Understanding Debt, Making Sound Financial Decisions for the Future and Best Practices When Purchasing a Property
What are the best ways to start saving for emergencies, home purchases, improvements, etc.?
Start by setting a monthly budget. Families should take the time to understand their overall finances in order to get ahead. If you don’t know what you’re spending, then it is impossible to save. For a home purchase, it’s important to look at your monthly budget and determine what you can afford based on your current income. In other words, do not necessarily listen to what a lender says you can afford, but, instead, understand what are you comfortable spending. This needs to include taxes, HOA and insurance on a property.
What are the types of debt a lender looks at in order to qualify a borrower for a loan? What are your tips to refinance and get lower interest rates in the new year?
It’s important to go into a new year with a clean slate. Why not start the year with some planning? Consider a budget looking at the current debt obligations and goals for each property. Ask yourself: when was the last time I looked at my mortgage? We are currently sitting in a very opportunistic environment when it comes to real estate prices (all-time highs) and interest rates (just off all-time lows). Lowering monthly payments and understanding overall goals allows each family to begin saving in the proper places for a brighter future.
Some of the debts on a borrower’s credit report that impact loan qualification are car payments, student loans, mortgages, HELOCs (home equity line of credit) and credit card debt. Before thinking about looking for a new home, it’s important to understand where your monthly debt-to-income ratio stands. Then you can be placed in the proper loan for your unique situation.
How much of a down payment should one be willing to make when purchasing a home?
This answer is different in every situation and fully depends on the client’s goals and intentions with the property. So, as a lender, it’s important to ask the right questions to place a borrower in the correct loan. There are some solid loan programs out there right now where monthly mortgage insurance is avoidable with a strong credit score. Therefore, the client may be able to leave cash in their pocket for home improvements or future savings and put less than 20 percent down on the home while keeping the overall interest rate low and void of the monthly mortgage insurance.
At the same time, there are a lot of folks out there that are now coming out of seven-year seasoning of their foreclosure or short sale, which means they may be eligible for a conventional loan again. In some cases, we can eliminate the mortgage insurance on the property now that home prices are back on the high end, or simply remove them from an FHA loan, allowing them to drop the monthly mortgage insurance.
What is different about home financing today vs. in the past?
Today’s world is fast-paced, and people are constantly on the move, looking for the next best thing. Families are the same way and are relocating more frequently. In my mind, it’s more important to monitor your debt and home mortgage more often, knowing that the property isn’t going to be part of the long-term financial future. By reviewing the debt on an annual basis, you are allowing yourself options to possibly save earlier or use home equity to better impact your current situation.
This may sound shocking, but my opinion is that the old-school mentality and goal of owning your home free and clear no longer pertains to today’s environment. Expenses have increased, people are living longer and are healthier later in life—in order to maintain a lavish lifestyle, we all work hard to achieve and need to spend and save more money. This means it is less important to sink dollars into the fixed home asset. Due to families moving more often during their working career, we are seeing more and more retirees heading into retirement with a mortgage payment. Couple that with today’s low-interest rate environment, and it certainly becomes clear—we need to spend a little more time understanding how to leverage properly.
How is financing for investment properties different from a primary residence?
There is a premium placed on financing investment properties over a primary residence or a second home. The investor or lender holding the loan considers these properties riskier since they are not owner-occupied, therefore that additional cost and risk is passed onto the borrower. Generally speaking, an investment property interest rate is 0.5 percent higher than the financing on a primary residence. In addition, one would receive the best conventional financing with a 25 percent down payment on an investment property, whereas putting 20 percent down on a primary residence will secure a better interest rate with no mortgage insurance.
Disclaimer: All loan products are subject to credit and property approval. Jeff Miksta NMLS 1366595. V.I.P. Mortgage, Inc. NMLS 145502.