Preferred Properties of Texas

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When Should I Upgrade to a Bigger Home?

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#1. How do you know you need a bigger place?

Is getting more crowded in the bathroom in the mornings? Our kids piling up in the bedrooms? Do you feel like you’re just walking over everybody throughout the house? It might be time to upgrade your home. You might just be a little bit of space. Maybe you have pets and are taking up more space than you’d like. Maybe you need a bigger backyard, your family room, larger layout or just a more open space; whatever the reason, you know you need more home.

When Should I Upgrade to a Bigger Home?

#2. Can we afford it?

In this market, you might be nervous about selling your property and buying another one because of everything going on right now. It might be a great time to sell but is it a good time to turn around and buy again? It’s important to talk to your real estate agent and your lender about buying and selling at the same time.

Your lender will discuss how much you need in order to afford a bigger home and what the current market is doing so that you know how much you can sell your home for in order to put more equity into your new home. A lender will also look at all of your income, debts, assets, and liabilities to give you a fair and accurate assumption of how much you can afford in a monthly mortgage payment.  If everything falls into place perfectly, you may be able to transition easily.

#3. How much does it cost to buy and sell simultaneously?

This really is a balancing act. Lenders, escrow agents, real estate agents, buyers and sellers all need to work together to make a cohesive simultaneous purchase and sale. But, don’t fear, because it can happen. It happens all the time. You have to decide when is the right time to do it and do you sell first or by first? There are a lot of factors involved to that one question. Your agent may feel that now is a great time to sell and then look for homes or look for the right home and then put the house on the market because it will sell quickly. This really is a strategic game to play and an experienced, qualified and seasoned agent can help you get there.

A lot of times you can simply move money from one house to the other making your out-of-pocket costs very minimal. You may have to pay for a home inspection out-of-pocket, which can run anywhere from $300-$800. But, closing costs, and down payments may be able to come from the sale of your existing house. You may need to come up with an earnest money deposit, which is typically 1% to 3% of the purchase price of the home you are buying.

Upgrading because you need it is a necessity for your family. Finding the right home and pulling the trigger at the right time is something that you, your lender and your real estate agent can all discuss.

Thinking of selling and moving up? Give Preferred Properties a call today for all Stephenville, Texas and surrounding area properties.

Getting a Mortgage When You’re Self Employed

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mortgage self employed

Getting a mortgage can be a difficult process, and getting a mortgage when you’re self employed even more so. Lenders look at a number of different factors when determining whether to offer you a loan and what the terms of that loan should be. And one of the biggest factors is the reliability of your income. If you’re a business owner, freelancer, or other type of self employed worker, you’ll have to be able to prove to the bank that you’re not a risky investment—and that’s sometimes easier said than done.

Still, getting a mortgage when you’re self employed is far from impossible. Here’s what you’ll need to know to navigate the mortgage process without a W2.

What Lenders Are Looking For

The reason that getting a mortgage when you’re self employed is often such a tough hill to climb is that, on its face, a self employed income isn’t as verifiable as one that’s backed by a contracted salary. Banks will have questions about just how secure your prospects are, as well as what they can expect from your income moving forward.

A major determining factor here is your credit score, which isn’t affected by your self employed status. However, it’s not the only thing lenders are looking at. Your income is just as crucial, and can make the difference between getting a good loan at a good rate and not getting a loan at all.

When it comes to proving the viability of your income, lenders are looking at a few major factors:

    • The demand for your business (The state of the industry, including unique variables like location and profit potential)
    • The financial history of your business (How much money have you made from your business in the past?)
    • The financial stability of your business (Do you make relatively the same amount year to year, or is your annual take-home pay extremely variable?)

The big question they’re getting at here: Will your business enable you to pay back your loan? That is, after all, their primary concern.

Also taken into account will be your debt-to-income ratio, which is the amount you make versus the amount that you owe toward things like credit card debt and student loans. (Or more specifically: monthly debt-related payments divided by monthly income.) If your ratio is favorable—43% or less—then you’re in a much better spot for getting a mortgage.

How to Prove Reliable Income

A full-time salaried worker gets an annual W2 that states, in clear terms, how much they’ve made in each of the years leading up to their loan application. A self employed worker on the other hand is usually juggling multiple 1099s, as well as clients with whom they don’t file a 1099 at all and record income manually. And so when it comes to getting a mortgage when you’re self employed, instead of just one tax form it’s a whole cache of documents that need to be produced showing not just current wages but enough information to predict future wages as well. It’s a lot; but hey, nobody ever said that mortgage applications are fun.

To prepare for your application, gather the following documents:

Income documents: 1099s, state and federal tax returns, bank statements.

Asset documents: Any documentation of investments and other assets, including retirement, savings, and stock accounts.

Debt documents: Federal 1098 student loan tax forms, credit card statements, auto loan statements, credit scores, rent or mortgage checks, etc.

For most lenders, you’ll need to show at least two years’ worth of documentation. This helps with proving the stability of your income, since if you’ve made a consistent amount for two years or more then they can have more faith you’ll continue to make the same.

Keep in mind that only taxable income will be considered. If you’re telling a potential lender that you’re bringing in $5,000 a month but your bank statements and tax forms only show $4,000 a month in income, it’s the latter number that’s going to count. Likewise, they might not consider “windfall” income like an inheritance, because even if it was taxed it’s still not something you—or they—can expect you to earn every year.

The Process for Getting a Mortgage When You’re Self Employed

Extra documentation aside, the process for getting a mortgage when you’re self employed is the same as it would be if you were employed by someone else. As always, we recommend that you start this process early and that you get a mortgage pre-approval, which makes you much more attractive as a buyer.

It all starts with your application. This is usually done either online or in person, and includes a series of questions designed to answer all of those questions the bank wants to know about your income, credit history, and debt. In most cases, your answers are fed into an automatic underwriting system, which, in a matter of just minutes will either say you’re approved for a loan, unapproved for a loan, or need to go through a more intensive human underwriting process.

Whether it’s by a person or by a machine, you’ll need underwriter approval in order to move on to the next step, which is when your supplied documentation is used to “prove” your answers to the questions asked. This is always done by a real human, and may include requests for even more documents, such as a business license or specific certifications. Once you pass this step you’ll have full mortgage approval and will be able to close on your loan.

Getting the Best Terms

As for what terms you’ll face, you can still get competitive interest rates when you’re self employed. So long as your income is verifiable and consistent and your debt-to-income ratio is in a healthy place you should have no trouble tapping into the same rates that everyone else with similar financial credentials gets.

If you’re struggling with getting a mortgage when you’re self employed, you may want to consider working with a mortgage broker. While they’re not free to use (expect to owe about 1% to 2% of your final loan amount), a mortgage broker can help you figure out exactly what you need to do and how to do it, and may be able to get you better terms.

Another way to get better terms on your mortgage is to put more money down to start. And of course, a great credit score certainly doesn’t hurt. You may also want to—or be required to—bring on a co-signer.

Get in as good of a financial spot as possible before applying for your mortgage. Taking the time to pay off debt, build up savings, and establish consistency in your income will go a very long way toward making you a less risky investment with a mortgage provider. The more you can do to show that you’re a capable self employed borrower the easier the process is going to be.

Altogether, set aside at least a week for getting an approved mortgage. That includes the time that you’ll need in order to get all of your documents in order, as well as the time spent working with an underwriter. If you’ve got a good business and the documentation to prove it, you won’t have anything to worry about.

If you have any questions on how to get started give our office a call, our agents are here to help!

How Interest Rates Can Impact Your Monthly Housing Payments

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Interest Rates and Home Payments

Spring is right around the corner, so flowers are starting to bloom, and many potential homebuyers are getting ready to step into the market. If you’re thinking of buying this season, here’s how mortgage interest rates are working in your favor.

Freddie Mac explains:

“If you’re in the market to buy a home, today’s average mortgage rates are something to celebrate compared to almost any year since 1971…

Mortgage rates change frequently. Over the last 45 years, they have ranged from a high of 18.63% (1981) to a low of 3.31% (2012). While it’s not likely that the average 30-year fixed mortgage rate will return to its record low, the current average rate of 3.45% is pretty close — all to your advantage.”

To put this in perspective, the following chart from the same article shows how average mortgage rates by decade have impacted the approximate monthly payment of a $200,000 home over time:

Clearly, when rates are low – like they are today – qualified buyers can benefit significantly over time.

Keep in mind, if interest rates go up, this can push many potential homebuyers out of the market. The National Association of Home Builders (NAHB) notes:

“Prospective home buyers are also adversely affected when interest rates rise. NAHB’s priced-out estimates show that, depending on the starting rate, a quarter-point increase in the rate of 3.75% on a 30-year fixed rate mortgage can price over 1.3 million U.S. households out of the market for the median-priced new home.”

Bottom Line

You certainly don’t want to be priced out of the market this year, and waiting may mean a significant change in your potential mortgage payment should rates start to rise. If your financial situation allows, now may be a great time to lock in at a low mortgage rate to benefit greatly over the lifetime of your loan.

 

 

The Biggest Factor in Determining the Price of a Mortgage

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Interest Rates – What You Need to Know

There are certain terms that you need to understand at this point. One is the principal. It refers to the amount of money that you are actually borrowing in order to pay for the price of your home. On top of paying the principal off, there is also a need to pay the interest. This extra amount is an additional earning to the lender. These rates usually come in the form of a percentage from the principal that is left to be paid. This is added to the monthly payments.

The trust of the lender in your capability to pay off the loan determines the interest rate. Because of the fact that interest rates are added to the overall price of the home, it is as important to take into consideration the way in which your financial situation may have an impact on the interest rates, as well as the actual amount that you pay.

How Are Interest Rates Determined

In general, there are three factors that affect the way in which interest rates are determined.

  • Credit Scores

Put yourself in the shoes of a lender. How will you be able to know that you can trust someone who is borrowing money from you? One of the best ways in which you can do so is by looking at the credit scores of a potential borrower. The credit score refers to the number that determines your credit history. Each time you purchase real estate, open a financial account or take out a loan, the credit score of a lender may be affected.

Buyers who have higher credit scores often have better credibility, and as such, can get lower interest rates compared to buyers with lower credit scores. Your capacity to pay off your mortgage will also have an impact on the overall credit score, which is why it is essential to choose a mortgage option with an affordable interest rate.

 

  • Down Payment

The mortgage loan will pay the total price of the home, and you can remove a big piece of this price by paying a bigger down payment. A bigger down payment also provides you with the opportunity to pay less interest. For example, if you pay 20% down payment on your home, you can expect a significantly lower interest rate compared to actual buyers who are only paying 5% or 10% down.

The reason behind this? If a buyer is equipped with enough financial resources to pay a bigger down payment, it is more likely that lenders can give the trust that they will pay the rest of the house better. This means a lower level of risk, which merits buyers with a lower interest rate.

  • Economic Status

The general life of a mortgage loan is 30 years. Within this period, a lot of things may change in the economy, including your capacity to pay. A good economic status at the present may suddenly shift in the next few years. In order to be guided accordingly, discussing your options with a financial advisor can help. The discussion can include deciding on the best time in which you can take out a mortgage loan.

Tips on Getting a Better Interest Rate

The following are some tips in which you can get a better interest rate:

  • Look around for options on various offers.
  • Pay a bigger down payment for your home.
  • Observe and wait for the interest rates to go down in your area.
  • Make sure that you improve your credit standing and score. This means paying off debts, paying bills on time, and taking care of your credit card obligations.
  • If possible, get a mortgage rate that is adjustable. The interest rate may go up through time, but it usually starts at a lower rate compared to fixed-rate mortgages.
  • Provide evidence that you are trustworthy enough. This proof may include a detailed employment history.

Other Potential Factors that Determines Mortgage Rates

Aside from the interest rate, there are other possible factors that determine mortgage rates. This includes the following:

  • Price of the Home

The price of your home usually has a huge impact on the price of the mortgage. On top of that, renovation plans and property taxes also affect your mortgage. Extra loans or payments may also have an impact on your capacity to make payments monthly.

  • Terms of the Loan

You will end up paying more in a mortgage loan that lasts for 30 years. True, you will only have to pay less every month, but for every month that you are paying off the mortgage, more interest is accumulated. On the other hand, a 15-year fixed rate mortgage may end up with you paying more, but more of the loan will be completed every month.

Another factor which may increase the mortgage price is adjustable-rate loans. They increase the interest rate through time. These rates may also change depending on the adjustment periods covering the loan, including the conditions in the market.

With all of these factors taken into consideration, it is often best to select the best loan that comes with the best interest rate. If you are planning to get a mortgage loan soon, it is recommended to prepare accordingly. You may discuss your options with a lender in order to see the coverage, as well as other factors which may affect the overall price of the mortgage.

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Are You A First-Time Home Buyer? Be Aware Of These Mortgage Programs

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Are You A First-Time Home Buyer? Be Aware Of These Mortgage Programs

Image result for did you know? even if you previously owned a home you still qualify for first time home buyer

If you are shopping for a mortgage, you have probably seen all sorts of offers and advertisements aimed at first-time home buyers and wondered if these are really as good as they sound. In some cases, “first-time” programs are little more than attention-getting marketing messages from lenders, while in others they are actual assistance programs for people who may otherwise face challenges qualifying for a home mortgage or finding a home loan at an affordable interest rate. With this in mind, it is important to understand the difference between mortgage lender marketing programs, actual loan programs, and financial assistance programs.

You can be a first-time home buyer more than once

First of all, even if you have previously owned a home, you (or your spouse) may still qualify as a first-time home buyer. According to the U.S. Department of Housing and Urban Development, first-time home buyer status is not limited to people who have never owned a home before (although that criterion obviously applies). For lending purposes, a first-time home buyer includes anyone who fits one or more of these conditions:

  • An individual or a spouse who has not owned a primary residence for at least three years. This means married couples may qualify as first-time buyers even if only one of them meets this test.

  • A single parent who previously only owned a home with a spouse while they were married.
  • Someone who has only owned a primary residence that was not attached to a permanent foundation (e.g., a mobile home) in accordance with applicable regulations.
  • Displaced homemakers whose only previous ownership was with a spouse.
  • Someone who only owned property that was not in compliance with local building code ordinances and which cannot be improved to meet building code standards for less than the cost of constructing a new residence.

Types of programs

First-time home buyer programs can be broadly categorized as either loan programs or financial assistance programs. Both types of programs can be helpful to first-time home buyers. Loan programs, such as those backed by the Federal Housing Administration (FHA), are available to all borrowers through various commercial lenders, but they have features that may be particularly attractive to first-time buyers with lower credit scores or little in the way of cash savings. Private lenders may also offer attractive loan rates and terms for first-time home buyers with good credit and the ability to make larger down payments on a home purchase. Financial support programs for home buyers typically come from state and local government entities, although the federal government sometimes steps in to provide additional assistance during difficult economic times.

Loan programs

Mortgage loans are made by commercial lenders, such as banks, credit unions, or mortgage companies. These loans may be guaranteed by various organizations, to protect lenders against borrower defaults and also to make loans more affordable for borrowers.

  • FHA. The Federal Housing Administration does not make loans, although they do insure loans made by commercial lenders to protect lenders if borrowers default on loan payments. FHA loans are available to all qualified buyers, and they can be particularly attractive to first-time home buyers because the qualifications are easier. For example, a potential home buyer with a credit score of at least 580 may qualify for an FHA loan with as little as 3.5% of the purchase price for a down payment. Lower credit scores between 500 and 579 may also qualify with a larger down payment of 10%, though the interest rate on the mortgage loan will be higher.
  • VA. The Veteran’s Administration (VA) also guarantees portions of home loans provided by private banks or mortgage companies to active duty service members, veterans, and eligible surviving spouses. A home purchase loan guaranteed by the VA can help military vets and spouses purchase homes at competitive interest rates without the need to also make a down payment or purchase private mortgage insurance. Applicants must have satisfactory credit scores, along with sufficient income to meet expected monthly loan payments.
  • USDA Single Family Housing Guaranteed Loan Program. Similar to loan programs provided by FHA and VA, the United States Department of Agriculture (USDA) also provides loan guarantees to mortgage lenders so they can help borrowers with low and moderate incomes purchase homes in rural areas. The USDA program guarantees 90% of mortgage loan amounts for approved lenders to help offset the risk of offering 100% loans to eligible rural home buyers.
  • Freddie Mac Home Possible® Mortgages. The Federal Home Loan Mortgage Corporation (also known as “Freddie Mac”) makes it possible for lenders to offer home loans to buyers with down payments as small as 3% through the Home Possible® Although this program is not limited to first-time home buyers, first-timers must first participate in a borrower education program.

Home Buying Financial Assistance

Financial assistance programs exist across all levels of government: city, state, and federal. These programs may provide assistance with funds for down payments, closing costs, or other expenses tied to the home purchase process.

  • Fannie Mae’s HomePath Ready Buyer Program. In 2015 the Federal National Mortgage Association (FNMA or “Fannie Mae”) launched the HomePath Ready Buyer program, which provides first-time home buyers up to 3% of the home’s purchase price in the form of a rebate to assist with closing costs. Participants must complete an online home buyer education course in order to receive the 3% rebate.
  • State-by-state home buyer programs. Many individual states sponsor a variety of home buyer programs designed to help first-time home buyers and others qualify for home mortgages. Visit your state’s housing website to find details for your area. For example, first-time home buyers with low or moderate incomes are eligible for the Texas Mortgage Credit Certificate Program as a way to convert mortgage interest into a federal income tax credit. New York state home buyers can take advantage of the Conventional Plus Program for down-payment assistance up to 3% of the home’s purchase price.
  • City & county home buyer programs. Individual cities and municipalities can also offer assistance with home financing. For example, Miami/Dade County in Florida makes home financing assistance available to first-time home buyers through a loan program facilitated between Miami-Dade County Public Housing and Community Development and local mortgage lenders. Similarly, the Mayor’s Office of Housing and Community Development in San Francisco provides loan assistance programs for first-time home buyers. Consult with your city or county government offices for availability of similar programs.

As you review and evaluate the financial assistance or loan programs that may be a good fit for you, it is also a good idea to take inventory of your personal financial situation, such as checking your credit report (www.annualcreditreport.com), paying off credit cards and personal loans, and stashing more cash into your emergency fund. These tips and more are also available in this article: 5 Steps to Buying a Home.

Thanks to mortgage rates, buying a home is the most affordable it’s been in almost three years

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Thanks to mortgage rates, buying a home is the most affordable it’s been in almost three years.

Despite fewer homes and higher prices, affordable housing persists

Home prices have moderated in some markets, but they continue to climb in others. And inventory remains low.

Yet research suggests that housing has actually become more affordable this year, despite market hurdles. Affordable homes are possible thanks to lower mortgage rates and greater purchasing power.

But the affordability trend may not continue for long. That’s why it pays to hunt for homes and mortgage rates now. Waiting too long could prove costly.

Learn what you can afford. Shop around for homes in desirable locations. And lock a rate soon before low mortgage rates become a thing of the past.

What the latest numbers reveal

A new study by Black Knight shows that housing affordability hit nearly a three-year high in September. That’s when mortgage rates briefly dipped below 3.5%. Other findings from the report include:

  • The drop in mortgage rates since November has been enough to amp up buying power by $46,000 while keeping monthly principal and interest (P&I) payments the same
  • The monthly P&I needed to buy an average-priced home is $1,122. That’s down about $124 a month from November 2018, when interest rates were near 5%
  • Monthly P&I payments now require only 20.7% of the national median income. That marks the second-lowest national payment-to-income ratio in 20 months

That last point may be the most important. For the average home buyer, month-to-month housing costs are lower than they’ve been at almost any point in the last three years.

Consider that mortgage companies cap the total amount you can pay in debts each month compared to your income. This is called the debt-to-income ratio (DTI).

The traditional DTI limit for all monthly debts (including auto, student and personal loans) is usually capped around 43%.

With a mortgage taking up a smaller percentage of the average buyer’s income than it did even a year ago, people are more likely to qualify for financing.

Black Knight Mortgage Monitor report from October 2019 shows homes at their most affordable in years

Image: Black Knight

That might mean you’re able to qualify for a better, more expensive home than you would have before.

If you have a lot of other monthly debts, a lower monthly payment could make all the difference in qualifying for a mortgage at all.

Why housing is more affordable right now than in recent years

Lawrence Yun is the chief economist for the National Association of Realtors. He says it’s encouraging that lower mortgage rates right now are helping to offset higher home prices.

“Assuming you put down 20% on a median-priced home, your monthly mortgage payment would be $1,070 at this time last year. That’s assuming a 4.7% mortgage rate at that time,” he says.

Today, your monthly payment on that same home could be down to $990 — $80 less — even though you would have paid more for the home thanks to rising real estate prices.

But lower rates don’t tell the whole story

“The job market is also the best it’s been in most people’s lifetimes,” says Ralph DeFranco, global chief economist at Arch Mortgage Insurance.

Strong employment, higher wages, and low interest rates all add up to greater purchasing power.

Related: Low rates mean big purchasing power. See how much house you could afford

Also, “now more than ever, borrowers have access to hundreds of loan products,” notes Seth Feinman, vice president of Silver Fun Capital Group, LLC.

“So for those who couldn’t qualify for a loan several years ago, they now have options to obtain financing that didn’t exist before.”

For example:

“Qualifying rules have been eased, too,” says Anna DeSimone, author of “Housing Finance 2020.”

“That means borrowers with no credit scores, limited credit histories, or income earned from nontraditional sources may now be eligible for a mortgage loan.”

Will the affordable housing trend continue?

Ask Yun and he’ll tell you that mortgage rates will likely remain attractive through 2020.

“But then they will rise, which will knock off many buyers from the pool of eligible purchasers,” predicts Yun.

“Affordability is about the best it can be compared to what it is likely to be over the next few years. So, in that sense, it’s a good time to buy right now if you have the financial means.”

“Affordability is about the best it can be compared to what it is likely to be over the next few years. So, in that sense, it’s a good time to buy right now if you have the financial means.” –Lawrence Yun, Chief Economist, National Association of Realtors

DeFranco agrees.

“I expect home prices will continue to rise from coast-to-coast. So it would be better to buy now than to wait,” recommends DeFranco.

“If mortgage rates fall in the future, you can always refinance to a lower rate,” he continues. “Many people are overly haunted by what happened 10 years ago. But given the current shortage of housing in most cities and strict lending rules, the risk of serious price declines is far less than most people think.”

Feinman also foresees affordability lingering—but not forever.

“As long as there continues to be volatility in the market and rates stay low, home affordability should continue for the near future.”

“Jobs are an important factor,” adds Feinman. “If people are making more money and have access to higher-paying jobs, spending will increase, too.”

DeSimone expects the current housing affordability trend to only last another year or two max.

“If you’re thinking about buying, lock in soon at a low interest rate for the long term if you can afford it,” she says.

Action steps you can take

Your best bet? Shop around for homes and mortgage rates carefully.

“Contact a mortgage professional who has many options to offer. An expert can help you figure out the right product for you,” Feinman suggests.

Also, be prepared for stronger competition from other buyers.

“Talk with local expert Realtors to determine your best strategy,” says Yun.

Lastly, stay within your budget.

“Don’t overstretch your affordability to get your dream home. Buy a home that makes financial sense today. You can trade up later to a better home after building up some equity,” adds Yun.

What are today’s mortgage rates?

Your mortgage rate makes a huge difference in your housing budget. Shop around to see which lender can offer you the lowest interest rate — and therefore, the most home-buying power.

 

 

Preferred Properties of Texas

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