Getting the best mortgage financing for your new home can sometimes be a complicated process and, unfortunately, things can go wrong. Using a licensed and trusted mortgage loan specialist can help alleviate many of these challenges.
There are certain mistakes that many homebuyers make when applying for their mortgages that can seriously damage their chances of being approved. If you are aware of the most common mortgage issues, you will be better able to prevent them when applying for your own mortgage.
Make sure that you keep the following tips in mind when applying for a mortgage:
Making Large Purchases Before Closing On The Mortgage
Many homebuyers think that they are in the clear once the mortgage deal is approved and they move forward on another large purchase such as a car or home furnishings. However, it is best to hold off on all major purchases until the mortgage is finalized, as additional debt will change your “debt-to-income ratio” which could mean that you no longer qualify for the loan.
Many lenders pull your credit information right before funding, so avoid any big-ticket items until you have signed on the dotted line.
Switching Jobs During The Mortgage Loan Process
When deciding whether or not to approve your loan, the lender will look at your salary and your job stability. If you make a career move during the process of applying for the loan, this could make your income seem unstable and could cause the bank to decline your loan.
Stay in your job through your home closing date to reassure the bank that you have a stable income; you can always switch careers later.
Having No Credit Card
You might think that the fact that you have gotten by without a credit card for this long would be a positive thing in the mind of lenders. However, having no credit history at all makes lenders nervous, as they don’t know how you will handle credit when you have it.
Instead, get a credit card that you repay in full every month, which will help to show them you can manage your credit responsibly.
These are just a few examples of major mistakes that home buyers make when applying for a mortgage. If you can avoid these issues, you will find it much easier to buy a Maine home.
As always, call your trusted home mortgage financing professional today to discuss your personal situation and get the best advice on your upcoming home purchase!
Construction Spending Rises
U.S. construction spending rose 0.3 percent in April as private residential construction increased at the fastest pace in six months. Overall construction spending was up 6.8 percent compared with April 2011.
Construction spending rose to an annual rate of $820.7 billion, the Commerce Department said on Friday, after an upwardly revised 0.3 percent increase in March.
Also on Friday, the Institute for Supply Management said its index of national factory activity slipped to 53.5 from 54.8 in April, just missing expectations for 53.9. But, while the pace of growth in U.S. manufacturing slowed modestly in May, according to the report, a gauge of new orders rose to its highest in over a year. A reading above 50 indicates expansion in the manufacturing sector.
What Happened to Rates Last Week?
Mortgage backed securities (MBS) gained +105 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to reach a new all-time low.
Mortgage rates moved lower throughout the week on heightened concerns over the banking issues in Spain and Italy as their bond yields soared to new all-time highs. This made the quality and safety of U.S. bonds very attractive to foreign investors. This added demand caused bond prices to increase and interest rates (which move in the opposite direction) to decrease.
Mortgage backed securities shot upward (causing mortgage rates to hit new all-time lows) on Friday in reaction to the much weaker than expected jobs data. The Unemployment Rate increased from 8.1% to 8.2%, but the real story was the big miss in the Non-Farm Payroll data. The market was expecting the economy to add around 150,000 new jobs but instead, it only added 69,000.
This much weaker than expected employment data caused a big-time buying spree of 10 year U.S. Treasuries and the higher yield paying Mortgage Backed Securities.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.
It’s Official: FHA Hike of 75bps Will Come April 1.
The Federal Housing Administration is following through with its pledge to increase upfront and annual insurance premiums on its forward single-family business. The plan is to help rebuild it’s insurance emergency fund which has taken a hit over the last few years during the housing collapse (FHA has paid out nearly $37 billion in defaulted mortgages since 2008).
Unveiled late Monday, the increases are designed to strengthen FHA’s capital position and “have minimal impact on the market and borrowers,” according to FHA acting commissioner Carol Galante. She noted that FHA streamline refinances are exempt from these premium hikes.
Starting April 1, FHA will hike its upfront premium by 75 basis points to 175 bp on all single-family loans, including jumbos.
FHA is also hiking the annual premium on loan balances of up to $625,500 on April 1. On higher balance loans or jumbos, FHA is planning to implement a 35-bp hike in the annual premium on June 1.
The federal mortgage insurance agency currently charges a 115 bp annual premium when the loan-to-value ratio is above 95%.
This morning, FHFA announced their enhancements to the HARP refinancing program. Operational details of the plan are to be released on November 15. Only loans that were purchased or guaranteed by Fannie Mae or Freddie Mac on or before May 31, 2009 and have a current LTV over 80% are eligible. In addition, the loan must be current, no late payments in the last six months and no more than one late in the last 12 months. There are no restrictions on who may refinance these loans.
Program guidelines include:
- No limit on LTV, if new loan is a fixed rate loan (current LTV must be above 80%)
- Loans previously refinanced under HARP not allowed
- Certain agency fees will be waived if new loan is a shorter term loan
- Appraisals not required where Agency AVM is available
- Certain originator Reps and Warrants will be waived
Investors sold Bonds today and took some profits after the big surge in prices this week. Markets don’t go straight up or straight down so the move lower today wasn’t a big surprise and came without any gloom and doom headlines.
The 3.5% coupon fell 88bp to end at 102.78. Stock markets fluctuated between positive and negative several times during the session and ended with moderate gains but the Dow had its worst week since October 2008 down 6.4%…closing at 10,771.48 up 37.65. The S&P 500 fell 6.5% this week but managed to gain 6.87 to 1,136.43 while the Nasdaq was up 27.56 to 2,483.23 but down 5.3% for the week. The big news today was the record one day move for Gold as it had lost $100 to $1,641/oz before finishing at $1,653/oz down $88. Oil settled at $79.85/barrel down 66 cents falling 9.2% for the week. Next week economic data is plentiful and will give investors a broad look at the economy.
It’s a great time to own Gold : Stock markets were unchanged today giving the Bond markets a reason to run higher. The 3.5% coupon jumped 25bp to end at 101.56, but ended below resistance levels set last October. Tech shares were sold aggressively today and pushed money into Bonds and utility related stocks. The Dow saw a meager gain of 4.28 to end at 11,410.21, the S&P saw a paltry gain of 1.13 to 1,193.89 while the Nasdaq dropped 11.97 to end at 2,511.48. Oil saw a gain of 93 cents to $87.58/barrel on lower inventories while Gold closed at a record $1,791.20 up $8.80. Tomorrow’s data includes Initial Claims, CPI, Philly Fed Index and Existing Home Sales.
WOW. What a roller coaster on Wall street. Markets experienced extreme volatility once again today especially after the Fed announced its statement at 2:15pm ET. The Fed did not say that it would add any additional stimulus to the economy but Stocks bounced back after the horrific sell-off in recent days. Mortgage Bonds also rose today – our new focus is the 3.5% coupon rising 131bp to end at 101.22. The Monthly Bond Rollover will occur after the close of trading and will be reflected tomorrow. The Dow surged 429.92 to 11,239.77, the S&P 500 jumped 53.07 at 1,172.53 while the Nasdaq soared 124.83 to 2,482.52. Oil in after hours trading was $82.14/barrel down $2. There is no economic data tomorrow. The Treasury will sell $24B 10-yr notes tomorrow.
Outgoing Federal Deposit Insurance Corp. Chairman Sheila Bair on Friday said it may be time to think about implementing a slow increase in interest rates to make bank lending more profitable. Bair’s comments come as some bankers have been criticizing the Federal Reserve’s zero interest rate policy, insisting that it is hurting bank profitability and is that it is impeding the lending environment. The Fed on Wednesday held interest rates at record-low levels as its controversial $600 billion bond-buying program came to an end. The central bank said it planned on keeping rates low for an “extended” period of time.
“That is an interesting debate, and I hear that from a lot of bankers that a gradual increase in interest rates could make lending more profitable and therefore provide more incentives for lending,” Bair said to reporters at the National Press Club after her last official speech as chairman of the agency. “It is an argument that the Federal Reserve board is very aware of and there is the counter argument in terms of economic impact [of raising interest rates]. Maybe it’s time to think about it a little more.”
With Mortgage Interest Rates at an all time low of 2011, the window to refinance may soon be closing.
Before deciding on what terms lenders will offer you on a loan (which they base on the “risk” to them), they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, they look at your income-to-debt obligation ratio. For your willingness to pay back the loan, they consult your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they’re named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).
Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. In fact, the fact they don’t consider demographic factors is why they were invented in the first place. “Profiling” was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to somebody’s willingness to repay a loan.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren’t as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit — credit scores requested.
Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.
To get a FREE Copy of your credit score, contact your Maine Mortgage Banker today.
If you are considering a VA Home Loan the fastest and easiest way to find out if you qualify is by connecting to a VA Home Loan Specialist who can help to determine your eligibility, qualification level and let you know what your options are.
It doesn’t cost you anything and there is no obligation.
You May Be Eligible If Any One of the Following are True:
- Served 181 days during peacetime (Active Duty)
- Served 90 days during war time (Active Duty)
- Served 6 years in the Reserves or National Guard
- You are the spouse of a service member who was killed in the line of duty.
Get connected with a VA Loan Specialist who can help you maximize your VA benefits and let you know what you qualify for.