Gain insight into the home loan approval process, learn how credit reports are scored (and how they can affect your mortgage application!), determine how much you need for a down payment, utilize our handy mortgage loan calculator and more.
Staying Connected and On Top of Your Loan
Thanks to the ease of access delivered via the internet and mobile apps, finding, obtaining and managing a mortgage has never been easier. In fact, with today’s digital technologies, you don’t even have to leave the comfort of your own home.
Whether you are buying or selling a home, the digital tools now available make the entire process virtually seamless. Today’s savvy home shopper can find and compare homes, shop for mortgage rates and lock in a loan pre-approval before ever setting foot in a lender’s or real estate agent’s office
Before you begin the process of finding your dream home, do your homework. Digital technology can help you identify how
much house you can afford and help you narrow your loan options.
Guardian mortgage calculators help you determine the maximum mortgage you can afford and establish monthly payments that will fit your budget. This knowledge is powerful as you begin the homebuying process because it will give you a place to start your discussions with your lender and real estate agent.
Whether you’re applying for a first-time home loan or looking to refinance, today’s online and mobile app technologies can help you speed through the process and take out most of the guesswork, making it easier than ever before.
Homebuying by Generational Demographics
As the population of the Great Generation continues to decline and the Millennial Generation begins to assume their place in the realm of homeownership, the demographics of homebuyers is starting to change. A study by the National Association of Realtors has uncovered some interesting trends in the way the current homebuyers tackle the process based on their generational slot.
Here are just a few of the findings:
• For those in the Baby Boomer and Generation X groups, 80 percent consider their home purchases to be a good financial investment, whereas that number is even higher at 85 percent for those of Generation Y.
• The largest group of recent homebuyers is Generation X followed closely by Generation Y (Millennials). The median age of Millennial homebuyers is 28 and their average income is $66,200, while the median age of Generation X homebuyers is 39 with an average income of $93,100.
• Older generations – Baby Boomers and Generation X – tend to prefer newer homes, while those of Generation Y opt for older homes.
• The younger homebuyers of Generation Y have a tendency to stay closer to their previous residencies, often within a 10-mile radius.
• Younger buyers were also more likely to buy in urban and central areas. About 21 percent opted for homes in an urban location compared to only 13 percent of Baby Boomers.
• Younger generations place a higher value on homes equipped with green living features, including the impact of a long commute.
• Millennials make more compromises with their home purchases than any other group. They conceded on the price and size of a home as well as distance from their jobs, whereas nearly half of the Boomer buyers made absolutely no compromises on their most recent home purchases.
• Another interesting finding surrounds multiple homeownership. As the age of buyers increases, so does the possibility of owning a second home. Only 8 percent of Millennials have a second home, but 21 percent of Generation X and over 28 percent of Baby Boomers have them.
• Not surprisingly, the largest group of home sellers is Generation X, who are also considered most affected by the 2009 home market crash. Over 30 percent of recent sellers were from this group and only 21 percent from Baby Boomers.
Successful Home Purchase Tips
Understanding the mortgage loan process and being financially prepared for homeownership are two of the biggest elements of a successful home purchase.
Here are some additional tips that will help make the process run smoothly.
Check Your Credit Score
There are several items that go into a lender’s decision about whether a homebuyer is creditworthy; however, the most important factor is your credit score. Not only will a lender use your score in the loan decision, but it will also dictate your interest rate. The better your score, the lower your rate.
Know your score before meeting with your mortgage lender for the first time. You can use sources like www.AnnualCreditReport.com and www.MyFICO.com to access your credit report. Be prepared to answer any questions about issues and derogatory credit items it might contain with a credit explanation letter to the lender.
Pre-qualification provides you with the peace of mind that you can proceed with the home purchase when you identify the right property. The pre-approval decision helps you determine the home price you can afford and presents you as a verified buyer to the seller, which is the next best thing to a cash buyer. Your lender will discuss the pre-approval criteria used to make the decision, which are based on the “Four C’s” of lending: Capacity, Character, Credit and Collateral.
The current real estate concern is limited inventory for sales. Therefore, preplanning, having all required paperwork ready and getting pre-approved before you begin your home search will keep you out of the panic mode and allow you to take advantage of opportunities.
Be Prepared to Provide a Down Payment
Although the VA loan program allows for 100% financing, non-veterans are left with a minimum of 3.5 percent down payment on Federal Housing Administration (FHA financing) and a 5 percent down payment on Conventional financing. Therefore, you need to prepare for a down payment needed on the loan. Keep your down payment fund in cash or cash equivalent accounts, so that market movements don’t thwart your plans. This also allows you to provide the required documentation during your pre-approval.
Create Your Wants vs. Needs List
When shopping for a home, list the features or amenities that are most important to you, such as a fireplace, fenced-in yard or new appliances. Establishing “your criteria for amenities” early on will save time shopping for inappropriate homes and may keep you from buying a home on a whim.
Keep in mind that one of your top reasons for buying a home should be the value you are getting. Some of your must-have amenities should logically be sacrificed if an incredible value is available.
Be an Informed Buyer: Do Your Research
Don’t just fall for an online photo – do your research. Review other homes, school information and crime statistics in the area you’re considering. A useful online resource for information is www.CityData.com. Doing your due diligence ahead of time ensures you’re getting a fair price in a safe location.
Obtain a Home Inspection
Even if the home you plan to purchase appears to be flawless, remember that nothing can replace the peace of mind that comes with a home inspection conducted by a trained professional. Should your inspection reveal serious defects with the house, such as serious foundation issues or a termite infestation, you’ll generally be able to get your deposit back if these issues were not previously disclosed by the seller. The home inspection is a worthwhile investment prior to closing to ensure you have the ability to get the seller involved on any repairs that are needed. Unexpected repairs are simply a result of homeownership, but clearly identifying necessary repairs and issues prior to closing is crucial to reducing buyer remorse.
Purchase Home Insurance
Review your options and make sure that you understand the difference between insuring your new home’s structure and insuring the fixtures and contents that will be inside. Contact your lender to understand their insurance coverage and deductible requirements for the loan program you desire. And if you are buying property that is close to water, make sure that you have an agent who can help you enroll in the National Flood Insurance Program.
Options for Enhancing Your Home
So you’re ready to make a change with your current home or put the final touches on a new custom home, but are you wondering where to start? When it comes to designing your custom dream house, selecting options can often be an overwhelming process.
To get the process started, outline the basic requirements of your new home—what are your must-have items on your wish list? It can be helpful to clip out pictures of specific features and ideas you like from magazines and online resources such as Pinterest. When your list is complete, you’ll be ready to meet with an interior designer, a home design coordinator or your builder to begin the process.
Here are a few design tips to consider when creating your dream home:
Walls: Coverings and Shelves
There are many more options to walls than simply painting or wallpapering. Texture and faux finishes can add depth and character to any room. The main consideration when it comes to walls is to ensure the contour of colors flows as you move from room to room. For example, if you’re sitting in one room and you can see into the next room, make sure the colors complement each other.
Shelves are another fabulous option for wall coverings. Not only do they offer additional storage space, but they also serve as mini-showcases for art, photos and book collections.
Floors: Hardwood, Tile and Carpet
Hardwood floors, tile and ceramics can add instant charm to any house. Let your lifestyle be your guide here. If you have active traffic (children and dogs, for example), choose a flooring style that is designed for heavy traffic and is easy to clean.
A beautiful slate stair area is truly elegant. A whimsical tile pattern in your entryway can offer a more playful greeting to your guests. And remember, rugs can always be incorporated into a room design to add depth and help absorb sound on hard surfaces.
How To Make Getting a Home Loan Easier
There are so many loan options available to today’s home buyer. Whether you’re a first-time homebuyer or looking to purchase a second home, finding the perfect house isn’t the hardest part of the process – getting a mortgage that fits your budget is.
To begin the process, you must determine how your mortgage payment will fit your current budget. Keep in mind that your mortgage will be with you for the next 15 to 30 years, so make sure you are comfortable with the monthly payment you settle on now. In addition, don’t just be focused on the short-term needs. Be sure to consider the longer-term obligations like college or retirement into the consideration of what payment budget is right for you.
Take stock of your income, expenses, current and projected earning, and current debt in order to determine what you can comfortably manage each month. Along with your mortgage payment, don’t forget related expenses such as insurance, taxes and homeowner dues.
Once you know your budget, then it’s time to begin working with your lender. Having all the documents ready before you meet will make the entire process go much smoother. Your lender will take a look at your financial picture and then work with you to determine what loan option program is best for you.
And remember, it’s best not to just go with the lowest interest rate. There are many other factors that will affect the true cost of the loan including broker fees, points, prepayment penalties, the loan term, application fees, credit report fee and appraisals.
Going Separate Ways: Divorce and Your Home
When a couple makes the difficult decision to divorce, the stress of dealing with financial details related to the home can be overwhelming. Our mortgage experts can help sort out the home ownership and mortgage issues. In this time when focusing on the future can be difficult, our professionals specialize in helping individuals learn more about choices they have regarding the home mortgage loan. Questions that may need to be addressed:
• How is the title (ownership) to the home currently held?
• Will the marital home be sold?
• If not, who will retain possession of the home?
• How will the spouse leaving the home be compensated for the equity in the home?
• Can the spouse moving out of the home qualify for a new home?
• How will any equity accumulated in the home be determined and each party compensated?
• How can the equity be accessed if the home is not sold?
• Is a refinance necessary?
• What types of loan programs are available?
• Can the spouse retaining the home qualify for the refinance?
• What if one spouse has been out of the work force for an extended period of time?
Fair Value of the Home
The value of the marital home can be determined through an appraiser, who will arrive at the value after review of the home, thorough analysis of existing market conditions and recent sales. To avoid disagreements over value, both parties should agree on who will complete the appraisal and how to resolve any issues with the value when the appraisal is completed. We can provide referrals of established and experienced appraisers to provide you with this value validation.
Sale of the Home
If neither party wishes to remain in the marital home, or if neither party can qualify for a new mortgage on the home, sale of the home may be the only option. In this case, Guardian Mortgage Company can provide referrals to reputable real estate agents and help determine the estimated amount of equity available at various contract values. We can also assist any and all spouses in potentially qualifying for the purchase of a new home.
Retaining the Home
Without an Existing Mortgage:
If there is currently no mortgage on the home, a general warranty deed is the easiest way to transfer title from one spouse to another. An attorney can prepare this document and have it recorded with the county for a nominal fee.
With an Existing Mortgage:
Though a general warranty deed will transfer ownership of the home, the document does not remove the vacating spouse from the current or future financial responsibility on the mortgage if both spouses are borrowers on the existing mortgage. Only through satisfaction of the existing mortgage will the vacating spouse be free of this obligation.
Without such satisfaction, the spouse leaving the home will carry the liability of the mortgage on their credit record. They will also bear responsibility for any delinquency on the account. Carrying the additional debt may also affect their ability to qualify for future mortgage, auto and consumer financing.
Refinancing serves as a valuable tool to facilitate removal of the vacating spouse from any and all financing obligations on the marital home. We can assist in evaluating the refinance options available and determine the best loan program, structure and terms for the new mortgage.
Compensation for the Spouse Leaving the Home
Options for compensation for the spouse who will be changing residence will vary depending on available equity as well as the other assets and borrowing power of the remaining spouse.
If the remaining spouse qualifies for a new mortgage, a “cash-out” refinance with “owelty lien” or new home equity loan may be used to compensate the vacating spouse by drawing cash out of the equity in the property. There are a variety of mortgage options for accessing the equity in the home. One of our mortgage professionals will help you determine the best solution given your specific financial condition.
If qualification for a refinance or new equity lien is not possible, compensation will need to be arranged through the liquidation or transfer of other marital assets.
Divorce and New Mortgages
Qualification for a new mortgage can be a challenge for divorced individuals. Alimony and child support payment often adversely affect one’s ability to qualify.
Payments of these items may affect qualification ratios, whereas receipt of these payments for less than an established period of time often disqualifies their ability to be considered as income on the new mortgage approval.
Guardian Mortgage Company professionals are experienced in the guidelines for documenting payment or receipt of alimony and child support and can provide clarity and support for the new mortgage process.
Downsizing: How Much Space Do You Need?
If you are one of the current 39 million baby boomers entering retirement or part of the other 50 million boomers who are now experiencing the joys of becoming empty nesters, you’re probably in the market for a smaller home.
Downsizing into a home that allows you to maintain your current lifestyle and meets your projected retirement budget is a trend being seen throughout the baby boomer generation. With the rippling effects of the housing market collapse of 2009, rising energy costs and a greater awareness for the environment, many baby boomers are seeking smaller, more efficient and affordable homes.
The two biggest cost concerns when looking for a smaller place to live are size and location. Location is typically driven by factors such as work, proximity to family or the desire to live in an all-inclusive community. Of the two concerns, location is the easiest to settle on, but how do you determine just how much space you’ll actually need?
The first step is to make a list of the rooms in your current home and then, one by one, write down how often you actually use those rooms. Do you have guests once a year or more frequently? Do you really need three full bathrooms? How often do you host formal dinner parties these days? Determining how frequently these rooms are used will give you a quick, visual determination of how much space you actually use and need.
You can also create rooms that serve dual purposes to save on space and cost in your new home. For example, your study can be turned into a guest room whenever visitors arrive. You can also incorporate additional storage shelving and cabinetry in your new laundry room, giving you the option of needing less closet or formal storage space in your new, smaller home.
Other factors to consider when determining the size of your new house are your activities within the house. If you eat out more frequently, then there is no need for a large gourmet kitchen. If the kids have moved out, then odds are the game room upstairs isn’t really required any longer. And speaking of stairs, if you’re considering retirement, then review the number of stories your future house should have and consider how easy it will be for you to move around freely in the coming years.
Evaluating how much of your current space you use now and keeping in mind how your lifestyle and mobility may change over the course of the next 20 to 30 years will help guide you through the process of determining just how much space you’ll actually need when downsizing to a new home.
Changes That Could Derail Your Closing
The following situations could delay your purchase closing date or put your loan pre-approval at risk. To avoid this risk, the priority should be on full disclosure to your loan officer, early detection of any pending issues and quick resolution to all last-minute details.
Late Insurance Policy Details
We are required to have the details of a borrower’s homeowners insurance included in their closing instructions and preliminary HUD-1 Settlement Statement. Therefore, the closing instructions and documents cannot be prepared until we have received your insurance agent’s declarations pages for the policy you have selected.
Last Minute Contract and Loan Program Changes
Last-minute changes to your contract terms—including amendments to the contract, changes to agent or seller concessions as well as changes to your loan program at the “eleventh hour” can be problematic. A complete change in the loan program—such as from an FHA to a Conventional—or changing details of your loan program including a late decision to be non-escrow will likely trigger any or all of the following additional steps:
• Additional underwriter review
• Update of the appraisal by the appraiser
• Re-disclosure of the Good Faith Estimate and/or Truth-In-Lending Statement
Any of these additional steps could delay your closing for more than 3 days, therefore it is critical to get any last-minute negotiations and changes resolved as soon as possible to prevent an unexpected delay.
Changes in Financial Condition
Making Expensive Purchases
Lenders are required to verify the borrower’s down payment and/or closing costs are being paid from acceptable sources. Reductions in available cash to close and cash reserves after application can negatively affect your opportunity for approval.
Incurring Additional Monthly Debt Obligations
Additional debt payments may increase your debt-to-income ratio (the ratio of your total monthly payments to your gross monthly income) to a level that exceeds allowable guidelines.
Any variation of employment status prior to closing, even if the change results in a more favorable compensation package, complicates the underwriter’s ability to document the job stability and secure the income documentation required by lending guidelines. We are required to verify employment within 10 days of closing, so please advise your loan officer or loan processor if you are contemplating any change to employment prior to closing.
Switching Banks or Moving Money Around
For compliance with Anti-Money Laundering and Patriot Act requirements, underwriters are required to document the source of all funds. Changing banks or transferring money to another account prior to providing us with bank statements to verify assets could make it difficult for the lender to properly document your finances. Please consult your loan officer or loan processor if you are planning to transfer money in preparation for the loan closing.
Last Minute Gift Funds
If gift funds are a possibility in your transaction, please notify your loan officer in the beginning of the loan process to ensure verification of the entire amount of cash estimated to close. Specific documents are needed to verify the source and receipt of gift funds prior to closing. Last-minute requests to use gift funds could delay a closing as the lender awaits the required documentation from the gift giver and confirmation of the receipt.
Issues at the Closing Table
Non-Purchasing Spouse Absent
Being a community property state, a Texas property buyer is required to have their spouse present at closing to sign documents, regardless as to whether the spouse is a borrower on the home loan. At minimum, the non-purchasing spouse will be required to sign the Deed of Trust. Only the borrower will sign the Loan Note and other documents specific to the loan obligation.
Missing Government Issued Photo ID
All signors present at closing must bring a valid government-issued photo ID to closing, and the closing agent will collect a copy of the photo ID.
Unacceptable Source of Closing Funds
In general, funds from the buyer beyond $1,499.00 provided at the closing table must be in the form of a cashier’s check or official check from the depositor’s bank or financial institution. Please check with your specific title company prior to closing for details.
When Can I Remove Private Mortgage Insurance (PMI) From My Loan?
Federal law provides rights to remove PMI for many mortgages under certain circumstances. Some lenders and servicers may also allow for earlier removal of PMI under their own standards.
The federal Homeowners Protection Act (HPA) provides rights to remove Private Mortgage Insurance (PMI) under certain circumstances. The law generally provides two ways to remove PMI from your home loan: (1) requesting PMI cancellation or (2) automatic or final PMI termination.
Request PMI Cancellation
You have the right to request that your servicer cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you can't find the disclosure form, contact your servicer.
You can ask to cancel PMI earlier if you have made additional payments that reduce the principal balance of your mortgage to 80 percent of the original value of your home. For this purpose, “original value” generally means either the contract sales price or the appraised value of your home at the time you purchased it, whichever is lower (or, if you have refinanced, the appraised value at the time you refinanced).
There are other important criteria you must meet if you want to cancel PMI on your loan:
Your request must be in writing.
You must have a good payment history and be current on your payments.
Your lender may require you to certify that there are no junior liens (such as a second mortgage) on your home.
Your lender can also require you to provide evidence (for example, an appraisal) that the value of your property hasn’t declined below the original value of the home. If the value of your home has decreased below the original value, you may not be able to cancel PMI at this time.
Automatic PMI Termination
Even if you don’t ask your servicer to cancel PMI, your servicer still must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments on the anticipated termination date. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date.
Final PMI Termination
There is one other way you can stop paying for PMI. If you are current on payments, your lender or servicer must end the PMI the month after you reach the midpoint of your loan’s amortization schedule. (This final termination applies even if you have not reached 78 percent of the original value of your home.) The midpoint of your loan’s amortization schedule is halfway through the full term of your loan. For 30-year loans, the midpoint would be after 15 years have passed.
This standard for ending the PMI halfway through the loan’s term is more likely to occur for people who have a mortgage with an interest-only period, principal forbearance, or a balloon payment. Keep in mind that you must be current on your monthly payments for termination to occur.
Other things to keep in mind about the Homeowners Protection Act
Loan investors, including Fannie Mae and Freddie Mac, often create their own PMI cancellation guidelines that may include PMI cancellation provisions beyond what the HPA provides. But these guidelines cannot restrict the rights that the HPA provides to borrowers. For example, the HPA does not contain any requirements for a loan’s tenure before a borrower may request cancellation or be eligible for automatic PMI termination (known as a “seasoning” requirement).
Note: The rights in the Homeowners Protection Act apply to mortgages related to single-family principal residences that closed on or after July 29, 1999.
If you have a Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan, the HPA does not apply. If you have questions about mortgage insurance on an FHA or VA loan, contact your servicer.
If you have lender-paid mortgage insurance, different rules apply.