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.
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%
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 firstname.lastname@example.org, we are looking forward to hearing from you!
2018 has served as a pivotal year in this country’s history. We mourned 50 years of the loss of a beloved leader Dr. Martin Luther King Jr.; President Lyndon Johnson signed into law the Civil Rights Act also known as the Fair Housing Act the same year just days after Dr. King’s murder.
Here in King County we have seen monumental changes in housing, particularly who owns their home and who doesn’t. Homeownership has always been the American way to build roots; wealth; legacy; and sustainability, but how far have we come in 50 years in our community?
This graph only reinforces the importance of homeownership in a community; some may thing it is merely about buying a home, which is true in some cases. But in reality homeownership can be the single most important indicator of future health for you and your family, just by owning your property.The term ‘asset poverty’ denotes: a household’s inability to access wealth resources that are sufficient to provide basic needs in times of emergency for a period of three months.
This month, Bascomb Real Estate Group would like to continue the conversation around black homeownership in King County and how we can begin a pendulum shift in our community around the barriers to reaching one of the most basic of American goals, owning your home.
If you’re currently renting and not certain if buying fits into your financial and/or life plans, here are just a few pros and cons for you to consider:
- No long term commitment to your living space
- Landlord responsible for most issues regarding the property
- Flexibility in choosing the type of living space you choose
- Flexibility in geographic locations
- Higher probability in being transient and needing to move more often
- Subject to the landlords’ rules regarding your living space
- Rent subject to increases
- High move in fees with no return on your investment
Average rent in King County for 2 bedroom apartment – $1,750*
If you’re owning a property, the following should be noted.
- Fixed and stable housing costs with low likelihood of increases
- Building equity through homeownership
- Ability to put down roots in your community long-term
- Low down payment options and support that becomes an investment in your property
- All property issues are your responsibility as the owner
- Decreased ability to move
- Price can limit your ability to live in your chosen area
- Property tax increases can increase mortgage payment
Average mortgage in King County for 2 bedroom condo – $1,268**
Gives us a call to discuss your specific situation to determine if it is a good time for you to buy!