A credit score is a number ranging from 300-850 that depicts a consumer's creditworthiness that is based on credit history: number of open accounts, total levels of debt, and repayment history. The higher the credit score, the more attractive the borrower. So what can you do to increase your score and maintain healthy credit?
These practices will help boost your score and provide lenders with the highest confidence in your borrowing!
Refinancing might be a good idea if it lowers your monthly payment, reduces the loan term or provides a lower interest rate. A radius loan officer can help you decide if refinancing will help you accomplish one or more of those goals. Just like a regular mortgage, refinancing requires a credit check, an appraisal, and in many cases, paying closing costs or rolling them into the new loan amount.
Many experts say your mortgage payment and other monthly debts shouldn’t total more than 36% of your monthly income. However, this isn’t a one size fits all guideline.
Only you can decide what’s affordable. A mortgage lender can tell you the maximum amount you’re qualified to borrow, but that doesn’t mean it’s affordable. Borrowing less than you qualify for leaves some wiggle room in your budget in case money gets tight in the future. You’ll want to consult with your radius loan officer who can crunch the numbers and provide you with the most accurate range of options.
Before buying a home, you must take inventory of a few key factors involving not only financial readiness, but also life readiness as it relates to personal and professional goals.
It’s important to consider questions such as these;
Asking yourself about potential future circumstances will help you to understand your wants and needs as it relates to your home search.
On the financial side, there are three key elements to consider.
CREDIT SCORE: Your credit score not only determines what kind of loan you may qualify for, but is a major factor influencing the interest rate you’ll pay on a mortgage.
DEBT LOAD: Debt to income ratio is a metric that compares your total debt to your gross income. A low DTI indicates a stable financial standing, making a borrower a far more appealing prospect to lenders.
DOWN PAYMENT: There are both money-down and no-down-payment loans available; you’ll want to understand the pros and cons of each option, along with what amount you might be able to put down.
Understanding these metrics as they relate to your own finances, as well as your future goals will help you to determine if it’s the right time to search for your first home.
When seeking a mortgage loan, the first step is to submit your financial information to a potential lender. Based on this information, the lender will be able to estimate the loan amount that you will likely qualify for, and issue a pre-qualification. This can help make the homebuying process more efficient, by narrowing your search to homes that you know are in your budget range. Pre-qualifying, however, is just the first step, and is not a commitment to lend.
With a pre-approval, the information you provide must be documented and verified, including a hard inquiry on your credit report. What results is a far more accurate and reliable examination of your financial picture, allowing lenders to issue a conditional commitment to lend and providing sellers with the highest confidence in your ability to follow through on the transaction. In a competitive market, having a pre-approval in hand when searching for a home can help ensure that you stand out among the crowd.
PMI, also known as private mortgage insurance, is a lender's protection in the event that you default on your primary mortgage. In this case, the insurer pays the lender a portion of the mortgage balance.
When borrowers apply for a home loan, lenders typically require a down payment equal to 20% of a property's purchase price. If a borrower is unable to afford that amount, a lender will typically look at the loan as a riskier investment and require that the borrower take out PMI. The PMI is usually paid monthly as part of the overall mortgage payment to the lender but can be removed down the line, once a certain percentage of the loan principal has been paid.
Purchasing a home is a big decision, but it can have big benefits too that renting cannot provide:
Stability: first and foremost your home is YOUR HOME. A place that you can call your own.
An investment in your future. Each month you make a payment, you are one step closer to paying off your mortgage loan, and building equity along the way.
May provide a tax deduction. Each year, you may be able to write off your mortgage interest payments and property tax on your personal residence. There are other potential tax deductions tied to owning a home too. For some, this can be a significant tax savings. Be sure to consult your tax professional to determine what makes sense for you.
Appreciation of market value. While not all home values rise and fall at the same rate, over time, property values have kept up with inflation and can provide some price appreciation, which is helpful if you want to sell to move to a new location or into a bigger home. The combination of your equity build up and the appreciation in your home value will start you on the path of wealth creation.
Make it your own. Paint, decorate, remodel….when you own your home, you decide what improvements you want to make.
No more rent increases. When you purchase a home with a fixed rate mortgage, the payment for the principal and interest on your mortgage stays the same for the life of the loan, unlike rent, which typically increases every year (sometimes significantly!).
Loan payoff means no more mortgage payment! When you pay off your mortgage, which will happen over time, you will awaken one day and realize the joy of no more mortgage payments!
Residential mortgage loans fall into three basic categories:
Within each of these categories are specific loan programs that match the needs and circumstances of qualified borrowers.
Conventional, fixed rate loans feature one set interest rate over the life of the loan.
Conventional or “conforming” loans meet loan limits and other qualifications required by Fannie Mae and Freddie Mac, including:
loan amounts of up to $417,000 for a single-family home (this amount changes periodically)
somewhere generally between 5 % and 20% down
strong credit scores, with a minimum score of 620
Non-conforming loans don’t meet loan limits and other qualifications required by Fannie Mae and Freddie Mac. Adjustable rate mortgages (ARMs) and blended mortgages fall within this category.
Government loans provide financing for borrowers who meet specific housing requirements, income limits and other requirements.
The Federal Housing Administration (FHA), the Department of Veteran Affairs (VA) and the U.S. Department of Agriculture (USDA) provide loan programs for qualified borrowers.
We are committed to making this experience simple and enjoyable from beginning to end. We've streamlined our process to ensure that buying your home is as smooth and stress-free as possible.
Conversation: This first step is crucial and one that will set the stage for the entire process going forward. You and your radius loan officer will assess credit-worthiness, establish expectations, and discuss some available financing options.
Application: The goal of our application is to gather as much information as possible up front. This gives us a major head start and allows us to fly through the process.
Documents: This is where you come in. We need your help getting your documents in as fast as possible. You will team up with your loan officer to collect items such as W2s, Pay Stubs, Bank Statements, and Employment History.
Appraisal: We team up with an industry leading appraisal management company that helps us keep the ball rolling. By maintaining a high standard for who we partner with, we can streamline what is often an extremely time consuming step.
Upfront Underwriting: radius underwrites every loan at the beginning of the loan process. This gives you a major advantage in a crowded market, and helps prevent any last minute rushing. Our "reverse" approach is unique, and allows you to bypass an industry full of stressful and slow lenders.
Approved With Conditions: Congrats, you're now approved with conditions. Conditions are like little red flags that show there are still items to address. You will work with your loan officer and resolve these. Now it's time to move forward into processing.
Fast Track Processing: Our process is goal-oriented rather than deadline-oriented. Most lenders attempt to just work towards a closing date or deadline. This often leads to problems and rushing around hours before closing or even missing the closing date. At radius we do things differently. By working to a goal we can have closing documents out weeks before closing and avoid all the last minute craziness.
Final Underwrite: The Underwriter will now review your loan and verify that all conditions have been taken care of. The loan process is now complete and is ready for closing.
Closing: We work alongside the closing attorney to assemble the final paperwork and confirm the total funds needed for the closing day. Everything we do leading up to this point ensures that the closing table is a smooth and exciting experience. Now, enjoy the moment as you receive the keys to your new home.
Get pre-approved – A pre-approval letter (not a pre-qualification letter) is an important first step in successful home hunting, so real estate agents and sellers take you seriously. It also gives you a sense of your financial standing.
Get your documents in order – You’ll need to document two years’ worth of your gross income, down payment, and credit. We’re here to help, connect with us any time.
Understand your credit score – Your credit score plays a key role in determining several factors of the mortgage you get, and there’s more to it than just paying your bills on time.
Do not increase monthly debt – Doing so while you are going through the process of buying a home as it could negatively impact your ability to buy the property / qualify for a loan.
Keep paying your rent on time - If you are renting, be ready to prove timely rent payments for at least 1 year.
Social Security Number and Date of Birth. Required of you and any co-borrowers.
Current Housing Information. For renters: your address, the name and address of your landlord, proof of lease, and your current monthly rent. If you’ve lived at your current address for less than 2 years, bring information for your previous addresses. For existing homeowners: your address, current market value, mortgage lender, account number, current monthly payment, and outstanding balance due on the mortgage.
Employer(s) Verification. Names, addresses, and telephone numbers of your employers for the past two years.
Income Verification. Your two most recent pay stubs with year-to-date earnings, and W-2s for the past two years.
Self-Employment Documents. If self-employed, bring your profit and loss statement and balance sheet for the past two years, and two years of tax returns.
Additional Income. Bring documentation to prove you receive any of these additional forms of income: social security or veteran's benefits (provide copies of the award letter), overtime bonus, commissions, interest income, or alimony income from divorce/ separation agreements.
Tax Information. W-2 tax forms and tax returns for the past two years.
Bank Account(s) Information. Account number(s) and current balance(s) of your checking, savings, or any other account(s).
Assets Information. Statements of current assets, such as Individual Retirement Accounts (IRAs), Certificates of Deposit (CDs), stocks, and bonds. For individual investments, a current brokerage statement with the name of the stocks, the amount per share, and the number of shares owned.
Personal Property Information. Disclosure of the value of your personal property, including employee retirement accounts, furniture, cars (copy of titles to any vehicles owned), any valuable collections or other valuable property, and life insurance.
Credit Information. Credit card bills for the past few billing periods.
Rental Property Information. Federal tax returns and a schedule of all real estate property you own, plus account number and address of the mortgage company if any property you own is not paid for. If the property is rented, provide a copy of the current lease and rent payments in the form of canceled checks.
Gift Funds. If money for down payment is a gift from a relative, supply a copy of the gift letter (which should state that the gift money does not have to be repaid) and copy of the gift check.
Divorce or Separation Information. A copy of the divorce decree or maintenance agreement, along with any amendments and a 12-month payment history of alimony and/or child support payments, as well as documents if the payments are needed to verify your income and qualify for the mortgage.
Purchase Contract. Copy of the executed purchase contract and any addendums. If purchasing new construction, also include the plans and specifications documentation.
For more information about items on this checklist, connect with us anytime.
Want a PDF of this information? Click here to download.
Your credit report includes your current and some past credit obligations, if you paid those obligations in a timely manner, and both your outstanding and available credit. Your credit report also includes your credit score, which is derived from your payment history and how you access your available credit.
Just keep in mind that even with an excellent credit score you may not be able to get approved for a mortgage if your outstanding monthly payments on debt are too high in comparison to your monthly income. This is known as your debt-to-income ratio, and most mortgage lenders want it to be at 43% or less.
If you don't have a good credit score, you may still be able to purchase a home, but you will have fewer financing options and the cost of that financing will be higher. That’s why most mortgage lenders recommend you repair your credit prior to purchasing a home.
There are reputable credit counseling services that can help you understand what steps to take to improve your score (since it’s not always as simple as paying off debt), to make it easier to qualify for and obtain more favorable financing terms for your mortgage that will save you money.
The U.S. Department of Housing and Urban Development (HUD) has a list of approved counseling agencies on their website, and following are other organizations that provide credit counseling services.
Here is a reference guide to the more widely used phrases, concepts, terms, and acronyms Loan Officers and Realtors use when discussing the process and requirements of homebuying.
Condo Association or Homeowner’s Association Dues (HOA)
These are fees that are collected each month for common area maintenance and ongoing costs of managing the property. The association uses this money to pay monthly expenses and accumulate an amount to pay for repairs.
Credit or FICO Score
A credit score is a number assigned to a person that indicates creditworthiness. Lenders use credit scores to assess a buyer’s capacity to repay a mortgage. There are three credit repositories (Experian, Transunion, and Equifax) and each have their own scoring methodology. The FICO score, a credit score calculated with software from Fair Isaac Corporation (FICO), is the most widely used for making credit decisions. A FICO score ranges from 300 to 850. The higher your score, the less you typically pay for credit, the lower your score, the higher you will pay for credit.
A debt-to-income ratio is one way mortgage lenders measure your ability to manage the payments you make every month to repay the money you have borrowed. You calculate your debt-to-income ratio by adding up all your monthly debt payments and dividing them by your gross monthly income. Your gross monthly income is the amount of money you earned before your taxes and other deductions are taken out.
Earnest Money Deposit
It is typical for a buyer to deposit earnest money when entering into a contract to buy a home. This is NOT an additional cost but a portion of the money that will be needed to close the purchase transaction. This money is held in trust by the real estate agent and will be applied to settle the total costs of the transaction (including any contractually obligated costs, loan fees, down payment, etc.).
Every mortgage loan servicer is required to establish an escrow account where funds from the monthly mortgage payment are kept separated from the account holding principle and interest, and used to make payments for certain fees that apply to the mortgage, usually property taxes and homeowner’s insurance.
Escrow or Closing Agent
Your escrow or closing agent is responsible for making sure that all of the contract conditions tied to the purchase and sale of a property have been met, such as money collected and transferred, documents signed, and deeds recorded. They typically work for an escrow company, or in some states, could be an attorney.
Escrow or Closing Company
An escrow or closing company is commonly used in the transfer of high value personal and business property, like real estate. If you have an escrow company handling your closing, that means that the agent will make sure that all of the conditions of sale are met and any money transfers happen within their trust accounts.
Flood insurance is a form of property insurance that pays the policyholder in the event of flood damage to the property. In certain flood-prone areas, a mortgage lender will require flood insurance as a condition of approving a mortgage loan. This coverage is also in addition to ordinary homeowner’s insurance and does not cover your personal property.
All parties to the transaction appear in person. Loan documents are electronically signed by the borrower(s) and documents requiring notarization are printed and signed in ink.
Hazard insurance is part of the coverage provided by your homeowner’s insurance policy that provides specific protection for a broad number of perils. Some of these perils are natural hazards, such as fire or hail damage, while others are manmade, such as theft or vandalism.
It's important to remember that not all insurance policies are the same. In some cases, coverage can differ from one state to another. For this reason, it's vital that you have a clear understanding of what is covered by your policy and never assume that certain perils are covered.
All parties to the transaction appear in person and all documents are electronically signed, notarized and recorded.
Interest Rate Float
Floating the rate, during the time from submitting your loan application and prior to closing, is a concept that allows you to wait to choose a final interest rate on your transaction. While the rate is floating, you are assuming the risk that interest rates will not go up or that they will fall. If rates have been dropping, then you might want to float the rate in the hope that rates will be even lower by the time you close your loan.
Interest Rate Lock
A rate lock is a guaranty from a mortgage lender that they will give a mortgage loan applicant a certain interest rate, at a certain price, for a specific time period. The price for a mortgage loan is typically expressed as points paid to obtain a specific interest rate.
Lender’s Title Insurance Policy
Required on all mortgage loans and purchased by the buyer, a lender’s policy protects the lender’s security interest in the property. This policy DOES NOT protect the buyer.
Loan-to-Value or LTV
This is the percentage of the purchase price that will be financed as a mortgage.
Monthly Mortgage Payment or PITI
Your monthly mortgage payment, also referred to as PITI, often includes the following:
Principal and Interest (P&I): Amount collected by the lender to repay the amount you borrow and the interest on it.
Property Tax (T): Amount collected by the lender to pay local property taxes when due.
Insurance (I): Amount collected by the lender to pay hazard or homeowners’ insurance, which covers the property in case of fire or other type of disasters. Lenders typically collect a monthly amount necessary to pay the annual premium every year.
A type of loan used to purchase residential property (your home). The property serves as security or collateral to a creditor (your lender) for the debt (the amount you borrow). This means the lender can take possession and sell the property to pay off the loan if the borrower defaults on the loan or fails to adhere to its terms.
Mortgage Insurance, MI or PMI
For homebuyers, mortgage insurance enables them to become homeowners years sooner by helping them purchase a home without a 20% down payment. For mortgage lenders, mortgage insurance is the first level of credit protection against the risk of loss on a mortgage in the event a borrower is not able to repay the loan, and there is not sufficient equity in the home to cover the amount owed. There are two types of mortgage insurers: government agencies and private insurers. The main government mortgage insurer is the Federal Housing Administration (FHA). Like private insurers, FHA insures lenders from losses when borrowers default; however, unlike private insurers, the taxpayers bear substantially all the financial risks when those loans are not repaid. More information on the differences between mortgage insurance and FHA loans can be found here.
Owner’s Title Insurance Policy
An owner’s policy protects the buyer and heirs against any financial loss from potential title defects (forged documents, undisclosed or missing heirs, missing signatures, unknown creditors, mistakes in public records, zoning violations, etc.). The policy will cover legal assistance and any valid claims. An owner’s policy is optional but considered absolutely necessary for the peace of mind that comes with knowing their interests are protected. The policy is purchased at closing for a one-time, upfront cost.
Personal Tax Rate
Your personal tax rate is the percent of taxes to gross income you pay on your Federal Income Tax Return.
Property Tax and Property Tax Rates
Property tax is paid to your local county tax authority and each county sets its own property tax rate. Your property tax is calculated by taking the county’s assessed value of the property and multiplying it by the tax rate.
All parties to the transaction appear through electronic means (audio & visual) and all documents are electronically signed, notarized and recorded.
A condition of approving your mortgage loan is that it must be the first or only lien on the property. Title insurance protects an owner's or a lender's financial interest in a property from losses due to title defects, such as liens against a property that have priority over the mortgage loan. It is purchased as part of the closing process for a mortgage.
The list below is a great way to get started on the path to finding your new home. It outlines important things to consider before you begin your search.
Geographic Location: Consider factors such as average home prices in the area, job opportunities in your field, proximity to family, and climate preferences.
City vs. Suburbs vs. Rural: Consider the type of area you want to live in, and what your needs are. Do you prefer the space that suburban or rural living provides or do you prefer the closeness of city living?
Type of Home: Condos, townhomes, house, square footage and outdoor space – there are so many variables to consider. Are you a do it yourselfer when it comes to home maintenance or would you prefer the ease of care afforded with a condo? Remember condos and townhouses will probably have the added cost of a Homeowners Association Fee.
Neighborhood: Choosing the right area to fit your lifestyle and personality, as well as researching facts and statistics on things such as income averages, education, school district performance, etc. to get a better sense of the community.
School District: An important consideration if you have or plan to have children. Are you looking for private or public school system, and consider the costs involved. Areas with good school districts will hold their value in future years and afford you larger purchase demographic when you go to sell.
Proximity to Work: Your daily commute, and how much time you are willing to drive or take public transportation in your everyday routine. Calculate the added costs of a long commute along with your commute time.
Safety: Most would consider safety a key factor in selecting a neighborhood. There are online resources that allow you to check crime rates for an area you are considering.
Leisure Activities: Free time is always something to consider. Do you want your new home to be close to sports, restaurants, shopping, culture, etc.?
Visit During the Day and Night: You don’t just live in your home and neighborhood during the day. Before you decide on a home, it’s important to visit it at different times of the day and night to get the best sense of the neighborhood.
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