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/

Building Your Own Home...AND financing it?

Building your own place is a tradition as old as civilization itself. Of course, it’s a bit more complicated than it used to be.

No matter how handy you are, you’ll need the right kind of financing for your house to go from first architectural draft to completed structure.

Types of financing

Construction-to-permanent financing: Lenders provide a single loan that includes the cost of construction and the home’s mortgage.

During the duration of construction, usually 6 to 12 months, you make interest-only payments on the loan. Some lenders may offer an extended period of interest-only payments before principal payments kick in. When the house is done, the loan converts into a standard 30-year loan. There’s only one closing, which means less closing costs. However, you won’t be able to shop around for mortgages from different lenders.

Construction loan: A short-term loan provided by a lender to complete a specific project. When construction is complete, the principal amount is due. You can shop for your own mortgage to accompany this loan.

DIY difficulties

It can be difficult to get a loan for both the construction project and the land. Not only will you need great credit, you’ll also need to show a lender a detailed plan.

Most lenders are very wary of lending to someone without a proven track record of building homes, so this is where the wind may be removed from the sails of many buyers.

“It is very difficult to find a lender that will finance a self-managed project,” said Melissa Cohn, president of New York City-based lender and brokerage GuardHill Financial. “A few banks may offer it, but expect the rates to be higher.”

Paying for land

With that in mind, it helps to already own your land. It will cut down on overall costs, and you can leverage the land to get better rates. With down payments typically starting at 20% for construction loans, not owning land in advance of construction can be a deal breaker for some buyers.

For your best chance at approval (and a lower down payment), have a detailed plan ready for the lender to review, and plan on starting construction as soon as possible. If you’re looking to finance land now with plans for construction beginning later, expect to shell out a higher down payment.

Other costs

• Keep an eye on builder’s fees and get all projects in writing. Consider your costs before springing for an upgrade or an addition not included in the initial contract.
• Set aside some money and hire a lawyer familiar with construction law to go over the builder’s contract before committing to a project.
• Lenders view construction loans as riskier investments than traditional mortgages. Expect to pay a slightly higher interest rate. For construction-to-permanent financing, you’re likely going to have to pay a quarter-point more.
• You may want to find a lender who will let you lock in rates during the construction or pre-construction period if you believe rates are going to rise. If not, adjustable-rate mortgages for construction loans are also common.

Reposted from:  http://www.realtor.com/advice/finance-home-build/

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#.

10 Questions You Should Ask Mortgage Lenders

1.  What’s the interest rate?

Right off the bat, you should ask your lender for a direct interest rate quote 

as well as the corresponding annual percentage rate (APR) for the loan. Since 

the APR accounts for fees and other loan-related charges, it gives you an 

apples-to-apples comparison among lenders. Don’t be afraid to shop around 

until you find one you’re comfortable with.

2.  How many points does that include?

A point is a fee paid to the lender at closing in exchange for a reduced 
interest rate. (1 point = 1% of your total mortgage amount.) Be sure to ask 
your lender how many points are included in the quoted interest rate and 
what the benefits might be to buying more or fewer points.

3.  How many points does that include?

A point is a fee paid to the lender at closing in exchange for a reduced 
interest rate. (1 point = 1% of your total mortgage amount.) Be sure to ask 
your lender how many points are included in the quoted interest rate and 
what the benefits might be to buying more or fewer points.

4.  When can I lock down the interest rate?

Interest rates always fluctuate. Sometimes locking in a low rate can really 
pay off. Ask your lender when you can lock down a particular rate, and for 
how long. Keep in mind, lenders will usually offer lower interest rates for shorter-term locks and higher interest rates for longer-term locks.

5.  What are my estimated closing costs?

Remember to factor in the various costs and fees associated with buying a 
home. Particularly closing costs. Closing costs include loan-origination fees, 
appraisal fees and attorney fees (if any), to name a few. Ask your lender to estimate what your closing costs might be so you can budget accordingly.

6.  Are there any other costs or fees I should know about?

Be sure to ask your lender for a detailed list of all the costs and fees you 
might encounter during the homebuying process. The more information 
you can collect up front, the more prepared you’ll be should you run into any unexpected expenses along the way.

7.  What’s the difference between a fixed-rate and an adjustable-rate mortgage?

A fixed-rate mortgage keeps the same interest rate for the life of the loan, 
typically 15- or 30-year terms. This keeps your monthly payment for principal 
and interest steady and predictable over time. Adjustable-rate mortgages, or 
ARMs, have interest rates that change based on the market, so your payment 
will go up and down. Most ARMs are based on a 30-year term and typically 
start with an initial fixed interest rate for a specific period of time, usually 5, 7 or 10 years.

8.  Are there any special requirements I should be aware of?

There are all sorts of qualification guidelines for homebuyers applying 
for a mortgage. Typical requirements relate to income level compared 
to debt, employment status and credit history. But, if you’re a military 
veteran or first-time homebuyer, you may also be eligible for special 
government-sponsored mortgage programs. Talk to your lender to see 
what you might qualify for.

9.  Can you estimate when the closing will be?

A lot of factors help determine when your exact closing date will be—many 
of which are completely out of your control. Ask your lender for a ballpark 
estimate of when you might expect to close. That way you’ll at least have a 
rough idea of the timetable you’re working with.

10.  Is there anything that could cause a delay?

The best way to avoid delays in your closing is to stay in touch with 
your lender and always provide the most up-to-date and accurate 
documentation in a timely fashion.

Reposted from:  https://www.bettermoneyhabits.com/assets/images/v.2.0/tiles/infographics/pdf/10-questions-to-ask-mortgage-lender.pdf

How Much Should Your Mortgage Be?

Learn the rules of home affordability to figure out what percentage of your gross monthly income you can safely spend on housing. Caution: Your mortgage lender may very well approve you for a bigger mortgage that you can actually afford.

This question often comes up among first-time home buyers:

• What percentage of my monthly income can I afford to spend on my mortgage payment?
• Does that percentage include property taxes? Private mortgage insurance (PMI) or homeowners insurance?

Most agree that your housing budget should encompass not only your mortgage payment (or rent, for that matter), but also property-taxes and all housing-related insurance — homeowner’s insurance as well as PMI. As for just how big a percentage of your income that housing budget should be? It all depends on whom you ask.

In this article on how the mortgage crash of the late 2000s changed rules for first-time home buyers, the New York Times reported:

If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.

Let’s remember that even in the post-crisis lending world, mortgage lenders want to approve creditworthy borrowers for the largest mortgage possible. I wouldn’t call 35 percent of your pretax income on mortgage, property tax, and home insurance payments “conservative”. I’d call it average.

On the flip side, debt-hating Dave Ramsey wants your housing payment (including property taxes and insurance) to be no more than 25 percent of your take-home income.

Your mortgage payment should not be more than 25 percent of your take-home pay and you should get a 15-year or less fixed-rate mortgage…Now, you can probably qualify for a much larger loan than what 25 percent of your take-home pay would give you. But it’s really not wise to spend more on a house because then you will be what I call “house poor.” Too much of your income would be going out in payments, and it will put a strain on the rest of your budget so you wouldn’t be saving and paying cash for furniture, cars and education.

Notice that Ramsey says 25 percent of your take-home income while lenders are saying 35 percent of your pretax income. That’s a huge difference! Ramsey also recommends 15-year mortgages in a world most buyers take 30-year mortgages. This is what I’d call conservative.

Not everybody is as debt-adverse as Ramsey — and following his one-size-fits-all advice has risks. You just have to remember: the more you spend on your home, the less you have available to save for everything else. You may be able to afford a housing payment that is 35 percent of your pretax income today, but what about when you have kids, buy a new car, or lose your job?

Another reader put it this way:

• Your mortgage payment should be equal to one week’s paycheck.
• Your mortgage payment plus all other debt should be no greater than two weeks’ paycheck.

That’s on the conservative side, too. One week’s paycheck is about 23 percent of your monthly (after-tax) income.

If I had to set a rule, it would be this:

• Aim to keep your mortgage payment at or below 25 percent of your gross monthly income.
• Aim to keep your total debt loan at or below 33 percent of your gross monthly income.

As some commenters have pointed out, while it may be possible to buy a decent home in a small midwestern town for $100,000 and well within these ratios — workers in New York or San Francisco will need to spend five times that amount just to get a hole in the wall. Yes, people tend to earn more in these high cost-of-living areas, but not that much more. Does it mean they shouldn’t buy a home? Not necessarily, they’ll simply have to make trade-offs to buy in those areas.

Just remember that when you obtain mortgage pre-approval, lenders will likely approve you for a loan amount with payments of up to 30 or 35 percent of your pretax income. That may tempt you to take on more home than you should. Don’t just assume “if the bank approved it; I can afford it”. They are two very different things.

Click here to use the home affordability calculator.

Reposted from: http://www.moneyunder30.com/percentage-income-mortgage-payments#67T7i3OC8pUFFpiv.99

How to Achieve Financial Freedom

1.  Develop a long-term plan. You need clear goals to keep you on track in order to be successful.

On a piece of paper or computer document, make a list of each goal that you want to reach in order to be successful. Some examples are to pay off your credit cards, save money for a down payment for a house, or retire at a certain age.
List a desired target date for reaching each goal

2.  Make a budget. A budget is your playbook for how to spend your money. You need it to keep your spending within reason and help you to ensure that you have enough money to cover your current needs as well as to save for your long-term goals.

3.  Resolve to live debt-free. If you are currently in debt, plan your budget so that you can get out of debt more quickly by making extra payments. If you are not in debt, continue to live that way by putting off your purchases until you have saved enough to cover them.

4.  Reduce your expenses. Cutting spending by even a small amount on a regular basis will make a big difference in the long run. Live frugally by learning to recognize the difference between want and need.

5.  Increase your income. It is wise to have more than one source of income, both to increase your savings more quickly and as insurance in the event that you lose your job. There are a number of ways to supplement your income, from working a part-time job to developing streams of passive income.

6.  Invest your money. Your money will grow much faster if you invest it rather than leaving it in a savings account. The increase in value will enable you to reach your goal of financial independence much more quickly.

Tips:

Always include an extra cushion in your budget for emergency and unplanned expenses.

Achieving financial freedom is much easier if you start at a young age. That is because your savings have more time to grow.

If you are married, make sure that your spouse is in agreement with you on financial matters.

Warning:

The two areas where most people fail to meet their financial goals are: not making a plan and not controlling impulsive spending.

Reposted:  http://www.wikihow.com/Achieve-Financial-Freedom

7 Things to Always Do Before Buying a Home

There's no better time to clean up your credit score or kick your credit card habits.

Maybe you’ve decided to take the plunge and buy your first home, or you’re already a homeowner and are ready to move into a new place. Whatever reason prompted the move, here are seven things you need to do before buying a home.

1. Clean up your credit score. Your credit score will be reviewed by lenders, and it plays an important role in determining how much house you can buy. If you know you won’t be moving into a new house for at least six to eight months, you have plenty of time to do some legwork to clean up your credit. Order your free credit report from Equifax, TransUnion or Experian, and make sure it is free of any mistakes. If you do find an error, contact creditors to make sure everything is up-to-date, and have them send corrections to the credit bureaus as soon as possible.

2. Kick the credit card habit. Another step to cleaning up your credit history? Make sure you aren’t buried under credit card debt. Take steps to stop credit card spending, and consider using a balance-transfer credit card to reduce your debt load faster. Improving your credit will give your credit score a boost, and that will make you more attractive to lenders. A bonus? Kicking the credit card habit can help you get a handle on your finances so making mortgage payments isn’t overwhelming.

3. Hash out monthly payments. If credit card and loan payments make up a big percentage of your monthly payments, you may reduce your chances of getting an attractive mortgage loan offer. Taking steps to lower monthly payments can put you in a better financial position for a mortgage and also reduce some of the stress of making that mortgage payment each month.

4. Define exactly what you want. Your home is one of the biggest purchases you will ever make, and you need to have a clear idea of exactly what you are looking for before you begin the search. While you should get preapproved early in the process, don’t wait for the preapproval offer to narrow down the search. You need to determine what the non-negotiables are for your future home and what you are willing to compromise on. Take the time to list what features, floor plans and style of home you are most interested in; what type of neighborhood you want to live in; and other key details. A comprehensive list of wants and must-haves can make it easier to shop for a home and compare different properties during the search.

5. Get preapproved. It’s exciting to start the homebuying process by visiting open houses, but it’s a good idea to have a preapproval letter in your pocket before you set foot in your dream home. Your preapproval letter will tell you how much you can really afford and make it easier to narrow down your search. Having that preapproval letter will also give you some negotiating power when you start working with sellers – you’ll have a greater chance of having an offer accepted when you have a letter stating that you are in a financial position to buy the home.

6. Commit to a savings plan. When you start thinking about moving, take the time to reorganize your budget and put together a savings plan for the down payment, closing costs and moving costs. Putting yourself in a position to make a larger down payment can save you money on mortgage payments in the long run and make you more attractive to the lender. Also, if you’re a first-time homebuyer, don’t overlook down payment assistance programs, if they exist in your area.

7. Set your own budget parameters. Even though you may be preapproved for a certain amount, there’s no rule that says you can’t set your own budget that’s less than your preapproval amount. Doing so can give you more confidence with your finances and may free up more money for discretionary expenses. Whether you want to have more money to travel or prefer to live with a higher disposable income, adjust your budget limits to suit your lifestyle.

Reposted from:  http://money.usnews.com/money/blogs/my-money/2014/06/25/7-things-to-always-do-before-buying-a-home