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Lock in and Win with your New Home

May 11, 2012 By Nancy Connelly Leave a Comment

Nancy Connelly of HomeStreet Bank

Nancy Connelly of HomeStreet Bank

 I would like to reintroduce myself to you. When I spoke to you last, I was employed by MetLife Home Loans. In January of this year, MetLife decided to leave the mortgage lending industry. I, along with 170 other employees in our local region, decided to move over to HomeStreet Bank.

HomeStreet is one of the largest community banks in the Northwest and Hawaii. Opening in 1921, we have stayed focused on what we believe is the most important: building long-term relationships with our customers and providing ongoing support to our communities. We are also one of Pacific Ridge Homes’ preferred lenders.

We offer a full range of financial services including business banking, business lending, consumer banking, mortgage lending, residential construction financing, income property financing and insurance services. Our primary area of community focus is on housing including new construction.

One of the challenges in building a new home is the concern that during the construction period, interest rates will continue to fluctuate. Many folks who have built homes found that at the beginning of the construction rates could be much lower than at the time the home is completed and the interest rate gets locked in. These changes in the rate can increase your mortgage payment by a substantial amount.

HomeStreet recognized this problem and designed a solution. We are one of the very few lenders nationally who will allow you to lock in the interest rate at the beginning of the construction for a term up to 1 year. When the home is within 60 days of completion, you are allowed one opportunity to “float down” to the current interest rate if it is better. This protects you in case rates were to increase and also gives you the benefit of getting the lower rate if they improve. A true win-win for those interested in a newly constructed home!

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Improve Your Credit Score

July 19, 2011 By Nancy Connelly 1 Comment

Understanding your credit score.

In my previous post, “Home Loans and Credit Scores”, I wrote about how your credit score affects your ability to get a home mortgage. This follow-up post provides some useful insights as to how your credit score is determined and how to improve it.

Before a bank will lend you money for a home loan, they need to determine how much of a risk you are, or, in simpler terms, how likely you are to repay the money they loan you. Credit scores help lenders do that, and the higher your score, the less risky a loan candidate you are.

In general, most increases to your credit score take place over time and require a concerted and ongoing effort from you. The only true quick fixes are to pay down your debts faster and to successfully dispute any negative information on your credit report.

Knowing what goes into your credit score can help you improve it. Here are a few tips to help make your credit score as high as possible.

  • Pay on time. 35% of your score depends on your payment history, so the faster you pay down your balances, the better your score.
  • Do not max out your credit card balances. 30% of your score is based on how much you owe.  You want to keep your balance at 30% or less of your preapproved credit limit.
  • Start early. 15% of your score depends on the average age of your accounts.  Your older, more established accounts will push your credit score higher.
  • Avoid inquiring about or opening several credit cards at once. This affects your score negatively in a couple of ways. First, it lowers the average age of your credit (remember, the older established accounts help the credit score go up). More importantly, the credit bureaus become concerned that you are going on a borrowing frenzy and are adding to your debt.
  • Be smart about the types of credit that you utilize. 10% of your credit score is based on what kind of credit you have.  You can give yourself a boost if you have experiences with different types of loans.  This means an individual is “financially experienced” if they have success in paying a mortgage, credit card, or car loan simultaneously.

Lastly, it’s very important to check your credit scores once a year for any errors on your report or identity fraud.  There are a number of services that offer credit reports and everyone is entitled by law to one free credit report from each of the three credit bureaus each year. Checking your own credit has no negative effect on your credit score.

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Home Loans and Credit Scores

June 27, 2011 By Nancy Connelly 1 Comment

Credit scoring is a system creditors use to decide whether to loan you money. Information about you and your credit experiences is collected from your credit application and your credit report. Things like your bill-paying history, how many accounts you have, whether you make your payments late or on time, if you have ever had a collection action, how much outstanding debt you have, and the age of your accounts all factor into your credit report.

Your credit score is used to predict the possibility of whether or not, you will pay your bills. Scores are compiled by Fair, Isaac & Co., and are sometimes called FICO scores. The top possible number is 850, but going over 800 is tough to accomplish. A median score usually falls in the 720 – 725 range, meaning half of consumers fall above that point, half below.

Quite simply, your credit score affects the interest rate you are charged and/or the total closing costs you will pay, depending on the type of mortgage financing obtained.

Superb credit scores are not always as important as people think. With FHA or VA loans, a credit score of 620 or higher is required. If your score falls below this number, you will not get approved for your home loan. If your credit score is higher, it will not change the interest rate or closing costs you are charged. You pay the same, regardless of your score.

However, when it comes to conventional financing (FNMA or FHLMC), your credit score will not only determine the minimum down payment you must have, but it will also change the interest rate/closing costs you will be charged. So with these loans, the better your credit score, the better the terms of your home loan are.

Here’s an example. With a minimum 5% down payment on a conventional loan, you must have a credit score of 680 or above. There is also a government “add” to the closing costs of 1.25% of the loan amount. Based on a loan of $200,000, 1.25% equals $2,500 of additional closing costs. If your credit score falls between 700-719, this amount drops to 1.00% (a savings of $500). If your credit score falls between 720-739 the cost drops to .50% (a savings of $1,500). Over 740, you are charged the minimum “add” of .25%. You can absorb the additional costs by going at a higher interest rate. The government “adds” will also diminish the more you are willing to pay in down payment.

The moral of the story is to always pay attention to your credit score and credit report. It could save you a substantial amount of money on your home mortgage.

Read more at Nancy’s follow-up post: Improving Your Credit Score

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10 Key Steps to the Mortgage Process

June 8, 2011 By Nancy Connelly Leave a Comment
10 Key Steps of the Mortgage Process

The keys to your new home are yours once your mortgage agreement is signed and closed.

So you’ve found your dream home, made your offer, negotiated the details of the sale, and you’re ready for the next step, getting your loan.

This is where some people can get a little overwhelmed with the process. Questions always come up like, what happens after I apply for a mortgage loan? What is escrow? What is an appraisal and why do I need one? When can I lock in my interest rate?

Although there can be some variation, I’ve tried here to give you a general idea what happens throughout the mortgage loan process.

As I recommended in my “Getting Pre-Approved for your New Home” post, I’m assuming you’ve already gone through the mortgage pre-approval process. For the sake of simplicity, I’m also assuming you will use the same mortgage agent that issued your pre-approval.

  1. You bring your mortgage agent the final, signed purchase and sales agreement. This is your written offer with all of the details you worked out with the seller.
  2. You lock in your interest rate so that it will not change prior to the home becoming legally yours.
  3. We issue formal loan application and disclosure papers for you to sign.
  4. We order an appraisal on the home. The appraisal will tell the bank what the property is worth. The home must appraise at an amount at least equal to the purchase price.
  5. We request a title search to be performed by the title company. This shows any current liens on the home so they can be paid in full at the time of closing. The title search also shows the buyer any restrictions and easements to the property.
  6. We send a copy of the purchase and sales agreement to the escrow company, along with all of our information, so that they can prepare the final paperwork when the transaction is ready to close.
  7. Once you return the signed loan application papers, we send requests to the Social Security Administration and the Internal Revenue Service to verify your information.
  8. When we get the appraisal back, we submit it to loan underwriting for the final approval.
  9. Your loan is approved and all documents relating to the mortgage are prepared by the bank and sent to the escrow company. They make sure that the title is transferred legally to you and all funds have been paid to all of the proper parties.
  10. You and the seller sign all of the final papers and you deposit any money necessary to close this transaction with the escrow agent. The Deed (which transfers title to you) and the Deed of Trust (which puts a lien on the property until the mortgage is paid in full) are recorded with the county.

Congratulations, you now own your new home!

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New Home Interest Rates – Good News and Bad News

May 31, 2011 By Nancy Connelly Leave a Comment

First the good news. Interest rates are currently at historical lows. Rates this low will probably never happen again in our lifetime, so truly there has never been a better time to buy a new home.

There is, however, some less than encouraging news on the horizon. Inflation is gathering speed, and when inflation goes up, so do interest rates. A simple way to illustrate the connection between the two is to think of inflation as the ocean and interest rates as a boat. As inflation (or the ocean’s tide) rises, interest rates (or the boat floating on top of the ocean) have to rise as well.  In other words, interest rates must always be higher than inflation in order to compensate investors. Inflation is the archenemy of home loan rates.

If interest rates increase by 1%, your purchasing power will decrease by 10%.  So if you are currently qualified to purchase a home priced at $275,000.00, putting 3.5% down and obtaining an FHA loan at 4.75% rate, your principal and interest payment is $1,398.16.  If interest rates rise to 5.75%, you are now only qualified to purchase a home priced at $247,500.00, a drop of 10%. Your mortgage lender can keep you up to date on all rate fluctuations.

One final thing – Back on April 18th the monthly FHA Insurance premium went up, which is equal to paying a .25% higher interest rate. This higher rate will affect borrowers obtaining FHA financing.

All of this news tells me one thing – there is no better time than right now to purchase a new home!

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Getting Pre-Approved for your New Home

May 3, 2011 By Nancy Connelly 1 Comment
The process for mortgage pre-approval is usually pretty easy and it's free.

It is more important than ever to get your mortgage pre-approved before making an offer on a home.

In my 35-year career, I have never seen a tougher time in the mortgage industry than what we are experiencing today.   When the housing market collapsed, the pendulum swung drastically the opposite way.  The loose guidelines for financing went away (thankfully so), but loan requirements and policies have tightened dramatically.  It is more important than ever to get your mortgage pre-approved BEFORE submitting an offer on a home.  It is heartbreaking to find a home you love and be disappointed if your financing is not approved.

The process for pre-approval is usually pretty easy and FREE to obtain, so you have nothing to lose and everything to gain. In most cases, the following is a list of items you should gather together for the pre-approval.  Your circumstances may require more or less documentation than what I have outlined here. You will need:

  • Your most recent paycheck stubs.
  • Your W-2′s for the last two previous years.
  • Your last two months of bank statements (all pages) for all checking, savings and investment accounts.
  • A copy of your most recent retirement statement, if applicable.
  • A list of all your monthly debts (i.e. who you owe, how much you owe and the minimum monthly payment required).  These include credit cards that you do not pay in full each month, car payments, department store cards that are not paid in full each month, child support, maintenance, student loans, personal loans with a bank or credit union, etc.).  You do not need to include cell phone bills, utility bills, or insurance bills.

Once we have this documentation, a pre-approval is currently takes an average of 5 working days to obtain.  The sooner you get this process started, the more time I have to help you get ready to purchase a home. And don’t worry if we don’t get an approval right away. We can work together to prepare you for this exciting endeavor in the future.

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New Home Tax Savings

April 15, 2011 By Nancy Connelly 1 Comment

There are many benefits to owning a new home including, but not limited, to the tax benefit. Here’s how it works. Based on your current tax bracket, the IRS allows you to write-off the mortgage interest, property taxes and private mortgage (FHA) insurance portion of your mortgage payment. This easy deduction results in less money due the government when tax time comes.

One of the best ways to take advantage of this write-off and help make your mortgage payment more comfortable is to increase your exemptions within your paycheck. You can do this by revising your current W-4 form. Here’s an example. Let’s assume you are currently claiming one exemption on your W-4. Based on the new home you are purchasing, you may be able to claim three exemptions and still not change your tax status at the end of the year. This would result in less tax being withheld from each paycheck and net you more money each month.  It’s like giving yourself a raise!

I know many buyers are not familiar with the ins and outs of tax deductions and exemptions, so I often recommend speaking with an accountant to clarify any questions or concerns. These tax savings are one of the best ways to maximize the benefits of owning a new home.

And and don’t forget – this year you get a few extra days to file your taxes. Returns must be postmarked by April 18th.

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