Jared Wilk Group's Blog
Applying for a mortgage is a big step towards homeownership and financial independence. If it’s your first time buying a home, you might be curious (and a little intimidated) about all of the things that go into your mortgage application.
When reviewing your application, mortgage lenders are trying to determine how risky it is to lend you money. If all goes well, and they determine that lending to you would be a worthy investment, you’ll get approved for a mortgage.
There are three main things that lenders will use when weighing your application (however, there are other factors as well).
First, they’ll run a detailed credit report. This will tell them how much other debt you have, what kind of accounts you have open, how long you’ve had this debt, and how responsible you are when it comes to making your monthly payments in time.
Second, they’ll consider how much money you’ll be using toward a down payment. A larger down payment alleviates some of the risk associated with lending to you. Therefore, people with little or no down payment saved can have a difficult time getting approved for a mortgage. And, if they do get approved, they’ll have to pay monthly private mortgage insurance on top of their regular mortgage payments.
Finally, the third main consideration will be your current income. Lenders will look at your previous two years of income (including tax returns) and will seek out current income verification from your employer.
The latter is a key part of getting approved, as lenders will want to ensure that you are in a stable financial situation and will be able to immediately start making mortgage payments.
Today’s post will center around income verification and how mortgage lenders will use your income to determine your borrowing eligibility.
How Do I Verify My Employment?
If you’re employed with a company, most lenders will reach out to your employer directly to verify your employment. You’ll be asked to sign a form that authorizes your employer to share these details with the lender, and then your part of the job is done and you can move on to the next step of your application.
Things get trickier when you’re a freelancer, are self-employed, or work with several clients as a contract worker. In these situations, lenders will typically require you to file a Form 4506-T with the IRS. This form allows your lender to obtain your tax returns directly from the IRS.
Can I submit additional information to verify my income?
There are some situations where providing additional income information can bolster your case in terms of getting approved for a mortgage.
If you own a business, your lender of choice may ask for a profit and loss statement. If you’re an independent contractor or freelancer, your clients who have paid you at least $600 or services or $10 in royalties will be required to send you a Form 1099-MISC.
If you have mixed income, such as a full-time job with freelance work on the side, showing these 1099-MISC forms can help increase your income on paper so that lenders will approve you or a higher mortgage amount or lower interest rate.
If you are thinking of refinancing your mortgage, there are so many options available to you that address your needs. Whether you want to do some home improvement projects or provide a down payment for another property refinancing can be a good option for you. There are many different options when it comes to home loans and refinancing. Below, you’ll find some of the most popular choices and what they mean for your mortgage and your finances.
A standard refinances requires that you have a certain amount of equity in your home. If you want to avoid Private Mortgage Insurance (PMI on the refinance, you need 20% equity in the home. Different lenders have different requirements for the amount of equity that you need in order to do this primary refinancing of your home loan. Keep in mind that a good credit score is also a requirement to do this type of loan.
Refinancing With Cash Out
This option is great when you need to take some of the equity out of your home. This way, you can get some of the equity out of your home without selling the house. This way, you’re able to refinance the mortgage, get a good loan term that’s affordable, and borrow a part of the equity you have built up in your home.
You can use the cash that you take out for just about anything you need including college, home renovations, business start-up costs, or to consolidate other debt you have. The only drawback is that you’re not able to borrow 100% of your equity. Usually, the highest percentage you’re eligible to borrow is 80%. The amount is based on both the equity you have built up in your home along with your income. Also, keep in mind that after you take out one of these loans, the amount of equity you have in your home decreases.
Short refinances may not be offered by all lenders. If you don’t qualify for a HARP loan or standard, refinance this could be a good option for you. If you hope to avoid foreclosure and are struggling to pay your mortgage each month, your lender may agree to the terms of this type of loan. The loan is in effect is a combination of a short sale and a refinance. The lender agrees to pay the existing mortgage off. The loan s replaced with a new mortgage. Beware that if you choose this option, your credit score may go down significantly. If you’re able to keep up with the new mortgage payments, you’ll be able to repair your credit score over time.
Many Americans who purchased their home when they had lower credit, a shorter employment history, and less money stand to gain from refinancing their mortgages. However, most miss out on this opportunity or don’t realize it in time to save potentially thousands in interest payments.
According to recent data, 5.2 million Americans could save, on average, $215 per month if they refinanced their loan. But many homeowners are hesitant to refinance.
Whether it’s because of the inconvenience, the cost of refinancing, the worries about something going wrong, or uncertainty about whether they’ll actually save money if they go through the process, millions of homeowners are missing out.
So, in this article, we’re going to talk about some reasons it may be a good idea for you to refinance. If you’re one of the millions of Americans with a mortgage who are thinking about refinancing, this post is for you.
Riding the wave of the economy
Interest rates on home loans are historically low right now. As a result, homeowners can save by refinancing simply due to changing tides of the real estate market. Although mortgage rates have increased slightly over the past two years, they’re still on the low end, so this could be your last chance to save.
To consolidate your debt
Credit cards, auto loans, and other forms of debt can add up quickly. If you have a high-interest rate on your other debts, refinancing could be a good way to consolidate and save.
This can be achieved through a home equity loan or by refinancing with a cash-out option. This means you refinance your mortgage for more than you currently owe and take the remainder in cash to pay off your other debts with high-interest payments.
Typically, you need to have at least 20% equity (or have paid off 20% of your mortgage) to be eligible for this option.
Small percentages count for more now
It was once said that refinancing only made sense if you would receive a lower interest rate of at least 1-2%. However, with the prices of homes increasing over the years, sometimes even a small change, such as .75% is enough to save you substantial money on your repayment.
You’re able to repay early
One of the best ways to save on a home loan is by refinancing to a shorter term. Going from a 30-year loan to a 15-year loan can save you thousands. There are several calculators available for free online that will enable you to estimate how much you could save by refinancing to a 15-year mortgage.
You got a raise
One of the best times to refinance is when you can be certain that you can afford to pay off your loan sooner. As people progress in their career, it isn’t uncommon for them to refinance their loan so that they can spend more each month but save in the long run.
Since you have a higher income, and likely higher credit, you can also refinance a variable rate loan to lock in a lower fixed rate.
Houses located in emerging or progressive areas under development could yield a rewarding financial return. These houses could also yield social rewards. During the early years of development, you might have to endure construction sites and noise. Several months or a year or two might pass before houses in the community fill with neighbors, people who may quickly become among your closest friends.
Hidden costs of buying a house
A place to call your own, great neighbors and a community that is growing and increasing your house's value can make buying a house a solid financial and personal decision. To truly be advantageous, you need to know everything that you're taking on when you buy a house.
The principal is the largest part of your mortgage. It's also the part of owning a house that you might pay the most attention to. What you don't want to do is make the mortgage principal the only part of the owning a house that you focus on. In addition to the principal, when you buy a house, you will likely have to pay expenses like those listed below:
- Loan interest - Mortgages with adjustable rate interest can start low, but may not stay that way. A variable rate mortgage and a tracker mortgage are other types of mortgages that could increase should interest rates hike. A fixed rate might be higher, depending on when you buy a house, but a fixed rate mortgage could keep your monthly output steady.
- Closing costs - Items included in closing costs are the first month's homeowners association fees, prepaid interest and points.The more points that you pay upfront, the more you could lower your monthly mortgage installments.
- Mortgage insurance - Depending on the lender,you may have to pay mortgage insurance that covers 10% or more of your total mortgage. A way around the insurance or a way to lower the insurance is to invest more in your down payment.
- Homeowners insurance - Mortgage insurance and homeowners insurance are different. Mortgage insurance protects the lender.Homeowners insurance protects you and the lender.
- Homeowners association fees - Although homeowners association fees might be included in your closing costs, you will generally have to make these payments monthly. Don't overlook homeowners association fees and rules when you start looking for a house.
- Property taxes - The value of your property, the age of your home and the jurisdiction that your house is located in impact property taxes.
- Mortgage broker or realtor fees and commissions - These fees are higher in some parts of the country.
- Home inspection - Factor in the costs of getting a thorough home inspection.
- Home appraisal - You'll also need to get your house appraised to realize the actual value of the property.
Because there are additional costs that you must generally be responsible for after you buy a house, shop for property that you can easily afford. In other words, don't buy a house that leaves you with only $100 or less left each month after you pay your mortgage. After all, there are other costs involved in owning a house that you will surface during and after closing.