Important Information to Have Before Applying for a Mortgage

The mortgage application process can seem difficult, but it doesn’t have to be. If you take time before your application to get some basic information together, and take a few important steps in advance, the process can be very easy. Here are the documents and information you should have before you apply.

Getting a mortgage loan takes time but being prepared with these items can speed it up.

Your Credit Score

Perhaps one of the most important things to know when you’re going into the mortgage loan application process is your credit score. Credit scores range from 300 to 850, but most lenders won’t be able to secure a loan if your score is below 580, although some lenders have programs available to people with credit scores as low as 500. These programs usually require a larger down payment, though.

What You Can Afford

While the lender will give you the official amount that you can get qualified for on a home loan, it’s a good idea to do a little research on your own to find out approximately what that will be. The easiest way to do this is to calculate it using your current income and apply the 28/36 rule. This is a general guideline that says your mortgage payment should not be more than 28% of your gross income (before taxes) and your total debt should not be more than 36% of your gross income.

To calculate these numbers:

  • Multiply your monthly income before taxes by 0.28 – this is 28% of your gross income
  • Multiply the same monthly income by 0.36 – this is 36% of your gross income

You can use an online calculator to determine what that house payment translates to for a total home price, but keep in mind these are just estimates. What you actually qualify for may be less than what you calculated. If you have a lot of other debt from car loans, student loans, or credit cards, you may not qualify for as big of a home loan.

Your Income and Employment

To qualify for a loan you need to show the lender that you have a steady income and will be able to make the payments and (hopefully) avoid defaulting on the loan. Be prepared to show at least your two prior paycheck stubs, although if you have a new job your lender may ask for some additional history from your previous employer as well.

Your Bank Account Information

Most lenders will ask for two to three months of bank statements for all the accounts you have, including checking, savings, and other online bank accounts like a high-yield savings account. If you have any large withdrawals or large deposits that aren’t related to your employment, be prepared to explain those.

Tax Returns

Lenders also need to see at least two years of IRS tax filings for your mortgage loan. If you are self-employed or have income that is not from a traditional source (a paycheck from an employer), the lender may ask for more than two years of tax returns.

Contact Integrity First Lending to get started on your mortgage journey and find out more about the process to buy your dream home.

Understanding the Home Buying Timeline

So you’re ready to buy a home. That’s exciting, but before you get ahead of yourself and start packing boxes, it’s a good idea to know what the average timeline is for someone to get into a new home. Part of the process includes time to get qualified for and close on the mortgage. Here’s an overview of that timeline so you can plan your next move.

Buying a home can be a lengthy process, so know what to expect before you start.

Prequalification & Home Shopping

The first step is to talk to a lender to get prequalified so you can start shopping for your home. This isn’t an in-depth review of your financial history, it’s just an overview where the lender will determine your viability to get a mortgage loan, and give you an estimate of what you can borrow. It’s not a guarantee that you can get that amount, so when you’re home shopping know that the actual amount you can get approved for may be different.

Timeline: Prequalification is a quick process that usually only takes a day or two. How long you shop for the perfect home is up to you.

Preapproval & Home Offer

Once you find a home, the next step is to go through a more in-depth review of your finances and creditworthiness for preapproval. You will find out the specific amount you can qualify for so you can put an offer down on the house. Many sellers won’t accept an offer unless you are already preapproved so they know it’s a serious and legitimate offer.

Timeline: Preapproval may take several days. Gather important documents like bank statements, paycheck stubs, IRS tax filings, and bank statements to speed it up.

Purchase Agreement

Once you finalize the price of the home through negotiations, you and the seller will sign a purchase agreement, which is a binding contract.

Timeline: Negotiations on home prices could take a few weeks of going back and forth.

Home Inspection & Appraisal

A final step is to schedule a home inspection (most lenders require this). If you’re not sure what to look for, there are checklists available to help you go through the home and identify red flags that could indicate a problem. Your lender will also schedule an appraisal to estimate the value of the home. You won’t be able to get a loan for more than the home’s appraised value.

Timeline: Home inspections and appraisals could take up to 5 or 6 weeks, depending on yours and the seller’s schedule, as well as the availability of appraisers.

Final Loan Approval & Closing

The final step is to take your signed purchase agreement to the lender and they will approve you for the loan. The lender will schedule a date to “close”, which is when you and the sellers get together and sign all the official documents to transfer the home ownership.

Timeline: This can take about 2 to 4 weeks after the appraisal and inspection are done. Most lenders plan about 30-45 days from the time the offer is finalized until closing.

If you’re ready to get started on this process, talk to Integrity First Lending about getting your prequalification to start shopping for your future home.

Calculating How Much Home You Can Afford

Whether you’re looking to buy your first home, you’re ready to upgrade from your current place to have more room to grow your family, or you need to downsize in retirement, one of the first questions you should answer is how much home you can afford. Calculating the information can help you shop for homes in the right price range.

Calculating how much house you can afford is important in your homebuying journey.

What Lenders Review

To determine how much money you can borrow, lenders look at several different things, including:

  • Household income
  • Monthly debts (car loans, student loans, credit cards, etc.)
  • Cash for down payment
  • Savings

The 28/36 Rule

There is no set amount that you have to spend on your mortgage every month, but as a general guideline, lenders use the 28/36 rule. That says that your total mortgage payment should not be more than 28% of your monthly income before taxes (gross income) and your total debt payments should not exceed 36% of your gross income.

Calculating these numbers is easy, just take your paycheck and find out how much you make before taxes, then multiple that by 0.28 to get the maximum monthly mortgage payment. Multiply your gross income by 0.36 to get the total debt amount.

Next, add up what other debts you make a monthly payment on, such as car loans, student loans, or balances on your credit card. Add them together and subtract it from the 36% to find out about what your monthly payment should be.

For example: Together Suzy and Adam make $120,000 a year

  • Their gross monthly income is $10,000
  • They have two car loans with total monthly payments of $853
  • They also both have student loan payments totaling $340

28% of gross income: $10,000 x 0.28 = $2,800

36% of gross income: $10,000 x 0.36 = $3,600

Monthly debt payments: $853 + $340 = $1,193

Calculating 28% of Suzy and Adam’s income would indicate that they could potentially have a house payment of $2,800, but since they have $1,193 in other debt payments, to keep their total debt under the 36% target would mean the highest house payment they can afford is around $2,400. You can use an online calculator to determine what total house cost that specific payment can get you.

Remember These Are Just Estimates

It’s important to note that these are estimates and don’t take into account your own lifestyle and other needs. You may learn that you can afford a $2,400 house payment but if you want to have extra money every month to travel or put more into savings, you may want to buy a less expensive house.

Talk to Integrity First Lending to find out what you can get qualified to borrow. Then you can calculate your own personal budget and figure out exactly how much home you can afford.

Refinancing Can Put More Cash in Your Pocket

Buying a home is one way to gain a valuable asset that often increases in value over time, but you can only realize the value of it when you sell your home. If you don’t plan to sell anytime soon, there is another way that you can use the value of your home to get cash in your pocket today and pay for things like remodeling, vacations, college, or pay down other high-interest loans and debt; it may also improve your interest rate and lower your monthly payments. Refinancing a mortgage is a great option for many homeowners.

Refinancing gives you cash for remodeling, sending a child to college, or paying off debt.

Use the Value in Your Home

Home values in Utah have grown exponentially in recent years, and are expected to continue to outpace the national average. Increased home values offer current homeowners the opportunity to borrow against the equity in your home. With mortgage rates currently at one of their lowest points in recent history, borrowing money against your home’s equity is often less expensive than obtaining other higher-interest personal loans or putting debt on a credit card.

When you opt to refinance, the amount you borrow will be added to the current mortgage principle that you owe, and you get a check for the difference at closing.

Other Benefits of Refinancing

While getting some additional cash to pay for expenses can be very helpful, there are other reasons to consider refinancing now. Interest rates continue to remain low, so if you have a rate above 4% or your credit score has improved since you first bought your home and you could qualify for a much lower rate, that will lower your monthly payment and the amount of interest you pay over the life of the loan. Refinancing out of an ARM (adjustable-rate mortgage) into a fixed-rate loan can also provide you with more predictable monthly payments.

Depending on your financial situation, you could also refinance into a shorter-term loan, for example, going from a 30-year to a 15-year mortgage. While this may result in a slightly higher payment, it will help you pay off the home faster and pay less interest over time. Interest rates are also lower on 15-year loans, so this is a great option if you can afford it.

Talk to a Lender Today

It’s important to note that refinancing is not always the best option for every buyer, and that refinancing will increase the total amount you owe on a mortgage so the decision should be made carefully. Talk to the knowledgeable team at Integrity First Lending to find out whether it is the right choice for you.

Is a No-Cost Loan Right for You?

Anytime you hear the words “no cost” it seems like it should be a good deal, right? No-cost loans are no exception, but they are not exactly the right choice for every homebuyer. Here is an overview of what a no-cost mortgage is, and who might benefit from this type of loan.

No-cost loans can provide homebuyers in Utah a better alternative at mortgage closing.

No-Cost Mortgage Loans Explained

The term no-cost loan refers to a mortgage or refinance where the lender pays for the settlement costs at the time the buyer obtains the loan and charges a higher interest rate to make up for the costs over time. Since settlement costs can add up quickly, having a mortgage lender cover these costs at closing can be helpful to some borrowers.

It’s important to note that no-cost loans are different from a situation where a mortgage lender rolls your closing costs into your overall loan balance (increasing your mortgage principle). No-cost loans do not increase the amount you will pay as a principle balance, and instead raise your interest rate slightly to cover the costs your lender will pay for you at closing.

What Are Closing Costs?

Whenever a lender provides a buyer with a mortgage loan, there are several costs incurred at the time of closing that loan: origination fees and third-party fees. They may include:

  • Document preparation
  • Origination points
  • Title insurance
  • Reconveyance fee
  • Recording fee
  • Processing fees
  • Tax service
  • Underwriting fees
  • Appraisal
  • Survey
  • Credit report
  • Attorney or settlement costs
  • Postage, wire, or courier service fees

Benefits of No-Cost Loans

The biggest benefit that no-cost loans offer a homeowner or homebuyer is the ability to settle at closing or refinance your mortgage without coming up with a lot of cash all at once. These closing costs usually average between 2% and 5% of the total cost of your home loan (that’s $6,000 to $15,000 on a $300,000 home), which is a lot of cash and could be used for things like window coverings, landscaping, and other costs after you move in. Another benefit of a no-cost loan is that your actual mortgage principle will not increase, as it does when the lender finances your closing costs into the total amount of the home loan.

What Else to Know About No-Cost Loans

It is important for buyers to be aware that while they will not pay for closing costs on a refinance or new loan at closing, the lender will increase the interest rate on the loan to make up for those costs over time. For some buyers this is definitely worth it, allowing you to avoid the need for a huge sum of cash and instead pay it off slowly over time.

To find out if a no-cost loan is a good option for you when buying or refinancing, contact Integrity First Lending today.

New Year, New Home: Why January is a Great Time to Start House Shopping

Whether it’s an enduring myth, popular wisdom passed from generation to generation or just a habit we have gotten into as a society, many people believe that the best time to shop for a new home is in the spring and summer months. This is arguably the time when there is the most inventory on the market (since many homeowners also believe that it’s the best time of year to list a home), but that doesn’t mean you have to wait for the warmer weather to go out and find your dream home. In fact, January is a great time to start your search for a place to live. Here’s why.

January is the best time of year to start shopping for a new home.

Fewer Buyers

Since everyone else also believes that spring and summer are the best times to build or buy a home, there are fewer buyers to compete with during the winter months. In a hot housing market, that can make a huge difference, allowing you to take your time to check out several listings or builders and not feel pressured to make an offer immediately or worry that you will miss out on the house if you don’t.

Lower Prices

Because there is less inventory on the market, and fewer buyers to compete with, homeowners that put a house up for sale in the winter often list it for less than they would in the summer. Even if the listing price is high, you may be able to put in a lower offer and have it accepted, saving you thousands on the purchase of your new home. In fact, the personal finance website NerdWallet analyzed two years or real estate data from 50 U.S. metro areas and found that home prices in January and February are 8.45% lower than any other time of the year. Home builders also know that the winter is a slower time of the year, so they may be offering incentives like free upgrades or other benefits to get you to start your home building process now during a slower season for subcontractors.

Rates are Low

It may not be true every January, but in 2020 mortgage rates continue to be at historic lows, which saves you money on your monthly mortgage payment and also saves you thousands in interest over the course of a 30-year loan. Nobody can predict what might happen to interest rates in the future, so now is a great time to lock in those rates.

Ready to start shopping for a new home? Contact Integrity First Lending to get prequalified for a mortgage and find out what your rates will be.

Understanding the Mortgage Preapproval Process

For anyone who has gone through the process of trying to buy a new home, you know it can be a little frustrating at times. But there are a few things you can do that will streamline the process so you can get into that home of your dreams just a little sooner. One of those things is to get a mortgage preapproval.

Mortgage preapprovals help you confidently put in an offer on the home you want.

Prequalification Versus Preapproval

As the names would imply, a “pre” qualification and “pre” approval is something you do before you close on your home. However, while some people might use these two terms interchangeably, there are differences between the two.

Prequalification is a very early process where a lender takes some basic information with the goal of giving you an idea of how much of a loan you can qualify to get. They won’t do an in-depth review of your finances, but it helps homeowners to know they’re shopping for houses in the right range. It can also help you and the lender figure out what type of home loan would work best in your situation. For prequalification, all you need is:

  • Current income information
  • Quick credit check (the lender performs this, and it won’t hurt your credit score)
  • Basic bank account balance information
  • Estimated down payment amount

Preapproval, on the other hand, is a more in-depth process that you would go through when you’re getting closer to choosing the home you want. You will provide more detailed information and the lender will get you pre-approved for a specific mortgage loan type and amount, which means you can confidently put in an offer on the home you want. You need:

  • Copies on your most recent pay stubs showing the past 30 days of income
  • An in-depth credit check (again, this won’t hurt your credit score if you’re actively shopping for a new home)
  • Bank account information that includes account numbers and your two most recent statements
  • Proof of the down payment you plan to make
  • The amount of the mortgage loan you plan to get
  • Tax information, including W-2 statements and/or tax returns for two years (if you own a business or are self-employed)

Benefits of Preapproval

With all this information, your lender can give you information about exactly how much of a mortgage you can quality for, and the seller knows you are a serious buyer. This is particularly helpful in a competitive market, where the seller may have multiple offers; they’re more likely to accept an offer from someone they know can qualify for a loan.

Ready to take the next step in your homebuying journey? Talk to Integrity First Lending today to find out what it takes to get preapproved and go put in an offer on the perfect home.

Things that Can Delay Your Home Loan Closing

There are few things in life more frustrating than finding your dream home and being ready to move in only to find out that your loan process has hit some delays (sometimes your fault, and sometimes it’s because of someone or something outside your control). If you are considering purchasing a new home any time soon, here are some things that you should be aware of that could throw a wrench in your home buying timeline.

Don’t risk delaying your home loan; address these common issues to keep things on track.

Changes to Your Employment Status

Since the homebuying process takes place over a period of several weeks (or even a couple of months), it’s important to make sure that your employment remains steady during that entire time. If you are planning to switch jobs or you know there will be a change to your income in the near future, talk to your lender to make sure you apply for the loan at the right time to avoid delays or problems that arise if your employment status changes.

Changes to Your Credit Score

One of the most common mistakes people make is to thing that because you got your pre-approval, you’re free to go and spend money or open new lines of credit. Making big purchases or having several credit inquiries right before your loan closes can impact your credit score and possibly even your eligibility for a loan. Save any big purchases or new credit lines for after your loan closes.

Low Appraisal Value

Some homeowners find that their loan is delayed after the appraisal comes back on a property and it’s lower than the amount of the loan for which you are applying. Most banks and mortgage lenders will not allow you to borrow more than the actual appraised value of the home, so if this does happen and the seller will not lower the price to the appraisal value, you can still move ahead with the home purchase but you will need to find an alternate way to pay the difference (probably cash). Similarly, if a home inspection uncovers damage that was not disclosed from things like termites, or the underwriters discover some kind of lien on the property, those things will have to be addressed before the loan moves ahead.

Paperwork Delays

Additional delays can also happen when your lender doesn’t have the proper paperwork on the scheduled closing date. Unfortunately this is completely out of the homeowner’s control, but you can avoid these issues by working with a trusted mortgage lender that offers close-on-time guarantees.

Talk to Integrity First Lending about all the steps to prepare for your home loan to ensure that there is nothing in the way of moving into your dream home.

How to Decide When You Should Refinance Your Mortgage

Interest rates on home loans are at or close to all-time lows, but if you’re not in the market to purchase a home right now, it might seem like that news doesn’t impact you. However, for any homeowner with a higher interest rate on their mortgage, now might be the perfect time to take advantage of the low rates with a refinance. The key is to refinance only if it makes sense in your specific situation, which won’t always be the case, so how do you know when it’s the right time? Here are a few things to consider when you’re deciding.

Find out if now is the right time to refinance your mortgage and get a lower rate.

Current Interest Rate

The most logical reason to refinance your mortgage in Utah is to lower your interest rate, or to go from an adjustable rate that fluctuates or even increases over time to a fixed rate that will remain low. Take a look at what your current rates are and talk to a lender about whether or not you would save enough money by refinancing to make it worth your while. While there are no hard-and-fast rules about exactly what the interest rates should be to consider refinancing, a lender can help you calculate your estimated monthly savings to find out how much you can save.

PMI

If you didn’t have 20% to put as a down payment on your loan when you initially got your mortgage, you are paying a monthly premium for mortgage insurance, or PMI. If home values have increased and you have paid down some of your initial loan, you may be able to refinance and have 20% equity or more, which would eliminate your PMI. That, combined with the low rates, could save you hundreds on your monthly mortgage payments.

Loan Maturation

If you are in year 25 of a 30-year mortgage, refinancing could actually be counterproductive, because the majority of your payment is going toward principle instead of interest. Even if you refinance for a shorter loan period, you will once again be paying more toward interest for a while. However, if your current interest rate is high enough, the monthly savings from a new loan may offset the downside of getting a new loan.

Cash Flow

Another consideration is whether you need (or want) some cash. Many homeowners refinance as an option to turn a home’s equity into cash to pay down debts with higher interest rates, pay for kids’ college education, or remodel or add on to your home.

Understand the Costs and Benefits

Most refinance options do come with fees such as appraisals, credit checks, origination fees and closing costs; these usually add up to about 2% to 6% of the total loan amount, so if you won’t achieve substantial savings from the refinance, it might not be worth the added costs.

The easiest way to find out if now is the right time for a refinance is to talk to an expert at Integrity First Lending. Our goal is a stress-free experience to help you refinance when it’s the right time.

When to Lock in a Mortgage Interest Rate

If you’re thinking about buying a home, getting the lowest possible interest rate is crucial; low interest rates mean a lower total monthly payment, and lower payments over the life of the loan. On a $250,000 house, a 0.5% increase in your interest rate adds about $75 to your monthly payment, and over the life of a 30-year loan can add more than $25,000 to the total you will pay.  Rates change over time, so for some people it makes sense to lock in an interest rate before you’re ready to close on your home.

A rate lock protects you if interest rates increase while you’re buying a home.

How Do You Lock an Interest Rate?

Many lenders offer the opportunity to lock in, or freeze your interest rate for a certain amount of time before your loan officially closes. Even if interest rates go up you will get a mortgage at the lower rate you locked in. For traditional home loans you might lock it for a couple of months, while construction loans offer the chance to lock in a rate for several months while the home is built. There is a fee associated with locking in a low rate, though, so it’s not the right choice for everyone.

The Downside of Locking in a Rate

As the term suggests, once you “lock in” an interest rate (and pay any fees associated with doing so), your rate will not change. If rates go up in the meantime that’s a good thing, but if rates go down, you are still getting the higher rate you locked in. Some lenders do offer the chance to reduce or “float down” your rate once, and you can void a rate lock if something about your loan changes—such as the property value appraisal, your income, or the length or terms of your mortgage—but those things are unusual in the home loan process.

Is a Mortgage Rate Lock Right for You?

Unfortunately nobody really knows what will happen with interest rates (anyone who tells you otherwise is not being truthful), so trying to predict what they will do in the future is impossible. If you get approved at a low rate that you want to protect, or recent trends suggest that rates may go up, that’s the time to consider a rate lock.

If you do go ahead with a mortgage rate lock, make sure you lock it in long enough to allow time to close your loan—the average closing time is about 45 days, but your lender can provide you with an estimate of how long it will take and then you should add in a few extra days just to be safe. Most lenders charge a fee for this service, so before you go ahead make sure you know the terms and costs. If your interest rate lock expires before closing, you will be subject to whatever the current rate is, and any fees you paid for the lock is probably not refundable.

Talk to our experienced loan officers at Integrity First Lending today to find out if a mortgage rate lock is right for you.