Realtors will often tell you what you need to do before applying for a mortgage loan. But they often fail to mention what mistakes you need to avoid so that you can get your loan application approved.
Our McAllen realtors at Equity Assets Realty want to make sure that you don’t jeopardize your chances of owning the home of your dreams. Because of that, we want to give you a little guidance on 10 mistakes to avoid before trying to get a mortgage.
What NOT to Do Before Applying for a Mortgage
Don’t miss out on any payments.
You need to make sure that all your loan payments are current, especially your credit cards and car loan(s). Even once your loan has been approved, your lender will take one last look at your credit before finalizing your mortgage. A missed payment, even this late in the process, can end up with your getting denied – costing you time and thousands of dollars.
Do not move your money around from account to account.
The approval of your mortgage loan is based on the current state of your finances. That means that your lender is looking at your bank account up until the moment your mortgage is finalized. If you shift your money around – moving cash from one account to another – this may seem financially unusual to your lender and you will need to provide a detailed account of why you are doing so.
An inadequate explanation can leave you without a mortgage loan.
The same goes for moving to a new bank in the middle of applying for a mortgage. Your banking history is a meaningful factor that plays into getting a mortgage loan and changing it can negatively affect your chance of getting an approval.
Avoid buying a big-ticket item like a car.
Your debt-to-credit ratio plays a major role in your ability to get a mortgage loan. Making a big purchase can greatly increase your debt load and lower your credit score, which are both bad news if you are attempting to secure a mortgage.
This one is one mistake that you absolutely need to avoid.
Don’t open up any more lines of credit or use credit cards.
When you’re buying a new home, you are likely to want to purchase furniture and appliances. While this is certainly an expected expense, you’ll want to avoid opening up a credit line or using a credit card to purchase these household items.
This will change your credit score and will be seen as a red flag to lenders. Hold back until after your mortgage has been finalized.
Avoid making large deposits into your account.
When you start making large deposits, your lender will be more likely to scrutinize the loan and your finances, which increases the likelihood of being denied. Aside from your recurring paycheck, you need to avoid making large deposits.
On a related note, it’s recommended that your down payment sit in your account for at least two months. This demonstrates your financial stability.
Do not let anyone run a credit check on you.
Having a company run a credit inquiry can make it appear as if you are trying to make a big purchase and take out more debt. This can have a negative effect on your attempt to secure a home loan.
Even if you aren’t actually planning on making a purchase or taking out more credit, just avoid having your credit run.
Don’t co-sign on a loan for anyone else.
Co-signing on a loan means that you are financially responsible for that loan should the other party fail to pay up. It also places an unnecessary risk on your credit and financial situation which is something home loan lenders do NOT want.
Keep your credit and financial situation stable while working through the home purchasing process. While you may want to help a friend or family member, you really need to avoid co-signing for them.
Don’t ignore your other expenses and financial budget.
It can be easy to fall in love with a home and to do everything you possibly can to secure a loan. In fact, your financial situation may be absolutely ideal when it’s on paper. But that doesn’t always account for your standard of living and other expenses.
Don’t ignore your other financial obligations and your budget as this can really stretch you thin. And once you get that home loan, you will be stuck with a 30-year obligation that needs to be paid.
Be conservative with how much you are willing to spend when purchasing a home.
Don’t forget to account for all the out-of-pocket expenses of buying a home.
Obtaining a mortgage loan goes way beyond just applying for and securing a lender. You’ll need to have plenty of cash available to afford the down payment, closing costs, and other fees associated with the home purchasing process.
Don’t close a credit card account.
While you may think that closing a credit card account may improve your credit score, this isn’t the best decision to make when trying to get a mortgage. Closing an account can reduce your available credit and increase your debt-to-credit ratio – this can really hurt your chances of getting a loan.
What NOT to Do Before Closing on Your Mortgage Loan
As we’ve mentioned before, your lender is going to check on your financial situation until at least 30 days before finalizing the loan. That means that if you have found a lender and already in the processing of closing out on a home, you’ll want to avoid the following actions during these final steps:
Do not miss out on any loan payments.
Do not quit your job or switch jobs.
Do not ignore any requests from your lender or broker.
Do not take out a payday loan or any other type of small loan.
While this is by no means an exhaustive list, it should provide first-time home buyers with some valuable insight. If you want a little more guidance and support, the expert McAllen realtors at Equity Assets Realty are here for you.
Contact Equity Assets Realty today at 956-994-9455. We have plenty of experience and success in helping individuals find their dream home in the McAllen metro area.
For first time home buyers, purchasing a house can be a daunting experience. At times, it can feel like having a Ph.D. in finance is required just to figure out the costs and hidden fees that go into your mortgage.
Luckily, our expert McAllen realtors at Equity Assets Realty have plenty of experience helping first time home buyers — and even fifth time home buyers — get the best mortgage possible so they can acquire the home of their dreams.
Our realty agents have learned many meaningful tips and strategies to help our clients determine how much of a mortgage they can afford. Below are a few of the most useful tips they have uncovered to help you find an economical, and ultimately, comfortable mortgage for your budget.
1. Know the Golden Rule of Mortgage Affordability
Our experts know Rio Grande Valley realty and mortgage affordability. In the real estate industry, it pays to know the golden rule.
That golden rule? That’s the 28/36 rule.
The 28/36 rule recommends that you spend no more than 28 percent of your gross monthly income on total housing expenses and no more than 36 percent on all monthly debts.
Let’s dissect exactly what this means.
The first half of the rule is known as the “front-end ratio,” and it encompasses all expenses in your PITI, which is monthly payments, interest, property taxes, and insurance payments. Let’s not forget that this includes condo and/or housing association fees, but excludes monthly utility bills like light or cable.
For example, let’s say that you take home around $5,000 a month. If you take 28 percent and times it by 5,000 (5,000 X 0.28), you get around $1,400 as a result. That number is the most a borrower should spend in terms of a monthly mortgage, homeowners insurance payments, and/or property taxes.
On the other side, the 36 percent is known as the “back-end ratio,” and it is calculated by taking all debts you have into consideration, including:
PITI payments for your mortgage
Homeowner’s association dues
Credit card debts
Other personal loans
Monthly alimony payments or child support
So why not call it the 36 rule and just be done with it all? Because there is a complete distinction between the front-end and back-end ratios.
Monthly payments are only included in the back-end ratio when they are expected to be paid for the next 10 months or longer. Still paying off that car you bought for the next 9 months? That won’t be factored into the back-end ratio.
To illustrate this point, pulling from the example above, let’s say all of your PITI payments are equal to $1,400. Now, let’s stack on other monthly debts like car loans, student loans, and/or utility payments, and the new total is $1,850.
In order to qualify for the back-end ratio, a borrower would have to make at least $5,138.88 in gross monthly income (1,850 ➗ 0.36 = 5,138.88).
In the end, it is important that borrowers pay down all of their debts and other loans in order to qualify for larger mortgages.
2. Your Down Payment Matters
It may seem like common sense but it’s definitely worth repeating—the larger your down payment, the lower your monthly mortgage will be.
If you want to save even more money in the long run, you will want to pay down at least 20 percent of the home’s total value. Why? Because at that point, you generally will not have to purchase a private mortgage insurance, which protects the lender should you default on your home. Suffice to say, these insurance plans aren’t cheap—they can come at a cost of a couple hundred dollars a month.
That’s why your down payment is so important. While it may take some time to acquire the funds, it will be worth the longterm investment of owning a home, and as the old saying goes, “All good things take time.”
(But don’t take too much time. Taking too long to build up the capital for a large down payment may come at the cost of an increased price tag or higher interest rate.)
3. When in Doubt, Use Your Rent to Figure It Out
It’s a smart move to use your current rent as a gauge to figure out how much of a monthly mortgage you can afford. If you are struggling to make ends meet rent-wise, going for a home that has a higher monthly mortgage than what your rent currently is can be a disaster waiting to happen.
It’s also worth noting that houses come with many provisional expenses that renting helps you to avoid. For instance, are you experiencing some sort of plumbing issue? That’s coming out of your pocket. Did one of your appliances break down? You’ll have to carry the cost. Ant infestation…well…you get the idea.
If you have no wiggle room for these extra expenses, you will be financially stressed, and that is never a good thing.
Getting on the good side of a tax adviser could also be beneficial as a homeowner because you will want to itemize your deductions. A tax adviser (or even a tax software program) can help you find the best options for tax purposes.
Looking to purchase a home can be a scary ordeal, but with the right McAllen realtor by your side, it can be a memorable and exciting experience.
Our McAllen realtors are ready and eager to help get you into the home of your dreams. Contact us today at (956) 994-9455 to start that journey.
In order to purchase the home of your dreams, it is essential that you take control of your finances. Without the right savings plan in place, it can feel like a daunting – and nearly impossible – task to save up money for a house.
Luckily, your experienced McAllen realtors at Equity Assets Realty know a number of fantastic strategies and tips to help you buckle down and save enough for that down payment. If you’re ready to take the first step to becoming a homeowner, take the following money-saving strategies to heart.
9 Tips You Need to Know to Save Money for a House
1. Consider Your Timeframe
This is essential to determining how much you will need to save within a given amount of time. If you plan on purchasing a home within a 3 to 5 years, then you can calculate accordingly.
2. Track Your Money
Before you thought about buying a home, you might have been a little lenient about your spending. Going out with friends? No problem. Treating yourself to a nice meal? Why not.
But now that you’re saving up to buy a home, you need to become somewhat of a penny pincher. This means you’ll need to track your spending and expenses. You might be shocked to find out you’re spending a hefty amount on luxury items that you can definitely live without.
There are plenty of apps and online tools that can help you figure out how much is leaving your bank account and where you can save.
3. Budget, Budget, Budget
This tip goes hand in hand with tracking your money. Once you have an understanding of where your money is going, it’s time to set some limits. While this may not be the most exciting step, it is a necessary one, nonetheless, and will help you to get the keys to your dream home that much faster. Areas to keep an eye on include:
Groceries – Be a smart consumer and see what types of items can be cut and consider buying off-brand.
Monthly Expenses – What services are you paying for that you don’t actually need? Are you paying extra for unlimited data on your cell phone? Unless it’s essential, cut it. Look into your internet service, any memberships that you really don’t take advantage of, and the likes.
Luxury Expenses – Do you enjoy spending the weekends taking in all the local sights, attending concerts, going to the movies, and just generally being social? Awesome. Except these expenses tend to take a lot out of your bank account. While it’s ok to splurge every once in a while, it shouldn’t be happening every week.
Housing Expenses – If you think saving up might take you some time, it could be in your best interest to move into a cheaper place or rent out any extra rooms you may have.
4. Boost Your Income
If you are really invested in purchasing a home ASAP, one of the best steps you can take is to increase your income by working extra hours at work, picking up some part-time work, or using any talents or skills you may have to get some freelance work.
5. Pay Off Debt
High-interest debt can do a number on your paycheck. Having to pay off numerous credit cards and other high-interest loans can limit your ability to save.
If you budgeted correctly and cut back on unnecessary expenses, you can use some of this money to attack your debt and bring it down. Another benefit of this tip is that you’ll be improving your credit rating at the same time.
6. Save Any Extra Money You Get
Perhaps you’ve received a bonus from work or are expecting a sizable tax refund. Any sort of financial windfall should be put into a savings account that is going towards purchasing a home.
7. Set up an Automated Savings Plan
It can be a challenge to save money when you are receiving all of your paycheck in your regular bank account. You’ll see the money and be much more tempted to spend it.
By automating the savings process, you essentially avoid this. You don’t ever see money – so to speak – making it harder for you to spend it.
8. Open Up a Certificate Deposit (CD) Account
A CD account is a savings account with a fixed interest rate and a set date of withdrawal. There’s a penalty for withdrawing your money early, so there’s enough of an incentive to not touch your money.
You’ll add a couple of extra dollars to your savings with this type of account and also limit the possibility of dipping into it.
9. Keep In Mind Other Costs Associated with Buying a Home
Saving up for a house isn’t just about the downpayment, there are a number of other fees and costs that you’ll need to keep in mind. These additional costs include:
Appraisal and Inspection Fees – You’ll need to have your home inspected and appraised before your mortgage is approved.
Closing Costs – These fees must be paid before “closing” on a mortgage contract and can reach between 2 to 5 percent of your total mortgage.
Private Mortgage Insurance (PMI) – This fee is placed on your monthly mortgage payment if you put down less than 20% for the home.
While this is by no means an exhaustive list of tips to saving money for buying a home, it should provide you with a great head start.
When you are ready to make that big purchase, make sure to reach out to the McAllen realtors at Equity Assets Realty.
Are you ready to find the perfect home? Contact Equity Assets Realty today at 956-994-9455. We have plenty of experience and success in helping individuals find their dream home in McAllen.
If it’s your first time buying a home, then you probably have plenty of questions and concerns. You might be worried about making a mistake during the home buying process or not making the right decisions.
Luckily, your McAllen real estate agents at Equity Assets Realty have the experience, skill, and inside scoop to make sure this process is as smooth as it is memorable. Below we’ve compiled together 15 killer tips for first-time homebuyers that’ll help you save money and avoid making mistakes.
15 Tips First-Time Home Buyers Need to Know
Your budget and credit are key to determining what kind of home you can purchase. Have your credit scores pulled by a professional agency and check for any errors or issues that can affect you when applying for a home loan (and don’t forget to work on improving them if necessary). Also, get an in-depth understanding of your budget, as these two together will affect your buying power.
Don’t bite off more than you can chew. Just because you get approved for a large mortgage doesn’t mean that you have to purchase a house at that price.
Start saving for your down payment as soon as you decide you want to buy a house. The larger the amount, the less you’ll pay on your monthly mortgage. On the other hand, DO NOT stretch yourself thin by spending all your savings on a downpayment. Make sure to keep a “rainy day” fund, which can be a lifesaver when moving into a new home.
Don’t go into the process blindly. You need to know what kind of house you want, what area of town you would like to live in, how many rooms you want, and a “wish list” of amenities.
You need to act quickly if you are going to buy your dream home. Competition can be fierce in today’s seller’s market and you don’t want to hesitate. The team at Equity Assets Realty can help you to move quickly and effectively.
A beautiful exterior can hide plenty of interior issues. You’ll want to do a thorough check of the inside, as well as ask about any plumbing, electrical, or maintenance problems that were handled in the past – these aspects can affect the quality of the home.
The process of buying your home can be utterly exciting, but you don’t want to make an emotional decision. If you are interested in a specific home, inspect it multiple times and be objective about its pros and cons.
It’s in your best interest to visit multiple properties in person before making your final decision. Don’t just consider the price but also the neighborhood, condition of the home, carrying costs, location, size, and all the other variables that will affect your decision.
Get help from an expert realtor who can provide you with valuable guidance and assistance through the entire home buying process. An expert realty agent can help you to make the right decisions, help you to avoid purchasing a home that exceeds your budget, and can answer any pertinent questions you might have. Trust in the McAllen realtors at Equity Assets Realty to help you to find the home of your dreams.
Try to get your financing in order before looking into purchasing a home. This will go a long way in making your offer much more appealing.
The amount of debt you are carrying – including student loan debt, credit card debt, etc. – will affect how big of a loan you can obtain. The smaller the loan, the smaller the house.
Make sure to budget for closing costs and additional taxes.
Research the types of loans that are available to you. There are more options than just the conventional mortgage loan including FHA, Rural Development, Veterans Affairs loans, and others. You can also look into state and local assistance programs like Homes for Heroes.
Don’t forget about after-move-in expenses including having to purchase new appliances, home improvements you may need to make, cosmetic improvements, and the likes.
Make sure to purchase the right homeowners insurance policy for your needs and read through the contract carefully. Failing to have the right protection can leave you paying substantial amounts of money out-of-pocket if you file a claim. You should also be aware that flood insurance is an additional insurance rider you will need to purchase on the side if the area you will be living in is prone to flooding.
While this is by no means an exhaustive list, it should provide first-time home buyers with some valuable insight. If you want a little more guidance and support, the expert McAllen realtors at Equity Assets Realty are here for you.
At Equity Assets Realty, we believe in helping people realize their dreams of owning a home. For many people, this an important life goal that takes plenty of research and preparation.
As with any major life decision, buying a home comes with plenty of excitement and possibility, but also with many questions. The following are a list of some of the common ones prospective homeowners might find themselves asking.
Can I afford a home?
The answer to this question lies mostly in what your current financial situation is like. Accounting for your income and various bills/payments is only part of the equation. Once you’ve determined what your budget is, you will still have to meet with a bank or other lender to see what size of home loan you will get approved for.
Getting pre-approved will go a long way in making you a more attractive buyer. Once you have a lender’s feedback, you can combine the cost of their loan offer with the additional costs that come with being a homeowner including taxes, utilities, furniture, and maintenance. Adding these together will give you a clearer understanding of whether your budget allows for it.
What should my bid be in relation to the list price?
This is dependent on two factors: the current situation of your local real estate market and whether the price was set in line with the true value of the home. In a situation where the selling price is much higher than what the home is actually worth, bidding below a listed price is a fine strategy, as there is little risk of your bid being ignored.
On the other hand, if the home you are bidding on is in a hot neighborhood, you can’t realistically expect a low bid to be taken seriously. It will be expected that you bid high in order to stand out amongst other buyers.
Thoroughly researching and understanding the local market will help ensure that you make the correct type of bid for the house you want.
Should I view multiple homes in my search?
The answer here is dependent largely on your personal tastes. On average, most people looking to buy a home will visit around 10 houses in person. Still, this is not necessarily the norm and how long people are willing to search for the right house will also impact the number of homes they view.
If you plan on putting weeks or months into your search, then you should be prepared to visit a larger number of available houses. For those looking to expedite the process, focus on a certain neighborhood and the homes available there and this will help limit the number of properties you check out.
Is it possible to sell my home and buy a new one simultaneously?
This is definitely a delicate juggling act to pull off because it requires that a number of things be timed perfectly. Failing to do so will create uncomfortable scenarios, but none that are necessarily impossible to handle.
If you buy a new home before selling the one you currently have, it will put a strain on all but the most extensive of budgets. However, selling before you have purchased a new house can leave you having to rent or scrambling to find other temporary housing.
One way to avoid being caught between two homes is to put a “sale contingency” into any contract you sign. Essentially, this means you will only buy if/when you are able to sell your current home.
While this does protect you, it is still within a seller’s power not to agree to this type of provision. The main reason a sale contingency arrangement could be rejected is if the seller was looking to make the sell within a certain time frame.
What is the “up front” amount I will need when I have picked a house?
The good news is that you won’t be expected to pay the total price of the house all at once. You will be required to provide a good amount, however.
This starts with the “earnest money deposit”, essentially a show of good faith that you are indeed a serious buyer. The amount won’t be a huge percentage of the price of a home and is usually between 1-2% of the list price. A seller will not be able to cash the check right away, especially since they should be made out to escrow companies and not the actual individual seller themselves.
This deposit can be lost if you decide not to buy and offer no valid reason or one that is not covered by your contract.
Once you have decided on the home of your dreams, you will then have to hand over the down payment. The amount you will have to pay upfront can vary from house to house, but most sellers will generally request 20 to 30 percent down.
Finally, additional upfront costs will include everything associated with closing including fees and mortgage points. Expect the total to be in the thousands.
What is the quickest time frame for me to “close” on buying a house?
Closing is the final act of transferring a house from seller to a buyer. It happens only once both sides have met all requirements of a contract and the deed has been recorded on a house.
Naturally, once everything has been done, the hope is that closing happens quickly. In most cases, this takes in the range of 30 to 45 days. This allows everything associated with a home loan to be completed and for a thorough inspection of the home you have purchased.
What if I change my mind?
While it might not be what a seller wants, a buyer is always able to back out of a deal. There are any number of reasons why you might choose to do so, but it can come at a cost. Walking away from a sale can leave you without your earnest money deposit. If your reason for canceling a contract is not deemed valid, you won’t see that money again.
But, there are ways for you to recoup your deposit if you decide you no longer want the home. One is asking for your money back after inspecting the home and reporting that something fails to meet satisfactory standards.
Additionally, if a home is deemed “subject to appraisal,” that can be a means of getting your earnest money returned to you. In this scenario, a property is deemed by your lender to not be worth the offer you put forth, allowing you to walk away from a deal.
This is by no means an exhaustive list of what you will have to consider when looking to buy a home. There are many moving parts to these transactions and there is often not much margin for error between a good and bad purchasing experience.
That is where Equity Assets Realty comes in. We have plenty of experience and success in helping individuals find their dream home in McAllen.
Call us today at 956-994-9455 and find comfort in knowing that our team of McAllen realtors will help make buying your new house a beautiful memory you’ll never forget.