You probably already know that qualifying for a mortgage can be the biggest hurdle — aside from actually finding that dream property — along the path to home ownership.
Rather than agonizing about it, however, there are some positive actions you can take in advance to help you realize your dream.
Take A Close Look At Your Budget
If you don’t currently operate with a comprehensive household budget, get started now to analyze your income and monitor your spending habits. There’s no better way to prepare for home ownership than by being realistic about how you spend your money. If you don’t have a regular savings program, or if you’re constantly short on cash prior to the next payday, take steps to remedy the problem. Plan for the future by getting the present in check.
Gather Employment And Earnings Records
Mortgage lenders want to see stability and commitment. Finding and organize your employment records to show a consistent earnings pattern and, hopefully, a record of growth, both in terms of income and responsibility. Simplify the task of gathering required documents by collecting all records in a binder or notebook that can easily be copies when it’s time to submit them to a lender. It’s a confidence-building step as well.
Organize Your Banking Records
Lenders will not only want to see employment records, but they will require copies of all bank and investment accounts as well. Again, by being organized and getting a handle on your dollar inflow and outflow, you’ll gain insights into your individual spending habits and make the job easier for a mortgage specialist.
Make Copies Of Your Tax Returns
Tax returns confirm and validate all the other financial information that you will be required to supply. Typically, returns for the past two or three years will be required. If you own a small business or have income in addition to that from paid employment, make copies of those records as well.
Put A Halt To Spending
Perhaps the best way to demonstrate your serious intent to purchase — and pay for — a new home is by curtailing your spending on impulse purchases and expensive entertainment. This is not the time to buy a new car, book an exotic vacation, purchase major electronics or even home furnishings, or commit to time payments of any sort. Frugality should become your mantra in the months leading up to loan qualification.
Monitor Your Credit Cards
If your credit rating is within acceptable limits, do what you can to make all payments on time, pay down balances, minimize new purchases and demonstrate your continuing ability to “live within your means.” Do not apply for new credit cards, no matter how tempting the offers, because increased account activity can adversely affect your FICO score. In addition, if you have a blip on your credit report, do what you can to repair it prior to making a mortgage loan application, or be prepared to explain the circumstances, in detail and in writing.
Applying for a loan need not be scary; understanding the financial reality, however, is a great benefit.
Contact your trusted home mortgage professional who will be able to assist you in organizing your documents and aligning you with your best financing options.
Imagine the bank depositing monthly premiums into your account instead of you writing a mortgage check. That’s basically how a reverse mortgage works.
Traditional mortgages involve people paying down the interest and principal on a home loan. The goal is generally to pay off the property and cruise through retirement without that monthly installment eating at your budget. With your home paid off, those previously allotted finances can be used to relax and enjoy your retirement to the fullest. That’s the best-case scenario anyway.
But financial life has changed significantly over the past half-century. The formula for economic security has been chipped away by rising health care costs, tax increases, and other complications. Working hard and paying off your family home may no longer equal financial flexibility later in life. The valued elders in everyday American communities may require enhanced resources and the reverse mortgage has been a viable option for many.
How A Reverse Mortgage Works
The product was created to allow homeowners who are 62 and older to convert their home equity into cash payments. Rather than you paying the bank, the roles are reversed and the lender basically buys out your equity by paying you in monthly installments.
Homeowners are required to stay up to date on things such as local property taxes, association fees and insurance. The lender receives reimbursement for the equity purchase when the home sells at the conclusion of the agreement. What was once money going out each much makes a full swing to cash coming into the home. That can be a remarkable financial boon.
Types Of Reverse Mortgages
The reverse mortgage products on the market can be broken down into three basic types. The overwhelming majority are federally-insured home equity conversion mortgages.
Industry insiders often refer to these products as HECMs and they are supported by the U.S. Department of Housing and Urban Development. They reportedly comprise upwards of 90 percent of reverse mortgages. Other types include private loans and those with a single purpose. For example, a qualified homeowner may secure a reverse mortgage to make a necessary home improvement. State agencies and nonprofits often back these to help low-income families through adversity.
Benefits Of A Reverse Mortgage
When people discover that their pension, 401(k) and savings won’t necessarily carry them through a comfortable retirement, selling the family home and downsizing emerges as one of the solutions. But reverse mortgages can offer an alternative by providing the following benefits.
- Steady Home Life: Reverse mortgages allow homeowners to stay in their home and receive payments on the equity rather than sell, move and squirrel away the profit. The key benefit is remaining in the family home that is rich with memories.
- Relieve Burden: The increased costs of taxes, insurance, utilities and other living expenses may eat away at the financial relief gained by paying off a home. Reverse mortgages infuse elders’ budgets and help overcome financial shortfalls.
- Eliminate Mortgage: For those who still have a monthly mortgage payment, a reverse mortgage can pay off the outstanding balance. The product allows homeowners to subtract money owed and still receive monthly installments. That can be a substantial financial swing.
Reverse mortgages can be an excellent tool to improve your quality of life during retirement. However, it’s important to have a realistic long-term financial plan in place.
If you are considering a reverse mortgage, speak with an experienced mortgage professional about options that best meet your needs.
After hackers breached Equifax and stole vital financial records of 145 million Americans, people have a right to be afraid of disclosing personal information. That’s why it’s imperative that lending institutions to do everything in their power to protect your privacy.
When a prospective home buyer submits a loan application, defining information such as date of birth, home address, social security number, credit cards, bank accounts, and pay stubs are included. Basically, everything a hacker needs to penetrate an individual’s financial world is disclosed on a loan application.
If you are applying for a mortgage, get answers to these and other questions before handing over information. Hackers are too skilled at breaking into computer systems and the financial risk is too high to take any chances.
Does The Lender Take Submissions Via Email?
With the flurry of high profile email hacks making headlines, it may surprise borrowers that some lending institutions continue to take data via email.
Some estimates say that upwards of 70 percent of lending institutions routinely use email during the application process. When an applicant doesn’t have a bank account or credit card number handy, some lenders will take it electronically to complete the process. This is a major misstep.
Despite efforts to protect email, it continues to be a doormat for hackers to breach systems and steal data.
Does The Lender Use Encryption Software?
Although there is no perfect method to protect online data, many companies enlist the help of high-level IT personnel to maximize security. One of the better standards is the use of encryption.
When files are encrypted, the data enjoys two-tier protection. First, the hacker would need to breach the system to lift financial and personal information. Even if the internet criminal manages to steal data, they will be tasked with decoding it.
Breaking encryption software acts as a strong protection and future deterrent. Hackers tend to go after the low-hanging fruit. Ask about encryption protocols when applying for a loan.
Does The Lender Share Information?
The days of lenders sharing and selling personal information without consent are over. Under the Gramm-Leach-Bliley Act, banks must provide applicants with a disclosure form that states information sharing policies.
Don’t be startled that the form lists third parties who will review your information. Banks often reach out to businesses in their network when making a determination about loan approval or rejection. Nothing happens in a vacuum so to speak.
But take the time to review this form carefully. If you do not feel comfortable with some of the outfits on the list, trust your instincts and walk away.
Ask About The Lender’s Data Protection Policy
Data protection has emerged as a significant problem. For every new protection program a hacker will find away to breach it.
Cybersecurity has grown into a major business sector and borrowers would be wise to ask about a lending institution’s policies, protocols and investment into data protection. Compare how each company addresses threats and make an informed decision about who can be entrusted with critical personal and financial information.
Your trusted mortgage professional is an essential part of your home buying experience. Be sure to ask these questions to increase your confidence in this important partnership.