Unless you are independently wealthy, using the financing to buy a home is the option for most consumers.  Mortgage lending has changed drastically due to the housing crash in 2007. The market did not immediately recover which resulted in stricter lending standards.  But, don’t let this preclude you from buying a home. There are many programs available for everyone, and there are many factors you must consider if you are interested in a mortgage loan. Here are the top 4 things you should consider when shopping for a mortgage.

 

Select a Mortgage Suitable for your Financial Situation

One of the major benefits of buying a home is the tax deductions that you can realize once you are a homeowner. In addition, you must choose the correct mortgage product suitable for your financial situation. For example, a fixed-rate mortgage will give you a higher starting rate, but your principal and interest payments stay the same. While an adjustable rate mortgage’s interest rate tends to be lower, it has periodic adjustments throughout the life of the loan affecting your monthly payment.  Be mindful of the entirety of the mortgage you are selecting. It is important that you do a personal accounting of your finances and consults a great mortgage loan officer.

Reduce your Debt-to-Income Ratio

If you are applying for a mortgage, lenders always look closely at your debt-to-income ratio. Debt-to-income ratio is the ratio of your monthly debt payment divided by your gross monthly income. It is one way for the lender to measure a person’s ability to manage their monthly payments and debts and their capacity to repay the loan.

Minimize Your Borrowing

More often than not, applying for new credit can have a huge effect on your credit report, which in turn impacts your eligibility when applying for a mortgage. If you know you will be applying for a mortgage in the near future, be sure to suspend any further inquiries on your credit until after your home closes. Inquiries and new accounts can and will affect your credit score and debt to income.

Educate Yourself

Knowledge is power. When dealing with a mortgage, you must be fully aware of your financial capacity, what you need, what you can afford, and what type of mortgage is perfect for you. You can conduct your own research regarding mortgages or consult your real estate broker regarding a good referral.

 

Homeownership is a dream for most but does not have to be difficult to achieve. If you are prepared prior to shop for your home, it makes the process that much smoother. Buying your home is the single largest investment most American’s will make, so the best thing to do is to assess your preparedness and give us at Bascomb Real Estate Group a call!

One of the many questions I receive from homeowners is, how do I find out how much equity I have in my home? This is a very important question, as it is the one factor that can determine whether you can or should sell your home, or even refinance it for a better rate; or to take out some cash for debt consolidation, home repairs or the like.

Knowing how much equate you have in your home also provides you with a better financial picture. Home Equity is simply the value of the ownership stake in your home. It is the difference between its current market value and the total sum of debts or liens (mainly but not exclusive to your primary mortgage) you have against your home.

First, you can figure out the equity in your home by subtracting the amount you owe on all your loans secured by your house from its appraised or market value. For example, Nicole owns a house recently appraised at $500,000. Nicole subsequently owes ABC Lender $150,000 as a mortgage on her home. We can calculate Nicole’s home equity in the figure below:

(Current Appraised/Market Value) – (Mortgage Balance/Loan Balance) = (Home Equity Value)
$500,000 – $150,000 = $350,000

If you are interested in calculating your home equity percentage, you can do so by dividing your home equity value with the current appraised/market value of your house.
(Home Equity Value) ÷ (Current Appraised Value) = Home Equity percentage
$350,000 ÷ $500,000 = $0.7%

Loan-to-Value Formula

Another method of calculating the equity in your home is through the loan-to-value formula or (LTV formula). Lenders use this method in all case when you are discussing encumbering your home with a loan. If you are interested in applying for a mortgage, Loan-to-Value Formula will compare the amount of the loan you are seeking against the current market or appraised value of your home.

To calculate your LTV, divide your current loan balance(s) with the current appraised or market value of your home. After that, the answer will be multiplied by 100 to find the percentage.
In the example given above, the $150,000 loan balance, will be divided by the $500,000 appraised value of your house. This will result in 0.3 multiplied by 100 equals to 30% LTV for your home.

Take note that LTV can affect if you must pay Private Mortgage Insurance(PMI) or if you qualify to refinance, 80% LTV is the max you can borrower to avoid paying PMI. Nonetheless, these are easy ways to calculate your home equity. Remember that Both LTV and home equity values will be subject to fluctuations depending on the market value of your home.

If you are a homeowner and interested in finding out the value of your home visit or website at www.bascombrealestate.com and visit the ‘What’s Your Home Worth’ tab, or email us at customerservice@bascombrealestate.com, we are looking forward to hearing from you!