According to a new study, 1 in 4 U.S. adults would like to buy
a house this year. Perhaps you or someone you know is among them, but having sufficient income is a concern. Here are some facts and tips that I hope will help.
Little Known Facts About Income Qualification for a Home Loan
1) With compensating factors, you can be approved for a higher debt-to-income ratio than what is posted.
Don’t get me wrong: I am not suggesting that anyone take on a mortgage payment they cannot afford. Nor am I suggesting that you become a slave to a mortgage. But you should know that the strict 41% or 43% debt ratio requirement is broken every day. With compensating factors, borrowers are getting approved for up to 49.9%. (This makes sense if there is a non-borrowing spouse who contributes income or if there is a secondary income that cannot be counted, because in reality, the debt ratio is much more reasonable.)
2) If you recently got a pay raise, you will qualify based on your new higher income, not last year’s W2.
Similarly, if you are offered a promotion, even if it is with another company, you are always free to take that (and switch companies if required) and still get pre-approved. That said, do not switch jobs in the middle of your loan process without first speaking with your loan officer.
3) You can have a co-signer to help qualify; just be aware that the co-signer must have credit equal to or better than yours and the co-signer will be on title as a co-owner.
4) If your auto loan has less than 10 months remaining, that payment will not be included. (Remind your loan officer in case he or she doesn’t notice this.)
Some Things to Be Aware Of
5) If you take a second, part-time job, you will need to be working at that part-time job for two years in order to include that income on your loan application.
6) If you pay off your credit cards in full each month (as you should), then the minimum payment required will be used for calculating your debt ratio.
7) If you are self-employed, do not take so many deductions that your Adjusted Gross Income does not qualify for the home loan you want. You cannot tell the IRS you make $40,000 and tell your mortgage lender you make $90,000. That is not how it works! You can’t have it both ways.
8) If your income has declined, the lender uses your new lower income, not the average income.
9) You cannot count the following as income: inheritance, gifts, winnings, gambling income, IRS refunds, or any other one-time, non-recurring income. However, you can use that money toward a down payment.
Don’t Give Up Your Dream!
If you want to become a home owner, don’t be like one person who said to me, “If I don’t get approved now, I’m going to spend all my money on a vacation.”
Instead, be like the person who said, “If I don’t get approved now, I’m going to do what it takes in order to get approved next time. Let me know what I need to do.”
Tips For Approval
10) Pay down your credit cards and then going forward, keep those balances low.
11) Go on a spending diet! Sacrifice now for a home, and you will build wealth in the long run. A good way to control spending is to stay off the buying websites and out of the stores. In other words, remove the temptation.
12) Fix the old car, don’t take on a new auto payment. Many people have been sad to learn that their auto payment prevents them from home ownership. Listen friend: a vehicle goes down in value while real estate goes up in value. Be smart and save your money for your piece of The American Dream and then you will increase your wealth through home ownership.
Thank you for reading my blog. Please feel free to share it on social media for others who could benefit from this information.
The best time to get a map is before you walk into the forest. Likewise, the best time to get your mortgage map is before you go shopping for a house. If you work the system backwards, you are setting yourself up for possible disaster.
Here is a simple checklist for home buyers:
Notice that you take care of the financing first, then the house shopping second.
1. Choose a lender by asking for a cost estimate worksheet.
This is your very first step. Not, go house hunting. Not, get pre-approved. And certainly not, make an offer! Why? Because, you don’t want to shop for houses that you are not qualified to buy, so you take care of your financing first. And, you don’t want multiple lenders pulling your credit report, so you choose your lender first. The way to choose a lender is to review the estimate worksheet and speak with the loan officer to ascertain how they answer your questions. (What to ask a loan officer is a topic for my next blog post.)
2. Get pre-approved for financing.
Now that you have your trusted loan officer, you are ready to have your credit report checked, provide your financial documents, and receive your official pre-approval letter.
3. Choose a Realtor.
I recommend working with a certified Realtor rather than a real estate agent, because a certified Realtor has gone through extra training and is held to a higher standard of ethics and work practices.
4. Go house hunting and make your offer.
Your Realtor will guide you through the offer and negotiations. Your loan officer will guide you through the financing.
Thank you for stopping by my blog. Feel free to share this simple list via social media and with others who are thinking of buying a home. You would not believe the horror stories I’ve heard from people who have run headfirst into disaster by signing purchase contracts before they had their financing approved. I hope to save more people from that situation!
Do you know someone who would love to stop renting and buy their own home? A new study says 79% of Millenials want to buy a house. This study, by Bloomberg, goes on to tell them they can’t save fast enough for a down payment. I am here to tell you that I disagree! Why?
Bloomberg’s chart shows how many years it takes to save 20 percent down.
But who says you have to make a large down payment? It is not required.
Here are tips for buying a house when you can’t save fast enough for Bloomberg.
- If your credit score is 720+, take a 3% down conventional loan.
- If your credit score is 580 – 719, take a 3.5% down FHA loan.
- If your family is able to give you gift money for a down payment, you’re ready to go.
- If you are a U.S. Veteran, you may qualify for zero down.
- Use one of the many down payment assistant programs offered by your state. For example, I have a program in WA that will cover your down payment plus kick in a little for closing costs. You can earn up to $97,000/year to qualify. When you sell the house (or refinance), you pay back the down payment out of the proceeds. This is an interest-free loan to help more people enjoy home ownership.
If home values continue to increase next year as fast (or nearly as fast) as they did in 2015, you are better off buying now than waiting until you can save for a larger down payment.
Also consider that home owners receive the best and biggest tax deduction available. Typically, a home owner can deduct the interest portion of their payment plus property taxes. This lowers their tax bracket, potentially saving significant taxes. (Speak with your CPA for tax advice.)
If credit score is your barrier, then pick up a copy of Repair Your Credit Like the Pros here and get to work. Earlier today, I heard from a lovely young woman in Ohio who followed the book’s directions and is now applying for a home loan. Yes, credit repair works! But you must do it properly, like the credit attorneys and certified credit professionals.
What barrier is keeping you from the American Dream? Post a comment (see top of this article) or send me an email here. I promise to reply.
How much have home values increased in the past year? Has real estate been a good investment?
If you are in Colorado, your home value has increased by 12.28% (on average).
If you purchased a $400,000 home with 5 percent down, your $20,000 investment has grown to an equity of $49,120. You have more than doubled your money in only one year! (Not cash in hand, but by wealth in real estate.)
$400,000 x 12.28% = $449,120 value
The Federal Housing Finance Agency has released this annual appreciate by state for 2015:
No one can predict what 2016 will bring. The best reason to buy a home is simply because you want to own the space where you live and sleep. You want to stop paying your landlord’s mortgage and pay your own. You want the joy of home ownership! In the meantime, if owning real estate also increases your personal wealth, then that is great, too.
If you are a real estate agent who would like to be on my Recommended list, send me an email here.
If you’re buying a home in California or Washington state, I would love to provide you with excellent pricing, no junk fees, and stellar service.
If you plan to buy a house or refinance in the foreseeable future, this is important information. To avoid stress, grief, more paperwork, and a possible loan delay — or even a denial — don’t make these common mistakes.
Three Mistakes Home Buyers Make (Also applies to people refinancing)
- Don’t move money around!
This is not the time to transfer funds from one account to another. Keep your money where it is until after your loan closes. If you get angry at your bank and want nothing more than to say, “I’m outta here!” I don’t blame you a bit for feeling that way. But please, keep your patience and save that action for later. If you close one account and open another, you are in for a hassle in the underwriting department. Yes, you can still get your loan, but why set yourself up for more paperwork and letters of explanation? If a family member is giving you a gift toward the down payment, the same advice applies. Have them keep the funds in their own account until you receive instructions from your loan officer. Most lenders will ask the family member to wire funds directly to the closing agent at the time of signing.
- Don’t open new credit! Don’t buy a car!
No exceptions. Do not purchase new appliances or new furniture until after closing. Do not open a new credit card to get the instant discount. And whatever you do, don’t you dare buy a new automobile, truck, or SUV. Taking on any new debt could cause your loan approval to turn into a denial — even if you have signed the loan note and closing disclosures. Until your loan is officially funded and closed, the lender can still deny your loan.
- Don’t close out your good credit!
This is not the time to decide you have too much open credit and start shutting down your credit cards. Doing so could lower your credit score for two reasons. First, you can lose the positive points that the on-time credit card was awarding you. Second, you will be changing your percentage of total credit usage-to-available credit, and this has the potential of lowering your score. Even though the lender has already pulled your credit report and approved it, most lenders will do another soft pull right before closing. You don’t need to risk lowering your score and therefore risk your interest rate or approval.
Thank you for stopping by my blog. Feel free to subscribe. I post tips on mortgage and credit about once a week. If you have a topic you’d like to see, please email me here.
Three Advantages of Buying a Home in December
- Less competition means you are more likely to get a better price and less likely to lose out in a bidding war.
- Seller knows you are serious, because the looky-loos stay away when they’re otherwise occupied with shopping, decorating, and baking.
- Interest rates usually remain flat. As of today, the Feds have not issued the rate increase they have been speaking of.
You Don’t Have to Move During the Holidays
Just because you execute a Purchase & Sale Agreement now, it doesn’t mean you have to move during Christmas week. You can set your closing for January after your busy schedule has calmed down.
How Long Does It Take to Close a Loan Now?
As a Senior Loan Officer, I am closing loans in 30 days; but not all lenders are as fast. Many are asking for 45 days with the new TRID laws that require an extra three-day waiting period between providing the Closing Document for your review and your actual loan signing. Speak with your loan officer about how fast they are closing loans nowadays. If his or her answer sounds shaky or if they want longer than 45 days, it likely means they are having issues processing and I would seek another lender. If you want my recommendation for a loan officer who can close in 30 to 45 days, please see the state list below and then send me an email with the details via my Ask Carolyn Warren page.
States for which I can recommend a loan officer:
AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, MO, MS, MT, NC, NS, NH, NJ, NM, NY, OH, OK, OR, PA, RI, SC, TN, TX, VA, WA, WI, WY.
Required Legal Disclosure:
I work for Envoy Mortgage, a full service mortgage company. NMLS # 1284134
State licensed in CA and WA
The first house I bought as a young, single woman was a smelly little house with stained floors, dingy walls, and a stove covered in black baked-on gunk. Part of the roof was rotten, and the refrigerator was disgusting. It was ugly for sure, but it was all I could afford with my pre-approval of $80,000. The best thing it had going for it was the charming white picket fence.
Before you feel sorry for me, let me state that this turned out to be one of the best real estate purchases I ever made. Here’s why.
Ten Things I Learned From My Ugly House
- After ripping up the dog-stained carpet, I discovered the hardwood floors were permanently damaged. There went my vision of having beautiful hardwoods as I couldn’t afford to replace them. It was much cheaper to install a nice wall-to-wall carpet.
- Fresh paint in a light neutral color completely brightened up the home. My daughter chose pale pink for her bedroom, and my son wanted green. Letting them choose their bedroom colors gave them a sense of personal ownership in the new house.
- It made more sense to have the disgusting appliances hauled to the dump than to try to renovate them. New appliances made me feel like I had a new kitchen even though the cabinets and counter tops were the same.
- I splurged on pretty light switch covers and I could not believe how many compliments I got on those little things.
- Before my loan could close, the lender required the seller to replace the rotten roof. (It showed up on the appraisal report.) This delayed the closing of my loan, but it was worth the inconvenience. (Thanks again, Mom, for letting me crash at your place for a month after I had to be out of my apartment.)
- I chose an FHA Adjustable Rate Mortgage. This turned out to be a very smart choice, because I saved a significant amount of money on my payments for the three years I was there. Because this wasn’t my dream home, I knew I wouldn’t live there a long time, so taking a 30-year fixed rate would not have made sense. Why pay more interest than needed?
- Because I got a lower interest rate with the ARM, my payments paid down the principal balance faster. Thus, when I sold the house three years later, my loan pay-off was smaller and I netted more profit than I would have if I’d taken the fixed rate mortgage.
- It doesn’t take a dream house to be happy. I discovered a great deal of satisfaction by cleaning up that little house. When my friends came to visit, they exclaimed, “What a cute house!” And it was.
- If the bedroom window won’t open on a hot summer night, don’t give it a little smack with your hand. I tried that and my hand went right through the glass, which cut my wrist pretty badly. It took a bath towel to stop the bleeding. Fortunately, 9-1-1 sent out a handsome fireman to wrap me up and take me in for stitches.
- A smelly, little house can bring in a nice profit after you clean it up and live there for three years. I sold the house for $125,000. After subtracting the money I put into the house and subtracting the payments I’d made, I calculated that I earned over $300 per month just for living there.
How’s that for a happy ending?
I love California, and I am excited to announce that I am licensed to do mortgage loans in the Golden State. Whether you are a first-time home buyer, a seasoned home buyer, or a home owner refinancing, I can help you get the best loan for your situation.
Here are some of the loan programs I can help you with:
* First-time home buyer FHA loan with 3.5% down or with gift money for the down payment.
* Grant money for the down payment on an FHA loan with no pay back whatsoever. A true grant, from a private bank. No neighborhood restriction.
* Conventional loans: 30-year fixed, 20-year fixed, 15-year fixed, 10-year fixed rates.
* 5/1 ARM: fixed for the first five years, then adjusts annually. A good loan for people who plan to keep the home for five years or less.
* VA loan for U.S. Veterans
Getting Pre-Approved is No Cost
There is no cost to get pre-approved and/or to find out how much house you qualify for. Let me know what you want, and I will take it from there.
What Does It Mean to Be “State Licensed”?
Loan originators who work for banks and credit unions do not have to be state licensed. The CFPB assumes the bank will vouch for their integrity and competence. However, mortgage brokers and direct lenders (such as myself) have to pass multiple hurdles in order to do business in California. Here are the requirements we go through that those at banks and credit unions get to skip over:
* 20 course hours plus additional class hours for California state law.
* Pass both a national test and a CA state test.
* Get fingerprinted and have a background check done.
* Have a credit report pulled and checked for personal financial responsibility.
* Be approved by the CA state authority.
You might say that state licensing ensures a higher level of scrutiny, which means more security and peace of mind for you.
Please feel free to contact me about your mortgage questions or financing needs via the Ask a Question page here.
Looking for a Recommendation for a Licensed Real Estate Agent?
I have worked with fine real estate agents in California. If you would like my recommendation for an agent who will work hard and put YOUR best interests first, send me a message here.
1) Stay in town during the loan process.
This is not the time to travel so that you are unavailable to provide additional documents the underwriter might ask for. If your vacation to Europe was pre-planned and cannot be changed, then allow ample time after you return home before the closing date. It is unrealistic to think you can check out during the loan processing and come back to sign one day later.
2) Leave your money where it is.
Do not transfer funds from one account to another during the loan process without your loan officer specifically instructing you to do so. In addition, do not transfer funds the two months prior to applying for a mortgage. The reason is because doing so can cause a paper-trail nightmare for you and the underwriter.
3) Leave your credit as is; open no new accounts.
If you open a new credit card or installment loan during the loan process, you are potentially sacrificing your home. Don’t do it! Although your credit has been checked and approved, it is likely your credit will be checked again right before closing. If new accounts appear, then your debt ratio and/or your credit score could suffer.
One first time home buyer decided to buy new appliances for the new home during the loan process. When her credit was re-checked, the new Sears account showed up and the payments put her debt ratio over the line. Her loan was denied! In order to proceed, she had to return the appliances and prove with receipts that she had done so. How embarrassing, right?
The same goes for buying a new automobile. Don’t even think about it! Your priority must be buying the house.
4) Write your purchase offer contingent on a home inspection.
Waiving a home inspection is a dangerous move. Inspectors are paid to find fatal flaws and major problems that are not obvious to the eye. When you visit a home, do you climb up on top of the roof? Do you crawl under the house? Do you inspect the electrical wiring, plumbing, water heater, sump pump, etc.? That is what your home inspector is for. It is an important step that prevents you from having to shell out thousands (or tens of thousands) of dollars later.
5) Obtain your own buyer’s agent.
Calling the real estate agent listed on the for sale sign is a colossal mistake. The same goes for using the agent that is hosting the open house. When you use the seller’s agent, it is like using your opponent’s attorney in a court of law. Who would do that?! The seller’s agent is required by law to get the highest price and best terms for the seller. Dual-agency is not in your favor!
Since the seller pays for both the listing agent and the buyer’s agent, it is free to you to have your own expert agent representation. Therefore, there is never a reason not to do so. You do not save money or get a cheaper price on the house if you use the seller’s agent. Be smart and get your own agent representation.
If so, I have good news for you. After looking at local banks, credit unions, and other lenders, I have joined VITEK Mortgage Group, a lender with a stellar reputation. As a mortgage loan officer, I can shop the wholesale divisions of lenders such as Wells Fargo, Chase, Ditech, Caliber, and more — as well as VITEK’s own line of loan products.
It is important to me to get the very best loan at the very best pricing available for my clients. Having the ability to shop without being limited to only one lender’s loan products gives me the ability to do that. If I worked for a bank or credit union, I would be limited to their loan products only — and when it comes to a mortgage, it is NOT a “one size fits all” situation.
If you want a seasoned professional who wrote the book on mortgage rip-offs and money savers to do your loan shopping for you, then I am your gal. Not only that, but I go another step in helping you get a good title and escrow company, because now in 2015, too many title and escrow companies are piling on the junk fees and over-charges.
As a loan originator for VITEK Mortgage Group, I can extend their Peace of Mind Guarantee:
* Guaranteed On-Time Closing
* Guaranteed Real-Time Status Updates
* Guaranteed Best Value
VITEK stands for Value, Integrity, Teamwork, Excellence, Knowledge.
That is pretty much everything you and I want in a company.
I am licensed in WA state and will soon be licensed in CA as well. (I have met all the requirements for California and am awaiting on the Dept. of Business Oversight for their acknowledgement.)
Please let me know how I can help you with your home purchase or refinance.
NMLS License # 1284134