foremost, every mortgage applicant must be able to demonstrate an ability to meet the monthly payments on paper. There is no way around the debt-to-income ratio. And although many self-employed people exercise some lifestyle flexibility in terms of tax deductions, your numbers have to prove you can take on a mortgage. That being said, there are important items you may want to consider when applying for a home loan.

  • Revenue Stability: Volatile swings in revenue are not generally persuasive. Lenders tend to like steady and positive growth reflected in your business and personal earnings.
  • Tax Returns Matter: This can be particularly problematic for people who find creatively legal ways to make revenue tax exempt. Home offices and company cars can lower your taxable income, but they also reduce your ability to pay the mortgage, at least on paper. Plan ahead by strategically filing strong earned-revenue tax returns.
  • Consistency Matters: There are a few ways to demonstrate consistency. It can be level monthly earnings or multiple years of tax returns in the same business. Your income may only be considered if it fluctuates in a way that frightens lenders.
  • Good Credit: Some cash-oriented people tend to discount the value of credit scores. The adage that “cash is king” may apply to the down payment, but a poor credit history can hurt your chances with lenders. Think “credit is king” when applying for a home loan.

Being self-employed does not mean you are at a strategic disadvantage when applying for a mortgage. But keep in mind that the home loan review can be slightly different.

As always, your best next step would be to consult with your trusted allies in real estate transactions – your trusted home mortgage professional and your trusted real estate agent. These partnerships can make a world of difference in the success of your home buying experience.

Is a Hard Money Loan the Right Strategy for You?

Is a Hard Money Loan the Right Strategy for YouWhen used as a part of an effective real estate investment strategy, hard money loans are an excellent tool to quickly increase holdings without risking existing properties. However, these loans aren’t for everyone.

What investors get the most value from hard money loans?

Investors With Less-Than-Stellar Credit

Investors with credit challenges can qualify more easily for hard money loans. That’s because these loans aren’t based on the borrower. While you will have to prove a measure of creditworthiness, hard money lenders are more interested in the property you plan to buy. If you default on your payments, the lending bank simply takes possession of your property. For that reason, high-value properties in good condition fetch the best terms with hard money lenders. 

If you’re turned down for more conventional funding sources, you may still be able to move forward with a hard money loan for the right property.

Cash-Strapped Veteran Investors

When the market is hot, it’s not unusual for an investor to sink the majority of their liquid assets into new properties. However, this can leave them left out in the cold when new properties come up for sale.

Experienced flippers who are temporarily out of cash can use hard money loans to fund the purchase of additional properties. This allows them to continue expanding their holdings without compromising money earmarked for other projects. The short loan term is no problem for these investors since they know a property sale is always imminent.

Quick Investments: When You Can’t Wait

Sudden auctions can be a blessing to real estate investors. Sometimes, however, these deals pop up at the least opportune time. If you have your eye on a property that promises to go fast, a hard money loan can get you the cash you need in less time than conventional sources. That means you can take advantage of rock-bottom cash auctions quickly.

Since hard money loans don’t have the most favorable repayment terms, many investors choose to convert them into more conventional loan structures after the initial purchase. This strategy allows investors to participate in quick sales without sacrificing too much profit to interest payments.

Hard money loans are a unique source of funding for real estate investors. Use them wisely to realize the benefits and increase your investment income.

Your trusted home mortgage professional can help guide you through all of your financing options. Another important key partnership is with your trusted real estate agent. These skilled professionals are well-versed in many types of real estate transactions. 

3 Tips To Save For A Down Payment

3 Tips To Save For A Down PaymentSaving up for a down payment can feel overwhelming. Most people have never saved up the kind of money it takes for a down payment. It can be done, though. The goal is to put 20% down on a house. This is what it takes if you don’t want to have to pay private mortgage insurance every month.

However, you don’t have to absolutely put 20% down. Some mortgage programs, such as VA and FHA loans, let borrowers put down as little as zero down or about 3.5% down. There are extra requirements with any kind of mortgage you get, so be sure to discuss those with your lender.

Whichever kind of mortgage you decide to try for, here are some tips for saving for a down payment.

Get A Head Start

The sooner you start saving for a down payment, the easier it will be. Even if you currently can’t see having any extra money for savings, tuck as much as you can into a savings account. Every single dollar will help later on. 

Invest Safely To Earn Interest On Your Down Payment

If your home purchase goal is two or more years away, consider investing your savings so it earns interest. Since you’re counting on that money to use for a life goal, invest in things with low or no risk. Also, invest in things that allow you to cash out with no penalties when you think you’ll be ready to buy.

Ideas include a bank CD, money market, tax lien certificate, or municipal bonds. You won’t earn massive amounts of interest with any of these vehicles, but in return you’ll have flexibility and security.

Request An Inheritance Advance

If you know that your parents have you in their will, you can request to get part of your inheritance early. Your parents may be able to give you up to a certain amount for your mortgage down payment with no penalty.

Be sure to check with your potential lender. Some mortgage programs have caps on how much of the down payment can be sourced from a third party.

Once you decide what kind of home you might like, and which mortgage programs you might qualify for, you can decide how much you’ll need to save for a down payment. Use these three tips to save up. Before long, you’ll be ready to start shopping for the home of your dreams.

An essential partner is your trusted home mortgage professional. You can count on them to guide you every step of the way through your home loan process.

Remember, it’s never too early to contact your real estate professional. Looking at properties you like can be a helpful motivation to keep saving!

 

 

U.S. Wage Increases Could Help Home Buyers

U.S. Wage Increases Could Help Home BuyersThe struggle to achieve the American homeownership dream often feels like it happens in a vacuum. Everyday people work hard, save money and polish up their credit to get a low mortgage rate.

But there are powerful forces at work that are far beyond each person’s control. And until recently, the gap between American wage growth and rising home prices was widening. According to data coming out of the U.S. Department of Labor, unemployment recently hit a 49-year low and wages are enjoying the greatest uptick in nearly a decade. That is good news for prospective home buyers.

American Wages On The Rise

The 2018 economic news has seemed like one long greatest hits album. Historic-low unemployment for African-Americans and Hispanic-Americans has spurred confidence among these groups and the national unemployment has been steadily under 4-percent. The stock markets are booming, and the GDP growth has been impressive.

But there has been some frustration over stubborn wages that haven’t kept pace with other metrics. A report following stagnant salaries in February pointed to no slow down between rising home prices and wallowing pay rates. The growth rate was reportedly a modest 0.1 percent gain in February and that put Americans behind the curve in terms of buying homes.

But numbers coming out of the second quarter jobs report point to a 10-year high wage increase. The Bureau of Labor and Statistics reported wages are rising as employers compete to fill positions and the 12-month increase stands at 2.9 percent through August.

These are key numbers that may put a smile on potential home buyers’ faces.

  • Wages rose 0.5 percent in the second quarter of 2018.
  • Through August, wages rose 2.9 percent over the previous 12-month period.
  • Private industry compensation increased by 2.9 percent.
  • Government compensation increased by 2.3 percent, down from 2.6 in 2017.
  • Sales jobs gained by 3.5 percent.
  • Transportation jobs increased by 3.4 percent.

Experts are also claiming that setbacks from hurricanes likely blocked wage growth from topping the 2.9 high in 2009.

Where The Housing Market Stands

There’s little doubt that the surging economy put a higher number of Americans in position to purchase homes. However, inventory has remained well behind demand and that created a seller’s market with rising listing prices. But home prices are coming within reach for more people in 2018 and possibly 2019 market.

Since bottoming out in 2102, today’s home prices reportedly stand at about 6 percent higher than they were at their 2006 peak. That is not necessarily an indication that another housing bubble exists. Rather, the uptick in home prices is a natural reaction to an inventory shortage and economic growth.

The optimistic news for prospective home buyers is that wage growth appears to be gaining on home costs. As the gap closes, it’s likely that more and more people will be financially able to secure the American Dream of owning a home.

If you are in the market for a new home, be sure to contact your trusted real estate professional!

Best Things To Do Now To Get Your Finances Mortgage Ready

Best Things To Do Now To Get Your Finances Mortgage ReadyYou probably already know that qualifying for a mortgage can be the biggest hurdle — aside from actually finding that dream property — along the path to home ownership.

Rather than agonizing about it, however, there are some positive actions you can take in advance to help you realize your dream.

Take A Close Look At Your Budget

If you don’t currently operate with a comprehensive household budget, get started now to analyze your income and monitor your spending habits. There’s no better way to prepare for home ownership than by being realistic about how you spend your money. If you don’t have a regular savings program, or if you’re constantly short on cash prior to the next payday, take steps to remedy the problem. Plan for the future by getting the present in check.

Gather Employment And Earnings Records

Mortgage lenders want to see stability and commitment. Finding and organize your employment records to show a consistent earnings pattern and, hopefully, a record of growth, both in terms of income and responsibility. Simplify the task of gathering required documents by collecting all records in a binder or notebook that can easily be copies when it’s time to submit them to a lender. It’s a confidence-building step as well.

Organize Your Banking Records

Lenders will not only want to see employment records, but they will require copies of all bank and investment accounts as well. Again, by being organized and getting a handle on your dollar inflow and outflow, you’ll gain insights into your individual spending habits and make the job easier for a mortgage specialist.

Make Copies Of Your Tax Returns

Tax returns confirm and validate all the other financial information that you will be required to supply. Typically, returns for the past two or three years will be required. If you own a small business or have income in addition to that from paid employment, make copies of those records as well.

Put A Halt To Spending

Perhaps the best way to demonstrate your serious intent to purchase — and pay for — a new home is by curtailing your spending on impulse purchases and expensive entertainment. This is not the time to buy a new car, book an exotic vacation, purchase major electronics or even home furnishings, or commit to time payments of any sort. Frugality should become your mantra in the months leading up to loan qualification.

Monitor Your Credit Cards

If your credit rating is within acceptable limits, do what you can to make all payments on time, pay down balances, minimize new purchases and demonstrate your continuing ability to “live within your means.” Do not apply for new credit cards, no matter how tempting the offers, because increased account activity can adversely affect your FICO score. In addition, if you have a blip on your credit report, do what you can to repair it prior to making a mortgage loan application, or be prepared to explain the circumstances, in detail and in writing.

Applying for a loan need not be scary. Understanding the financial reality is a great benefit.

Securing your financing is an important part of the home buying experience. Your trusted real estate agent is ready to help you every step of the way.

4 Things You Should Know About Conventional Mortgage Rates

4 Things You Should Know About Conventional Mortgage RatesSecuring the best conventional mortgage rate possible can pose a challenge for even veteran property buyers.

Your mortgage rate will be determined by a variety of factors that pertain to your unique financial portfolio as well as economic forces. While no one has full control over all of the things that influence the process, understanding the manageable aspects can improve your negotiation position when securing a conventional mortgage.

Consider these four things that impact how conventional mortgage rates are determined.

1: Credit Is King

A borrower’s credit score has a tremendous impact on the final mortgage rate. The general rule is that the higher the score, the lower the rate. The opposite generally holds true as well.

Lenders usually require a minimum credit score of at least 620. Some will dip as low as 580. If yours falls lower, qualifying for a conventional loan may not be an option. But the good news about credit scores is that this is an element you have control over.

A credit report details your repayment history, previous loans, credit card and financial bandwidth, so to speak. Before mortgage shopping, get a copy of your credit report, clean up any blemishes and amp it up as high as possible.

2: Economic Growth Matters

The average home buyer has zero control over the economic forces that impact mortgage rates. But you do have choice about when to buy.

It’s no secret that the country is in the midst of tremendous GDP growth, historically low unemployment, improved consumer confidence and rising wages. This may seem like a good time to buy. Not necessarily when it comes to conventional mortgage rates.

Prosperity tends to create an uptick in consumers vying for home loans. That demand seems like a good thing. But the Fed often responds to high levels of consumer confidence by raising rates across the board. The theory behind this unfortunate environment stems from the idea lenders have limited resources.

It may seem counterintuitive, but weak economies often enjoy lower rates. For practical buying purposes, the U.S. economy looks like a juggernaut right now. You may want to buy sooner rather than later. Rates could go up again.

3: Price And Down Payment

Another set of facts that you have control over are the down payment amount and price of the home.

Conventional mortgages require a minimum down payment of 20 percent or higher. Like credit scores, the higher the down payment to better positioned you will be to secure the lowest possible rate. The basic concept trails back to the level of risk the lender takes by writing the loan.

For example, borrower defaults often force banks to take losses upwards of 30-60 percent of the loan. That 20 percent shows that you have real skin in the game and are less likely to stop paying the monthly premiums. Big down payments often correlate to lower mortgage rates.

Although 20 percent remains the industry standard, borrowers can secure a loan with less down. If you qualify for a conventional loan with less than 20 percent down, expect a less than desirable rate and the additional cost of private mortgage insurance. It’s kind of a double whammy.

4: Loan Types Differ

There are several variables in the loan-writing process that directly impact rates.

Most loans have terms of 15-30 years and lenders are more apt to offer lower rates on shorter term mortgages. Fixed- or adjustable-rate types are also profoundly different. Adjustable mortgages tend to enjoy lower rates in weak economies. But when the country ramps up, so does your interest rate and monthly premium.

Fixed-rate conventional mortgages are static throughout the life of the loan. The rate may be slightly higher at the closing. However, you won’t be betting against the economy.

Lastly, borrowers have the ability to buy points. This practice allows borrowers to pay more upfront costs and enjoy lower mortgage rates for the life of the loan. It’s one method some people use to overcome less-than-perfect credit scores.

Contact your trusted real estate professional to discuss the best plan for finding and securing the home of your dreams.

Seller-Paid Closing Costs In A Seller’s Market? Yes, It’s Still Possible

Seller-Paid Closing Costs In A Seller's Market Yes, It's Still PossibleFor first-time home buyers, closing costs are a major hurdle for home ownership. Coming up with a down payment and several thousand dollars for closing costs can be hard without home equity to tap.

To help, buyers often ask sellers to cover all or some of these costs. In markets favoring buyers, this is a common habit, but when the market switches to favoring sellers it becomes harder. Sellers who know they may get multiple offers are less likely to say “yes” to this request.

Yet even when the market favors sellers, buyers can still ask for this help. It all depends on how the offer is presented. Here’s how to potentially make it look appealing, even with other offers on the table.

Buyers Need To Consider The Total Amount

Many sellers build negotiation room into their asking prices. This means they anticipate some offers coming in that are lower than their asking price.

Buyers asking for closing costs can offer the full asking price or more than the asking price to make the offer more appealing.

For example, if the buyer needs $2,000 in closing costs, and offers $2,000 more than the asking price, the seller won’t stand to lose money and will find the offer more appealing. This, in effect, rolls the closing costs into the loan.

On the flip side, if a buyer makes an offer well below the asking price, then also asks for closing costs, the seller is likely to say no.

Buyers Should Consider Other Components Of Their Offer

Sometimes the problem the buyer faces is a lack of cash to cover the closing costs, particularly when using a no- or low-down payment loan option. To make the offer more appealing, buyers should look at the rest of the offer’s terms.

For example, a buyer may ask for closing costs but overlook other contingencies, such as non-urgent repairs. This makes the offer appealing, because the seller’s costs even out.

Buyers Can Offer To Close Quickly

Another way to make seller-paid closing costs something a seller will accept is moving the closing date up. Most sellers want to sell quickly, so the faster the buyer can close, the better the offer may look.

For buyers in a seller’s market who need closing cost help, the key is to make all other aspects of the offer appealing. By doing so, these buyers may just get the closing cost help they need to move forward with their home purchase.

Your trusted real estate professional is well-versed in the art of negotiation and will be a great resource to guide you through your home buying or selling process. 

Top Tips To Get Mortgage Pre-Approval Fast

Top Tips To Get Mortgage Pre-Approval FastWhen buying a house in a market that favors sellers, buyers must be able to move quickly. Mortgage pre-approval is critical to this. Here are some tips buyers can use to get approved fast.

1. Estimate Purchase Costs

Buyers need to know what their target purchase price is. This could speed up the pre-approval process according to Realtor.com.

If buyers have been saving for a down payment, they should also tell the lender the amount they plan to put down on the home. Again, this helps speed up the pre-approval process and ensures greater accuracy.

2. Check The Credit

Lenders will check a buyer’s credit score before offering mortgage pre-approval. Checking their own credit first and making improvements if needed could help buyers speed up the approval process.

Buyers who have credit problems may want to reach out to their lender first to see what they can do to improve their credit situation. Lenders know what strong credit looks like and may help buyers make changes that improve the credit score quickly.

Knowing credit ratings before asking for mortgage pre-approval also helps buyers know what to expect from their mortgage offer. The better the credit, the better the terms on the mortgage the bank offers.

3. Get The Paperwork Ready

If the lender has to ask for a piece of paperwork after starting the approval process, a buyer will face delays. Organizing all paperwork and delivering it with the pre-approval application should help.

Start with proof of income that will be used to qualify for the mortgage including 30 days of pay stubs and the previous two years of tax returns with W-2s or 1099s.

Buyers should then gather two months of savings and checking account documents.

Finally, anything connected to retirement, assets, or 401(k) funds needs to be included.

If the buyer has any funds deposited that were from regular paychecks or do not show in the employment and payment records, they may need to have a written explanation.

4. Present Everything Clearly To The Lender

Buyers who bring everything they need to the lender in an organized fashion should get their pre-approval letters quickly. Sometimes lenders can deliver the letter the same day that they receive the information.

That said, buyers with complications, like unusual employment structures or credit problems, may face delays. Most lenders are able to deliver an answer within a few days, even with complex applications.

Mortgage pre-approval is a critical tool in the negotiation tool box for home buyers. Doing a little homework and preparation first can help buyers get approval fast, even in a competitive market. With approval, the chances of a successful offer increase significantly.

A pre-approval in hand will make home buying a much easier experience. Your trusted real estate professional can now help you find just the right home in the right price range for you.

What You Need To Know About Short Sales

What You Need To Know About Short SalesOn the surface, a short sale seems like the perfect deal. However, before you take the plunge, you need to understand how this type of home purchase works.

What Is a Short Sale?

A short sale is a home sale in which the homeowner is selling the home for less than he or she currently owes on the mortgage. In most cases, this means that the buyer is paying less for the home than it’s worth, which leads to instant equity.

Short sales allow homeowners to get out from under mortgages without damaging their credit as much as a foreclosure. Lenders often agree to short sales because the foreclosure process is lengthy and expensive, so short sales can be more beneficial for both parties in the long run.

Advantages

When you buy a short sale, you can often get a nicer home for a lower price. In most cases, you will still be able to use financing to purchase a short sale.

A homeowner attempting a short sale also tends to be highly motivated, which means they will be willing to negotiate on almost any aspect of the sale.

Disadvantages

Although purchasing a short sale can be lucrative, the process isn’t easy. Short sales can take as long as nine months to complete, which is much longer than the time required for the typical home purchase.

Because the homeowner owes more on the mortgage than you will be paying, the bank must agree to the price. This means that even if the homeowner is willing to accept your offer, the bank can still reject it.

If the home secures more than one mortgage, all of the lenders must agree to the sale before it can close. This can lengthen the process even more.

Even though the bank will hold up the process, they will want you to be flexible. Banks are less likely to approve offers from buyers with multiple contingencies, such as a house that needs to sell before closing.

Should You Purchase a Short Sale?

The decision to make an offer on a short sale home is personal. Although there are many obstacles and potential disadvantages, you may be able to save money and build equity quickly if you are able to complete a short sale successfully.

Keep in mind that most banks considering a short sale will want to see a well-qualified borrower who offers flexible closing terms, so it’s best to contact your mortgage professional for a pre-approval before you make an offer on the home.

Your trusted real estate professional is a qualified partner to help you with a short sale home purchase.

What You Need To Know About Your Home Appraisal And Your Mortgage

What You Need To Know About Your Home Appraisal And Your MortgageWhen buying a home, there are certain steps a buyer should go through before the home sale is official. First the buyer makes the offer, then the offer is accepted.

Next the buyer schedules the inspection and home appraisal. Finally, everyone is ready for closing.

It’s easy to overlook the impact of some of these steps, but when it comes to a mortgage, the home appraisal is actually quite important. Banks want to see that they are lending money for an investment that is worthwhile, so that appraisal is a crucial step to getting financing. Here is what buyers need to know about how the appraisal could affect their mortgages.

Understanding The Home Appraisal Process

The home appraisal gives a home valuation expert the chance to evaluate the home a buyer’s considering to determine its market value. Home appraisers are highly trained, state-licensed professionals that know how to evaluate homes and assign value to them.

The appraiser will use various approaches to determine the final appraised value. The appraisal typically happens after an offer on the home was approved but before the lender loans the money.

The Appraisal And Mortgage Approval

The appraisal is one factor that a mortgage lender considers when deciding whether or not to approve a final loan request. Even if a borrower had preapproval, a low appraisal could cause the mortgage to fall through.

Why is this? A lender only wants to lend enough to cover what the home’s actual value, and if the appraisal comes in lower than what the borrower is asking for, the lender can deny the loan.

If the lender does not deny the loan completely, they may refuse to lend more than the home’s value. In order to buy the home at the agreed price, the buyer may need to come up with the difference in cash at closing.

What Can Buyers Do If The Appraisal Is Low?

If an appraisal comes in low on the home someone wishes to buy, the buyer shouldn’t panic. It is possible to get a new appraisal at a higher value.

First, consider the condition of the home. Did the seller let some things fall into disrepair? If the seller fixes those items, a new appraisal may be higher.

Does the home look rundown or cluttered? This shouldn’t affect the appraisal, but it can sometimes cause the appraiser to trend lower. Sometimes, simply asking for a second opinion might get a slightly different appraised value.  That said, if the appraisal is low, make sure to evaluate the purchase price. Is it in line with current market conditions and the overall condition of the home?

If the answer to that question is no, then the offer may be too much for the home. The appraisal, in this case, gives the buyer the opportunity to reevaluate the purchase decision.

When it comes to mortgage approval, the appraisal is one of the critical steps in the process. If a buyer has shopped wisely, the home should pass with flying colors, and soon the home sale process will be over.  As always, your trusted real estate professional is the best resource for appraisal information in your local market.