How to Understand the Impact of your Debt-to-Income Ratio and How It Affects the Loan Process

Businessman's hands with calculator and cost at the office and F

Businessman's hands with calculator and cost at the office and FGearing up for a loan application can stir up a mixture of emotions, from euphoria to anxiety about the entire process. All that is required for a plain sailing experience is knowledge on the subject and in particular, on the topic of debt-to-income (DTI) ratios. Many loan applicants will be unaware of the fact that this is considered by a lender before the applicant is accepted for a loan.

What is considered a good debt-to-income ratio?

Dividing your total gross income with your recurring monthly debt is the easiest way to understand what your DTI income ratio is. Once you are aware of this, you can take a step forward and arrange a meeting with a lender. By doing so, you can discuss your loan options and talk about whether your DTI is good or could do with some improvement.

The Negative Impact on Financing

Put it this way: if a lender looks at a borrower who has a DTI of 50% or above, you are instantly in the red. In many cases, they will not give you a second look since you will be deemed “dangerous” in their strict book of lending. This can make it a struggle to obtain financing. On a brighter note, there are multiple lending options out there now that consider applicants with a poor credit history and DTI.

Tips for Being Approved for a Loan

Fear not if you fall into the red category when it comes to calculating DTI because it does not mean that your chances of loan approval have gone completely out the window. In fact, the following tips could actually teach you how to handle your finances overall:

– Pay off any debts you have accrued.

– Reduce your DTI by paying in affordable amounts.

– If you are able, settle high-interest debts.

– Stop spending so much and start saving more.

– Write a monthly budget and stick to it.

– Cut off direct debits or subscriptions that you no longer require.

Improving the Debt-to-Income Ratio

Sit down and really get stuck into your finances. It will be worth it when you get one step closer to being accepted for a loan, despite having a low DTI at the beginning. Pay attention to the higher debts on your list, if possible. Paying off larger amounts faster will ensure that your credit rating boost at a quicker rate. This will also lift that credit rating arrow from the red spot to the amber or, if you really commit, close to the green.

There are plenty of ways in which you can improve your DTI, prior to applying for a loan. This will boost your chances of acceptance and will have a positive effect on your credit score as a whole. Take it upon yourself to perform a recalculation of your DTI every month, as this will paint a clearer picture of how your financial situation is changing, for the better!

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What Closing Costs does the Buyer and Seller Pay?

Couple meeting financial advisor

Couple meeting financial advisorThe real estate market provides huge profit potential for sellers, as long as the seller takes the right approach. According to the 2016 National Association of REALTORS Profile of Home Buyers and Sellers, 51% of homebuyers will use the Internet to find their ideal home, whereas 34% will use the services of a real estate agent. The remaining percentage of buyers will make an investment move after seeing a yard sign, hearing about the real estate listing from a family/neighbor/relative, or will know the seller directly.

No matter how you intend on attracting a buyer (if you are a seller) or searching for the ideal home (if you are a buyer), it is important that you are aware of the fees involved once a selling price has been determined. Unless you understand what the typical closing cost includes, there is a chance you may be left surprised with unexpected costs.

Familiarize yourself with the process of closing a real estate transaction to eliminate surprise once the home ownership is shifted from the seller to the buyer.

Typical Buyer’s Closing Costs

  • The Down Payment - This is the initial payment a buyer will make to reserve the home. A larger down payment means reduced loan interest, so aim to put down as much as possible.
  • Loan Fees – A lender will assess your credit score and charge a fee to process the loan application.
  • Prepaid Interest - When daily interest builds on your loan, this must be paid at the time of closing. Once again, the amount depends on your credit report and financial situation.
  • Inspection Fees – A property inspector will charge this fee to assess the condition of the property. This service is valuable since it aids the buyer in making a final decision.
  • Appraisal - The fee charged by a qualified appraiser to determine a property’s market value.
  • Mortgage Insurance – Should a mortgage loan default, mortgage insurance will cover it.
  • Hazard Insurance – Damage caused by Mother Nature, vandalism, theft, or unintentional circumstances can be repaired, with costs covered by this insurance policy.
  • Title Insurance – A kind of indemnity insurance that shields a buyer and lender if the seller is unable to transfer home ownership.
  • Documentary Stamps - Documents that transfer real estate interest must be stamped, so that the excise tax can be imposed properly.

Typical Seller’s Closing Costs

  • Broker’s Commission – Every realtor will charge a different percentage of commission on the final property sale value. This will be deducted at the time of purchase.
  • Transfer Taxes – Consider this a transaction fee for transferring home ownership from you to the buyer.
  • Documentary Stamps on the Deed - This is a tax on documents detailing the transfer, sale, acceptance, or loan agreement for a property.
  • Title insurance – Indemnity insurance is equally as important for the seller to pay, as it is for the buyer.
  • Property Taxes – Property expenses must be divided fairly to ensure the buyer is only paying from the moment he/she claims home ownership. This is guaranteed when property taxes (a proration) are paid.

Calculating the closing costs prior to making a property purchase or agreeing to a sale will ensure you are satisfied with the outcome. Use the Internet to your advantage at this time, by estimating the costs with an online calculator. A few influential factors include the condition of the house, its size, and the features (interior and exterior).

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How much home can you afford?

Businessman's hands with calculator and cost at the office and F

Businessman's hands with calculator and cost at the office and FPerhaps one of the biggest downfalls associated with being an adult is the fact that as an adult, we must be responsible for our finances. No more pocket money or asking the parents for a few funds to get you through the weekend – this is the real deal. It doesn’t have to be a stressful time however, whether you are a millennial or make up the “baby boomer” generation, however.

Pushing through the financial force field can be difficult if you don’t know much about financing for home buying. On that note, let’s discover more about how a mortgage approval could steer you in the right direction for real estate success.

Financial Factors to Consider

Before you can start searching for the perfect home, the financial aspect must be put in the spotlight. Sit down (preferably with a financial advisor or lending expert) to figure out how your financial situation is looking. Take the following financial factors into account to ease the house-hunting process:

Down Payment – This is the initial payment you will put down on your property. It will depend on your credit score and ability to make regular payments. Down payments for any loan are contingent upon personal applicants qualifications.

Monthly Expenses - Do not start looking at properties until you know precisely how much money is outgoing every month. Monthly expenses include car payments, credit card payments, and alimony.

Flexible or Fixed Loans? – This is a tricky one. If you want to start off with minimal expenditure, but risk paying a higher interest rate in future, go flexible. Fixed loans are more secure, in the sense that the monthly interest rate does not change.

Reasons to Consider Financing for Home Buying

While some people are in a position to afford the cost of buying a home outright or even affording a high interest rate, others are unfortunately not. This is particularly true for millennials aged around 30. With poorer credit scores and less financing experience, securing a mortgage can be tough. Financing for home buying is beneficial, because it means you have control over your cash for the mortgage lifetime. It also makes becoming a homebuyer possible.

Finding the Best Rates in 2017

Interest rates are changing all of the time and if you are to find the best rates before someone else beats you to it, or before rate fluctuation occurs, there are a few things you need to do. Aside from shining up that unattractive credit score and thinking about how long you intend on living in/working in the property, you can do more to find the best mortgage rates in 2017. First things first, use the Internet to research mortgage rate comparisons on a daily basis or at the very least, a few times per week. This will keep you in the loop about what’s a good deal and what’s not. Your knowledge on the current rate climate will help you to determine whether or not now is the time to act.

Tips for Securing a Mortgage

Keep in mind that certain lifestyle factors will have an impact on mortgage interest rates, not to mention your chance to secure a financing deal at all. Speaking with a financial advisor will relieve you of any concerns or quandaries that might be boggling your brain ahead of purchasing a home. Consider all of your options and do not overload yourself financially.

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What Closing Costs does the Buyer and Seller Pay?

Couple meeting financial advisor

Couple meeting financial advisorThe real estate market provides huge profit potential for sellers, as long as the seller takes the right approach. According to the 2016 National Association of REALTORS Profile of Home Buyers and Sellers, 51% of homebuyers will use the Internet to find their ideal home, whereas 34% will use the services of a real estate agent. The remaining percentage of buyers will make an investment move after seeing a yard sign, hearing about the real estate listing from a family/neighbor/relative, or will know the seller directly.

No matter how you intend on attracting a buyer (if you are a seller) or searching for the ideal home (if you are a buyer), it is important that you are aware of the fees involved once a selling price has been determined. Unless you understand what the typical closing cost includes, there is a chance you may be left surprised with unexpected costs.

Familiarize yourself with the process of closing a real estate transaction to eliminate surprise once the home ownership is shifted from the seller to the buyer.

Typical Buyer’s Closing Costs

  • The Down Payment - This is the initial payment a buyer will make to reserve the home. A larger down payment means reduced loan interest, so aim to put down as much as possible.
  • Loan Fees – A lender will assess your credit score and charge a fee to process the loan application.
  • Prepaid Interest - When daily interest builds on your loan, this must be paid at the time of closing. Once again, the amount depends on your credit report and financial situation.
  • Inspection Fees – A property inspector will charge this fee to assess the condition of the property. This service is valuable since it aids the buyer in making a final decision.
  • Appraisal - The fee charged by a qualified appraiser to determine a property’s market value.
  • Mortgage Insurance – Should a mortgage loan default, mortgage insurance will cover it.
  • Hazard Insurance – Damage caused by Mother Nature, vandalism, theft, or unintentional circumstances can be repaired, with costs covered by this insurance policy.
  • Title Insurance – A kind of indemnity insurance that shields a buyer and lender if the seller is unable to transfer home ownership.
  • Documentary Stamps - Documents that transfer real estate interest must be stamped, so that the excise tax can be imposed properly.

Typical Seller’s Closing Costs

  • Broker’s Commission – Every realtor will charge a different percentage of commission on the final property sale value. This will be deducted at the time of purchase.
  • Transfer Taxes – Consider this a transaction fee for transferring home ownership from you to the buyer.
  • Documentary Stamps on the Deed - This is a tax on documents detailing the transfer, sale, acceptance, or loan agreement for a property.
  • Title insurance – Indemnity insurance is equally as important for the seller to pay, as it is for the buyer.
  • Property Taxes – Property expenses must be divided fairly to ensure the buyer is only paying from the moment he/she claims home ownership. This is guaranteed when property taxes (a proration) are paid.

Calculating the closing costs prior to making a property purchase or agreeing to a sale will ensure you are satisfied with the outcome. Use the Internet to your advantage at this time, by estimating the costs with an online calculator. A few influential factors include the condition of the house, its size, and the features (interior and exterior).

Read More »

Evolution of Online Mortgages

Young people move into a new apartment.

Young people move into a new apartment.No longer are people spending months upon months trying to find a mortgage that suits them. With the rise of the Internet and its billions of active worldwide users, the capabilities for mortgage hunters is increasing. Now, we are in the age of millennials, when people in their 30’s are making the decision to find a place where they can settle down, raise a family, and feel comfortable in their surroundings.

Homeownership is not only about finding somewhere to call “home” though. For many, it presents an opportunity to invest in their future and broaden their business horizons. Whatever the reason(s) you might have for wanting to take out a mortgage and start living like an adult, let’s consider the growth in online mortgages for a moment.

How have home loans changed over the years?

In the past, making a down payment was a difficult part of the process. Typically, this down payment would be a significant chunk of the total property price. Millennials are confused and believe that renting could relieve them from financial burden. As a matter of fact, loans nowadays have changed in the following ways:

– Interest rates have fallen and making a low down payment has become easier.

– A normal pattern in lending seems to have re-emerged since the last economic downfall.

– Although the strictness of lending terms has not eased, down payments have.

– The lower of two people’s credit scores is considered for a home purchase, nowadays.

– Investors are opting for single-family homes as opposed to obtaining finance for larger property purchases.

As inflation and deflation rates fluctuate and since the property market is unsteady at times, it is inevitable that online mortgage trends will continuously adjust, in some way or another. Staying in the loop will ensure you make the right financing decision.

How has the online mortgage process changed?

These days, the process will start with a loan estimate and credit report check. Unlike in previous times when technology was not so advanced, the process is actually much more straightforward. All it requires is an Internet connection, some in-depth research and most importantly, patience. Seeking out the best deal requires patience and it is imperative that you compare interest rates if you want to spend less in the long-run.

What affects mortgage approval today?

Whether you want to face facts or not, mortgage approval has changed and will continue to do so. Lenders focus on patterns in repayment and base them on a set of criteria. This criteria will determine if you are approved for home financing or not and it is as follows:

The debt-to-income ratio - A few finances that count towards the debt-to-income ratio include car loan payments, student loan payments, child support, etc.

Credit scores and spending history/habits - Repay some outstanding debts and lenders are more likely to approve you for an online mortgage.

Job stability – If you cannot hold down a job and lack regular income, your approval rate will be low.

Within the space of a few minutes, you can search for the financing and remortgaging options that suit you. Thanks to the World Wide Web (WWW) and the fact that it can be accessed on the move, and on a variety of devices, mortgage hunters can check the updated rates. Furthermore, they can make themselves aware of rate fluctuations.

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The Financial Benefits of Refinancing

Coins in glass jar for money saving financial concept

Coins in glass jar for money saving financial conceptRefinancing is something that most adults will think about at some point in their lives. The reasons why homeowners choose to refinance will depend on their personal circumstances. One of the main reasons being because they are no longer able to afford the monthly mortgage payments and are therefore seeking out an option with a lower interest rate. Converting to a fixed-rate mortgage from a floating rate mortgage (better known as an ARM or adjustable-rate mortgage) could ease the financial burden faced by homeowners who are trying to hide from the rate-inflating cloud that looms over them.

Whatever your reasons for refinancing might be, just keep in mind the basics before you take the next step.

Smart Reasons to go Down the Refinancing Route

Do you want to shorten your mortgage? If so, you should definitely consider going down the refinancing route. In your particular situation, an option that could mean paying lower interest rates is definitely a smart move.

Here are some top reasons to refinance:

Consolidate Debts – When debts pile up, a homeowner can relieve themselves of financial worries by using any equity that has accrued on their home to reduce the debt pile.

Explore Loan Types – Unless you know exactly what loan options are made available to you, how are you supposed to know which type suits your circumstances? Although interest rates might be lower when you first start contributing to a mortgage with a variable rate, they might spike when you least expect it.

Adjust Repayment Terms – Falling into a financial predicament is nothing to be ashamed about. Simply take action and prevent the problem from worsening and tarnishing your credit score forever by refinancing. By doing so, you can discover what options are available regarding repayment terms.

Does refinancing have an impact on credit rating?

We could have talked about this in the list above, but let’s go a little more in-depth about refinancing and the way it could influence your credit score. The truth is that your credit score could be positively impacted immensely if you finance wisely. Don’t expect the change to be instant, but do expect it. A good credit will not only make mortgage hunting easier but also, job searches! For this reason, financing is a long-term worthwhile option that could present you with further lending possibilities for the future.

Things to Keep in Mind Before Refinancing

The standards that have been set out for loan approval are not quite the same these days as they were many years ago. If your credit score is below 720, obtaining financing might be a struggle. Refinancing with home equity puts you in a good position, as does having a good debt-to-income ratio. The rules for lending based on the debt-to-income ratio have tightened up, also.

Generally, you will be granted refinancing if your ratio falls somewhere between 36% and 40%. If you are willing to pay an increased interest rate to fund the closing costs, this will improve your chances at obtaining home refinancing.

Putting Things into Perspective

We all have debt obligations and as nice as it would be to not lose a valuable night’s sleep over them, it happens. With refinancing options, you can lift a weight off your shoulders. Furthermore, the reduced monthly payments could aid you in improving your credit score, so keep your options open and make an informed, confident decision.

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Guide to Understanding Fluctuation in Rates

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19554825_10158964647830013_1842381175699724183_nPeople everywhere are always asking themselves, “What is causing a fluctuation in rates?” and the answer to this question is somewhat complex. What you must understand when dipping your fingers in the financial pot is that currency rates are constantly changing. If we knew when it would happen, wouldn’t we be doing something to change it? Inflation is inevitable, from political and economic factors to the many variables that influence rate fluctuations.

Since it is hard to predict precisely when inflation or deflation will occur, you would benefit from getting one step ahead of the game. How, you ask? When you gain a broader understanding of rate fluctuation, this knowledge could aid you in getting financing.

A Brief Definition of Inflation

Before you can properly understand why rate fluctuations occur and what they mean for your borrowing ability, you ought to understand what inflation actually is. To put it simply, inflation is when the average cost of services and/or goods rise. The weighted average of a typical household’s total expenditure is usually the type of data used to determine inflation, which could be impacted by anything, such as a fluctuation in oil prices.

The Influencing Factors of Fluctuating Rates

Economic stability is dependent on numerous variables. Exactly which variable is going to cause the most damage depends on the time and situation. When the economy improves or gets worse, it will have a direct effect on consumer spending and financing lending. Here are some of the main influencing factors of fluctuating rates:

1. Interest Rates

2. Government Debt

3. Recession

4. Political Stability

Since there is such a strong correlation between inflation and the above variables, there is no wonder why homebuyers are seeking out financing options as a safeguard from rate fluctuation.

How does increasing inflation affect mortgage?

If you are a fan of fixed rates and do not want to have to worry about how much you will be forking out each month due to inflation, remortgaging is the best option. Rate fluctuation may leave you feeling uneasy about how much you are actually spending to live in and run your home; your pride and enjoy. With that being said, keep in mind that increasing inflation can impact the overall price you repay for the biggest and most important investment of your life.

Fixed or Floating Rate – Which option is less risky for rate inflation?

Choosing between the two is quite simple, if you have taken the above information into account. Anyhow, let’s go over the two general financing options:

Fixed Rate – Generally, a lender will provide the borrower with a loan that is tied to a fixed rate of x amount of years. Extensions are possible and the benefit of this option is that whoever goes down the fixed route will have the peace of mind that rates will not fluctuate.

Floating Rate - Of course, there are benefits associated with the two. For example, this option allows the borrower to lend for a longer period of time. However, interest rates will rise after a certain period of time therefore the floating rate option does not completely exclude rate fluctuation.

Whether you intend on taking out a loan to help with mortgage payments or to assist you financially for business purposes, the more well-versed you are on the subject, the easier it will be to navigate your way through the financial maze.

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Top 10 Mortgage Mistakes to Avoid

Even the most seasoned borrowers will admit that they’re guilty of errors in their approach to obtaining a loan for a new home. Here are the Top 10 mortgage mistakes to avoid, whether you’re a first time buyer or simply need a refresher course.

  1. Credit Problems: You don’t know what credit issues may be lurking in your history unless you run your report before applying for a mortgage. Do it early so you have time to address repairs and contest errors.
  1. Applying for New Credit: One of the major mistakes with mortgages is that homebuyers apply for a loan or credit card before or during the mortgage application process. Put off opening new credit accounts until after you buy your home.

(more…)

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