Laying the groundwork for the best mortgage

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With mortgage rates having doubled what they were in early 2022, getting the lowest rate possible could mean the difference in being able to buy a home or at the very least, makes it much more affordable.  Some people are waiting for rates to come down and while they are expected to come down some this year, most experts agree that they’ll never return to the three or even four percent range. 

There are things that a buyer can do to be eligible for the best rate available.  Obtaining the most favorable terms is based on the loan-to-value, your credit rating, and your ability to repay the mortgage.

While lenders can impose their own underwriting criteria, the basic qualifying guidelines are identified as the 4 Cs:

• Capital – money and savings, plus other investments providing for down payment, closing costs, and reserves for unexpected expenses in the future.  It could also include gifts from family members, grants, and down payment assistance.
• Capacity – ability to pay back the loan.  Lenders look at income, job stability, savings, monthly debt payments, and other obligations to approve a borrower for a mortgage.  They’ll ask for several years of tax returns, W2s, and current pay stubs.  Self-employed borrowers require additional documentation.  Some of the recurring debt can include car payments, student loans, credit card payments, personal loans, child support, alimony, and other debts which could include co-signing for another’s debt.
• Credit – your credit history and score exhibit your experience for paying bills and debts on time.  While there are minimum credit scores for different types of mortgages, the best rates are only available to borrowers with the best credit scores.  Credit ratings are established over time and borrowers need to improve their scores before they need to use them.
• Collateral … lenders look to the value of the home and other possessions when pledged as security for the loan.

Based on the Ability-To-Repay Rule, effective 1/10/2014, financial information must be supplied and verified; borrower must have sufficient assets or income to pay back the loan; and, teaser rates can no longer hide a mortgage’s true cost.  Even after a lender gives a loan approval to a borrower, they will generally run additional verifications a few days prior to the closing to make sure that nothing has changed that would affect their underwriting decision.

The financial preparation for homebuyers begins long before they start looking at homes.  They need to be aware of their credit by asking for copies of their credit reports from the three major reporting agencies: Experian, TransUnion, and Equifax. Congress mandated consumers be provided this free service through AnnualCreditReport.com.  Other websites may offer free services, but their real objective may be to encourage you to purchase additional services.

Once you’ve received the credit reports, read them to discover errors that could negatively affect your credit score.  The website will tell you the process of correcting the errors which includes notifying both the credit bureau and the reporting party of the error.

Most borrowers understand that payment history is the major contributor to a credit score; it is expected of borrowers to pay on time and as agreed.  Sometimes, borrowers are surprised to find out that if their borrowing approaches their available credit that it could actually hurt their score.

The credit utilization ratio is the percentage of credit used to that which is available.  If you had $10,000 credit available and your balance of a credit card was $2,500, the ratio would be 25%.  Ideally, lenders want your credit utilization to be below 25%.  Again, this could be one of the things you work on before you meet with a mortgage officer.

Once you have an accurate credit report and have saved for the down payment and closing costs, you’re ready to meet with a trusted mortgage professional who can take you through the process of preapproval.  They may be able to suggest things you can do to raise your credit score to be eligible for a lower mortgage rate.

All lenders are not the same and there is a significant difference with the online lenders who have limited counselling advice and working with a local mortgage officer you can discuss face-to-face what your situation is and if it can be improved.  

You may feel comfortable with more than one recommendation and your agent will be able to supply you with lenders who they are familiar with from their experience in situations like yours.

Remembering and honoring our heroes

Honoring those who gave their all, we remember and thank them on this solemn Memorial Day.

Look beyond today’s interest rates

It’s important to look at the overall picture and your agent can give you the facts to see it clearly.

Tips For A FAST Home Sale

Using the “right” real estate professional is key because they can offer help to get the other things done.

Handling An Appraisal Gap

Appraisals can be a confusing but a necessary part of the process when the buyer needs a mortgage and your agent is available to guide you through the process and may even be able to minimize the likelihood that it becomes an issue.

Staying On Top Of Your Credit

Throughout the rest of 2023, you can get a free credit report from each company every month.

Overcoming down payment and closing cost barriers

This could make the difference in getting into a home; ask your agent if they have experience with these types of programs.

Just The Ticket To Connect

We belong to a network of agents subscribing to the same educational and professional standards to ensure you will get the best of care.

Make your home offer the most appealing

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Sales in March 2023 were down 2.4% month over month and still down 22.0% year over year according to the NAR Housing Snapshot.  The median sales price dipped 0.9% to $375,700 and there are 2.6 months supply of homes on the market compared to 2 months a year ago.

“Inventory levels are still at historic lows, and consequently, multiple offers are returning on 28% of properties.” According to Lawrence Yun, Chief Economist for the National Association of REALTORS®.

It is still important to have a strategy for potentially competing with other buyers on the house you want to buy.  The plan should include several available provisions and options, so that at the time of drafting the sales offer, you can consider exactly what to include based on the situation.

Unless a person is paying cash, you need to be pre-approved by a trusted mortgage professional long before you start looking at homes.  Include the written pre-approval letter along with the offer.  When you are making an offer on a home, have the mortgage professional available to reassure the listing agent by phone who will convey assurance to the seller.

If you’re concerned about multiple offers, make your best offer first because you may not get to counter and simply lose out to another buyer.  Starting with a low offer and gradually coming up doesn’t work in highly competitive situations.  In some cases, a low-ball offer could cast a pall on any consideration of your purchase contract altogether.

The listing agent will calculate the expenses on the different offers for the seller to show them what their net proceeds will be on each contract.  Some types of financing have more costs incurred to the seller.  Asking the seller to make repairs or other financial concessions could lower their net even though your offer may be higher.

From a buyer’s standpoint, contingencies provide options for things that may be uncertain like qualifying for a mortgage, discovery of major impediments to the condition of the home, and other things.  To the seller, they are obstacles that may invalidate the contract causing the home to go back on the market.  If the contingencies are necessary, try to make them as palatable to the seller as possible.

Instead of waiving your rights to make inspections, consider a very short inspection period to minimize the time the property is in limbo.  Instead of asking for repairs, provide a simple “accept or reject” once the inspections have been made.

Try to accommodate the seller’s desired closing and possession dates.  Sometimes an earlier date may be more desirable for a seller and other times, it might be a later date based on the home they’ll be moving into.  Your agent can do some research and find a flexible alternative that may appeal to the seller.

Increase your earnest money deposit more than the minimum.  It is a pecuniary indication that you are serious.  Your agent can tell you what the amount should be and alternatives like increasing the earnest money after certain contingencies have been met.

Escalation clauses state that you are willing to increase your offer by a certain amount up to a specified maximum, subject to another bona fide offer being received before yours is accepted.  Your agent will be able to further explain how these might work in your situation as well as share their experience with them in other similar negotiations.

You as a buyer and your offer to purchase need to be seen as the solution to the seller’s situation in price, terms, and reliability to close.  Working with an experienced agent with seasoned negotiation skills is key to your success in buying a home in a competitive environment. 

Lack of existing home inventory means no home price collapse coming

Rates may never return to the 4% range again and if they do come down some, the pent-up demand is going to drive prices and competition to greater levels. Now may be the best opportunity in the near future to buy and sell.