The Surprising Way Your Job Can Affect Your Mortgage

It’s pretty well-known that when you apply for a mortgage, a lender is going to look at your income when deciding whether to approve you. But you may be surprised to hear that your commute can also be a major factor. Here’s what you need to know about getting that mortgage.

Occupancy is an integral component of any home mortgage loan. An owner-occupied home is considered to be the least-risky for a mortgage loan. Second homes and vacation homes follow, with investment properties being the most risky type of financing. The lender assumes if the borrower somehow came into dire financial straits, they would be more likely to walk away from an investment property than the roof over their head. For this reason, lenders charge more—in some cases considerably more—for properties that aren’t owner-occupied.

Now, home lenders go to great lengths to ensure they have met all the credit criteria set forth by Fannie Mae and Freddie Mac. If it’s discovered after the loan is sold that the originating lender made a material oversight in the creation of the loan, the lender may be forced to buy back that loan. A buyback is incredibly costly to a mortgage company’s bottom line. This is why underwriting is necessary, and documenting everything is paramount.

So mortgage underwriters (the decision-makers on approvals) thoroughly review each mortgage application, questioning “Is this loan scenario plausible?” Mortgage underwriters are incredibly sharp. They are specifically trained to mitigate risk for a mortgage company by documenting, questioning, and leaving no stone unturned.

And the proximity of your job from your prospective new home is something they will scrutinize.

How a long commute can affect your mortgage

Let’s say you’ll work two hours away from your new home, leaving you to commute four hours per day, five days per week. Such a scenario would be difficult for an underwriter to believe without some additional layer of support detailing the unique circumstance.

Maybe in this type of scenario you have the ability to telecommute, where you commute a few days per week and work from home on the other days. Perhaps your job description letter from your human resources department could explain the nature of your occupation, how important traveling is to your job, and what percentage of your job requires traveling. This is the type of documentation mortgage companies want to see. If your job proximity is an unexplained factor on your loan, then an underwriter could change your transaction to an investment property. This would come at a cost of higher rates, fees, and a subsequently higher monthly payment even if your intention is to live in the home.

Please, Mr. P

Generally speaking, an hour commute from where you work to where you will be living is acceptable. Anything beyond an hour commute will open up questions, prompting the need for detailed explanations and                                           more paperwork.

Be clear and upfront with your mortgage company about what it is you’re trying to accomplish. Make sure your documentation supports your scenario well. Alternatively, in some cases, it might be better to structure the home as a second home, especially if you live in one property the majority of the week and an alternative home on the weekends, for example. What you have to reveal within your proposed scenario will dictate the loan structure.

What’s considered a primary residence?

As long as the scenario can be justified on paper, documented and explained, and if your true intention is to live in the home, it is a primary residence transaction and is considered as such on your loan application. The more unique your scenario is, the more specific you’ll need to get in documenting that the home you are financing is in fact a primary residence. The following things would be needed to document such a scenario:

• letter of explanation
• job description specifically identifying travel time requirement
• documentation supporting the commute time
• offer letter from new employer stating job acceptance if relocating

What’s considered a second home?

Your transaction could be considered a second home if the property is more than an hour away from work and is in a resort-type area. If the underwriter determines it to be a second home, you’ll be required pay at least 10% down.

What’s considered an investment property?

This can be the most dreaded scenario for someone who’s intending to actually occupy the home. Let’s say a loan is sent to underwriting as a primary home or second home, but something in the file with the location does not jibe with the believability of the transaction—then the underwriter determines it to be an investment property, which requires 20% down.

Typically, it would not make sense if the property you are planning to buy is right down the street from your primary home as secondary residence; it’s an investment property. The home would have to be a reasonable commute time from the primary home—up to an hour away—for the loan to hold water as secondary residence. If the property is a vacation rental, for example, it could be a tough nut to crack if you plan to finance the home as second home, especially if tax returns identify the property as a rental. Tax returns hold all the cards in residential mortgage lending. As far as proximity to your home, an investment property has no limitation; it could be a few miles away or hundreds of miles away.

Because the way the loan is structured can greatly affect the cost of your home, it’s important to have a good idea ahead of time to know how much house you can afford (this calculator can help you figure that out). This is why it’s also important, if your loan has any “outside the box”-type structure to it, to make sure you work with a loan officer who has a thorough knowledge of the underwriting process, which can only be acquired through years of experience.

Your credit score is also a big factor in how much your mortgage can cost you, so check your credit far in advance of shopping for a home to determine whether you need to take some time to build your credit. You can get your credit scores for free from many sources, including Credit.com, to see where you stand.

Shared from:  http://www.realtor.com/advice/finance/the-surprising-way-your-job-can-affect-your-mortgage/

Protect Yourself—and Your Finances—With These Creative Contingency Clauses!

Think of a contingency clause as insurance. Once you find a home and make an offer, you hope everything will go smoothly; but in case it doesn’t, you have a contingency clause in place that allows you to back out of the contract without losing money.

Most agreements already have a few key contingency clauses in place to protect against the bigger things—such as a lower-than-anticipated home appraisal—but there are contingencies that go beyond the norm. If you’re about to make an offer, consider all of your options.

Standard contingencies

Some contingency clauses are commonly used when making an offer. Some examples:

• Home inspection: This gives the buyer the right to order a professional home inspection and back out of the sale if major unreported damage is found.
• Appraisal: The buyer won’t be obligated to buy the home if the appraisal value is lower than the asking price.
• Mortgage availability: This gives the buyer time to find financing for the home. If the buyer can’t find financing, either party can cancel the deal.

Atypical contingencies

You don’t have to stick with the standard contingency clauses. Depending on your situation, it may make sense to add additional clauses to the agreement. Some examples:

• HOA rules: If you’re considering an area with a homeowners association, it may be prudent to require a copy of the HOA guidelines before you buy. HOA fees vary and if the dues are high, your annual homeownership costs will go up. Many HOAs also have rules on parking, landscaping, paint colors, and even holiday decorations. If you aren’t happy with the HOA, you’ll want the option to back out of the deal.
• Selling your current home: If you’re trying to sell your home before you buy another one, you may want to put a selling contingency in place. If you’re unable to sell your current home within a certain time frame, this contingency allows you to cancel your offer.
• Moving furniture early: With this contingency, you and the seller agree to allow you to move personal property in (or move in entirely) earlier than the seller anticipated. You may have to agree to pay the seller rent if you move in before closing, but it will spare you from putting your belongings in storage and finding temporary lodging.

Adding contingency clauses

A basic offer won’t automatically contain any contingency clauses. While many Realtors® include some standard clauses in every offer, you should work with your agent to make sure you’re including contingencies for everything you can anticipate before you submit your offer.

Once you’ve submitted the offer, keep in mind that the seller may submit a counteroffer with his or her own contingency clauses as well.

Reposted from:  http://www.realtor.com/advice/protect-yourself-with-creative-contingency-clauses/

Not Shopping Around for a Mortgage Can Hurt You

Think you’re a savvy mortgage shopper? You might not be. A study by the Consumer Financial Protection Bureau found that only about half of home buyers shopped around for a mortgage, meaning the other half considered only one lender or broker.

That’s great—if you’re a lender. But you’re a borrower, which means you want the best rates and loan terms in your area. And if you don’t loan shop, you’re very likely to make these expensive mistakes.

You might get a bad lender

If the only lender you work with is offering loans with lots of teaser rates, you might be in for a rough ride.

For example, let’s say your lender provides you with two options: a 30-year fixed-rate mortgage and a 30-year adjustable-rate mortgage. The fixed-rate mortgage is fairly standard, with a decent rate through the life of the loan.

But the lender is very persuasive with the ARM deal it has going, with only a 3% interest rate for five years. After that, it adjusts to the market and includes the lender’s margin.

Five years after you sign the loan, rates climb to 6%. Additionally, the lender’s healthy 3% margin kicks in, leaving you with a fully indexed rate of 9%. That’s a lot more than the 3% payments you were making for the previous five years.

If your lender did a bad job explaining the details of your loan (or a good job hiding them), you could be in serious trouble. But if you found a good lender halfway across town, that 20-minute car ride would have been worth it.

You can’t compare rates and terms

Within three days of applying for a loan, your lender has to give you a good-faith estimate, or GFE. This handy tool has tons of information about why your loan costs as much as it does. Fees for origination, title insurance, mortgage broker, application, rate lock, and commitment are all itemized in the GFE.

These fees can vary—sometimes significantly—among lenders and loan types.

If you’re using only one lender, you might get one that requires $200 worth of commitment and application fees than another lender across town who doesn’t charge for commitment or application.

You’ll miss out on special deals

Lenders want your business. To get your attention, they sometimes roll out special deals. Perhaps you need a mortgage that folds in your closing costs for an FHA loan, but your lender doesn’t have that option. Don’t give in to defeat. Call various lenders or brokers (or both), and tell them what you’re looking for. Ask them to contact you when they’re able to offer such a deal.

You lose bargaining power

Having a GFE from another lender can give you a significant advantage when negotiating, as it gives you a frame of reference. It’s a way of showing your lender that you have options, know what mortgages in your area cost, and are willing to go to the other guy if the deal isn’t right. That can make the lender budge on a few items and net you a better deal. But if you’re working with just one lender, you might find yourself out of your element with no frame of reference.

Remember: It pays to shop around. Use at least two lenders, ask questions, and compare loan terms.

Reposted from:  http://www.realtor.com/advice/not-shopping-around-for-a-mortgage-can-cost-you-heres-how/?iid=rdc_advice_article_related-posts

10 Home-Buying Costs You Need to Know About

If you’re a first-time home buyer, you might get a little queasy when the last line of your good-faith estimate comes in at several thousand dollars. And after the color returns to your face, you might also be a little more than perplexed by some of those fees.

Knowing what you’re paying for—like these 10 common costs—can ease that check-writing pain.

1. Earnest money

To prove you’re “earnest” in your purchase commitment, expect to plunk down 1% to 2% of the total purchase price as an earnest money deposit. This amount can change depending on market factors. If demand in your area is high, a seller could expect a larger deposit. If the market is cold, a seller could be happy with less than 1%.

Other governing factors like state limitations and rules can cap how much earnest money a seller can ask for.

2. Escrow account

An escrow account is basically a way for your mortgage company to make sure you have enough money to cover related taxes and mortgage insurance. The amount you need to pay varies by location, lender, and loan type. It could cover costs for a few months to a year.

Escrow accounts are common for loans with less than a 20% down payment and mandatory for FHA loans, but it’s not required for VA loans.

3. Origination

The origination fee is a hefty one. It’s the price you pay the loan officer or broker for completing the loan, and it includes underwriting, originating, and processing costs.

The origination fee is a small percentage of the total loan. A typical origination fee is about 1%, but it can vary. Use your good-faith estimate to shop around.

4. Inspection

You want to be assured your new home is structurally sound and free of surprises such as leaks or pests living in the walls. Those assurances come with a price.

• Home inspection: This is critical for home buyers. A good inspector will be able to notify you of structural problems, flooding issues, and other potentially serious problems. Expect to pay $300 to $500 for a home inspection, although cost varies by location.

• Radon inspection: An EPA-recommended step, this inspection will determine whether your prospective home has elevated levels of the cancer-causing agent radon. A professional radon inspection can cost several hundred dollars.

• Pest inspections: Roaches are one thing. Termites are a whole different story. Expect to pay up to $150 for a termite inspection.

5. Attorney

Some states, such as Georgia, require an attorney to be present at closing. In some other areas, this is optional. If you use a lawyer, expect to cover the costs, which vary by area and lawyer.

It’s typical for mortgage companies to have a lawyer on their end, although they should cover the bill.

6. Credit check

Just because you can get your credit report for free doesn’t mean your lender can (and it will actually pull all three). You have to reimburse the lender, usually around $30.

7. Extra insurance

If you live in a hazard-prone area, you might need to purchase extra insurance, like forflood.

8. Appraisal

Your lender won’t loan you money for a home without knowing what its fair market value is. An appraisal will cost $200 to $400, depending on location and property size.

9. Title company

You pay this to the title company to make sure the property’s title is free and clear. Your lender will recommend a title company, but you can also shop around for one.

10. Survey

It’s not required in all instances, but your lender may require a professional surveyor to determine exactly where your property lines are drawn. Prices vary widely, but expect to pay at least $100.

Remember: You have bargaining power. Shop around to get a feel for what rates and fees apply in your area. If you aren’t sure what a lender is charging, ask for an explanation—the charge might not be set in stone. If you’re unhappy with a charge, negotiate.

Reposted from:  http://www.realtor.com/advice/10-home-buying-costs-need-know/

Low Down Payments Make a Comeback!

Borrowers who have steady income and good credit, but not much money in the bank, will find that it recently became easier to buy a home.  Down payment requirements, which rose after the subprime mortgage crisis, are easing again as lenders and mortgage backers try to draw in new buyers.

"It's one of the things that's inhibiting first-time homebuyers," said Rob Chrane, president of Down Payment Resource. "There are a lot more people who can qualify for a home that don't realize that they can."

FHA cuts insurance costs

The Federal Housing Administration has long backed loans for borrowers with lower credit scores and with down payments as low as 3.5%, but until this year it also required hefty insurance payments.

FHA monthly insurance premiums dropped dramatically at the beginning of 2015. The change, from 1.35% to only 0.85%, will make FHA loans a better choice for some borrowers after years of prohibitively high premiums, said Anthony Hsieh, chief executive officer of loanDepot, one of the largest FHA lenders in the country.

"We're starting to get back to what's reasonable," said Hsieh. "The crisis has shaken the market so much that there is no doubt there was an overreaction."

Fannie and Freddie

Fannie Mae and Freddie Mac guarantee more than half the country's mortgages. At the end of 2014, the two government-backed companies announced plans to slash minimum down payments from 5% to 3%.

The new program from Fannie Mae went into effect in December, and the one from Freddie Mac will begin in March. Both are only for first-time homebuyers, and the Freddie Mac program is restricted to low-income borrowers.

Related: Where zombie foreclosures are making a comeback

Loans backed by the two mortgage giants still require private mortgage insurance for down payments below 20%.

And just because Fannie and Freddie are willing to buy loans with looser requirements doesn't mean the lenders themselves will change their standards.

"It's a phenomenon of the post-recession where lenders learned their lesson," said David Stevens, president of the Mortgage Bankers Association. "They learned that simply because the investor will allow it, the lender may still not feel comfortable doing it."

"Rural" and VA loans

Other types of low-down payment loans have also become far more popular since the recession.

Despite its name, loans from the Department of Agriculture are available to borrowers in many locations that are hardly rural, and they include no-money-down financing. To be eligible for USDA loans, a borrower must have dependable income and decent credit, and can't already own a home, exceed certain area median income thresholds or live within certain urban areas.

Related: What will your monthly mortgage payment be?

Department of Veteran Affairs loans are also booming, coming close to outnumbering FHA loans. Although not available to the average American homebuyer, VA mortgage backing allows veterans and surviving spouses to purchase property with no money down, no outside insurance and limited closing costs.

Average VA interest rates are lower, and credit and income requirements are also more flexible than conventional loans.

A return to easier credit

The shift toward loans with lower down payments has drawn criticism from some politicians -- after all, easy loans with little money down contributed to the crisis that led to the Great Recession.

Stevens said that new rules for qualified mortgage loans and more diligent underwriting by lenders will protect the lending market.

"Down payment has become the single largest barrier to home ownership," said Stevens. "Quite frankly, it's going to be a lot safer and sounder this time than it was in the past."

Reposted from:  http://money.cnn.com/2015/02/16/real_estate/low-down-payment-mortgages/index.html

Financial Resolutions Worth Keeping in 2015

It's the start of the New Year, and that means consumers are making resolutions—again. The top three financial promises that appear year after year, according to research from Fidelity Investments, include: saving more money, paying off debt and spending less.

As resolutions go, many are often broken. Still, Fidelity says of those who made a financial resolution last year, more than half say they are better off financially

Even better news: an overwhelming majority of those who set out to improve their finances at the start of the last New Year realized at least half of their goals, while nearly a third achieved their financial goals completely. 

Financial resolutions are no easy feat, but they are manageable. Here are four to keep in mind, not just in 2015 but throughout the arc of your life.

Keep track of spending!  One of the most important things you can do is to keep track of your spending. You cannot save money if you don't know where your money is going. Financial apps like Mint.com are free and help track your spending and offers many charts to show you exactly where your money is going.

Review your essential and discretionary monthly expenses. Determine whether it makes sense for you to cut costs, pay down debt, or save more. Start by taking these small steps, which everyone should be able to do.

Create a budget!  Create a budget and stick to it throughout the year. Doing so can help you find more money to save.  If you haven't already done so, start building a liquid emergency fund. Ideally, you'll need six months' salary to cover expenses in a pinch. But you can begin small, mainly by saving loose change: By just putting aside 50 cents a day, over the course of a year you can save more than 36 percent of a $500 emergency fund.

Most people may think it's not worth it to put aside 2 quarters a day, but the reality is that many people can do so—and the numbers show that it adds up over time.

Pay down credit card debt!  The challenge that most consumers find toughest is one that can be conquered with a few small steps. The first is reviewing your credit card bills.

Many people are accustomed to charging their credit cards, but many don't actually sit down to review important information. If you do, you will realize the account that is doing you the most damage is the one with the highest interest rate.

Start there and pay the most expensive balance first. Borrowing money for things you can't afford (or don't really need) usually gets you into trouble over the long term, because the interest rates you pay every month on credit cards can often derail your efforts to save money.

Call your credit card provider and ask for a lower interest rate. If you're a good consumer and have made timely payments, they may be willing to lower it for you.

If you're considering doing a balance transfer, you should first get out your calculator. There are fees associated with transfers, so you want to make sure the lower interest rate offsets the fees. Many credit cards in the New Year offer zero percent interest rates for a limited amount of time. 

You can be a savvy consumer and make that work for you if you're very disciplined. That means you'll need to fight the temptation to use that newly cleared card, while also committing to paying off the balance you moved over in a timely manner.

Focus on retirement!  Retirement is not what it used to be. Luckily, however, in the New Year you can save more for retirement on a tax-deferred basis. 

The limit on 401(k) contributions has increased by $500 to $18,000, from $17,500. Review your benefits to see if you're taking advantage of your company's match program.

If you're 50 and older, you can take advantage of the "catch up" contribution, which has also increased to $6,000 from $5,500. According to the Plan Sponsor Council of America, 97 percent of all 401(k) plans permit catch-up contributions.

Contribute to, or open up, an individual retirement account (IRA). Many tax-planning strategies end when the new year begins, but that's not the case with these accounts. You can open a Roth IRA or a traditional IRA, or contribute to an existing one, until April 15.

That way, you potentially reduce your taxable income, dollar for dollar, subject to phaseouts based on income.

Reposted from: http://www.cnbc.com/id/102304894#.