Monthly Archives: March 2015

5 Documents to Gather before Applying for a Mortgage

Applying for a mortgage is a time intensive and documentation intensive process. Having the right documents on hand can greatly expedite the application experience, and make it easier for a lender to give you a pre-approval or a loan offer. The earlier in the process you can gather and share them, the better. Yet not every applicant knows what to expect. Here’s a quick guide to five documents it’s helpful to gather before you apply for a mortgage.

Mortgage Application DocumentsEmployment verification

Your income plays a vital role in getting you approved for a mortgage. Lenders want to understand how long you’ve been employed, what you do, and how much you make. Start by gathering previous W2s and your most recent 3 – 4 paystubs. It’s also possible to request a letter from your employer verifying that you’re employed, how long you’ve been working there, and how much you make. If you receive a fixed annual bonus or other compensation, a letter from your employer outlining that may also be helpful.

Previous tax returns

Most lenders want to see two to three years of your previous tax returns. They’re looking for trends in income, and also for the stability of your income level. If you’re self-employed or you own a business, lenders may ask for as many as seven years of tax returns in order to better gauge your financial situation. Get copies of your tax returns from the IRS if you haven’t kept them on file.

Your credit report

Any lender that’s considering your application will pull the latest copy of your credit report and credit score from their agency of choice. However, before you apply it’s important that you’re familiar with what’s on the document. Scour it for errors or for issues – such as accounts in collections – that can quickly be corrected. Otherwise, being prepared will help you anticipate interest rates and specific comments you may need to address during the process.

Copies of financial statements

If you don’t typically keep financial statements on hand, you’ll want to gather several months of statements for your primary accounts. Start with any checking and savings accounts that you maintain. Banks will also want to see details regarding your investment accounts, retirement savings and any other assets that will give them insights into your financial big picture. If you have other sources of income such as alimony, rental income, or passive income streams, having documentation that shows that income is also helpful during the application process.

Previous rental verification

If you’re currently renting a home or apartment, lenders will want to see proof that rent was paid on time. Often, they seek documentation that goes back as far as 12 months. Copies of canceled rent checks, along with a rental agreement, can help verify this. A letter from your current landlord, along with his or her contact information, is also helpful.

Are you a Las Vegas resident who is considering applying for a mortgage? Contact Sydnee Johnson today to arrange for a personalized consultation and learn more about the process, including what documents you need to apply for a mortgage.

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Could a Gift Be the Answer to Saving a Down Payment?

A down payment is often a major barrier for first time homebuyers to get into the real estate market. While there are numerous strategies to save money for a house, many buyers have family or friends who are willing to contribute cash toward their down payment. But if you’ve never dealt with this situation before, you may be wondering how lenders view this situation and what needs to happen in order to formalize a gift contribution. Here’s a closer look at using gifts to help finance the purchase of a property.
GiftDifferentiating Between a Loan and a Gift

One of the most important aspects that lenders will evaluate is whether a cash contribution from family or friends is truly a gift. If it’s a loan, even one that is granted on favorable terms with no interest and a later repayment date, lenders want to know. Any loans or debts count toward your overall debt-to-income ratio. Most lenders will request a gift letter to explain large cash deposits, stating the amount of the gift and verifying that it is in fact a gift that doesn’t need to be repaid.

Common Sources of Gifts

Buyers get cash contributions toward home purchases from a variety of sources. In some cases, a family member wants to contribute money toward a buyer’s future to help them get established. Often, parents or grandparents are gifting the money in lieu of (or in advance of) an inheritance. Many buyers also receive gift contributions by asking for cash in place of gifts for a wedding, baby shower, or holidays and birthdays.

When you’re serious about buying a home but need help to save up a down payment, consider having a conversation with your family to determine whether they have the capacity and willingness to help you. Another source of cash gifts may be your employer. Certain companies have programs where they’ll make a small contribution toward the purchase of a home after employees have been on staff for a certain period of time.

Are Gifts Taxable?

Typically, any gifts that you receive may be subject to taxation. Before accepting a gift, it’s best to talk to your financial advisor, tax preparer, or real estate lawyer to better understand whether it’s the right move for you. If the funds are taxable, it is important to set aside the amount needed to pay those taxes or have a plan to save that money over the course of the year ahead.

Are you a first time homebuyer in Las Vegas that needs advice on financing? Contact Sydnee Johnson today to arrange for a personalized consultation, and to discuss how a gift could help accelerate your down payment.

What’s an Interest Only Mortgage?

If you’re buying a home, you may not have considered an interest only mortgage. But in certain circumstances, it can be the right choice for financing a real estate transaction. An interest only mortgage is a financing arrangement that allows buyers a specific period of time – often between five and seven years – where they’re able to make reduced payments on their mortgage by paying only interest. During that time, the mortgage principal remains the same. Once the interest only period is over, buyers need to begin paying full mortgage payments, make a balloon payment, or refinance. Here’s a closer look at what to evaluate when you’re considering interest only financing.

Interest Only MortgageWhy would you consider an interest only mortgage?

Interest based mortgages allow buyers to opt for a lower payment in the first several years of homeownership. Often, buyers who are going to sell a home within a short period of time will choose this option to minimize the cash they’re spending. It’s also a popular choice with buyers who would benefit from a lower payment in the short-term, but know that they can handle a higher payment within a specific period of time. One scenario that comes to mind is a professional, such as a doctor, who is graduating from school and will soon join the workforce. In other cases, buyers choose to take an interest based loan because they’re able to command a higher return by investing funds elsewhere.

Advantage of an interest only loan

The biggest advantage of an interest only loan is a lower payment during a certain period of time. Lower initial payments can help buyers afford more expensive homes. During the interest-only period, the entire mortgage may be tax deductible depending on the buyers’ individual situation. If money is being directed elsewhere such as profitable investments, the buyers’ net worth could be growing as well. It’s also possible to pre-pay on the principal during this period, which can reduce mortgage payments or the pending balance over time.

Points to consider before going this route

While this can be a great financing model for the right buyer, there are reservations and aspects to consider. One of the most important is unanticipated changes to income, a failure to realize income goals, or a home that doesn’t appreciate as expected. Market changes can leave buyers unprepared to deal with payments, which can often double once the interest only period elapses. Buyers may experience payment shock, and have failed to invest according to plan which can leave them scrambling to sell or refinance. If a mortgage is an adjustable rate mortgage, interest only payments can fluctuate which makes it harder to capture the benefits of lower payments. It’s also important to note if there’s a prepayment penalty on the mortgage that you’re considering.

Are you a buyer in the Las Vegas area who is considering buying a home? Contact Sydnee Johnson today to discuss your options, including interest only mortgages.

5 Things That Hurt Your Chances of Refinancing Your Mortgage

Refinancing your mortgage can be a big step for homeowners. It may allow you to lower your interest rate, cash out equity to pay off other debts, or become mortgage-free faster. But it’s important to remember that just because you have a mortgage, doesn’t mean you’ll automatically qualify for a refinance. Both the lending industry and your financial picture may have changed drastically since you last applied. Here are five issues to be aware of that can impact your chances of successfully refinancing your mortgage.

Mortgage RefinancingMissed mortgage payments

Once of the first things a lender is going to look at is your previous mortgage payment history. If, even in the face of other credit troubles, you’ve always made your mortgage payments on-time it signals that you take this as a serious commitment. Evaluate your mortgage records and make sure that all your payments have been made on-time. If not, prioritize this in the months before a refinance and be prepared to address the lapse in your credit application.
 
Credit problems

While your mortgage performance will carry special weight in a refinancing application, it’s also important to look at your overall credit score. Do you have late payments, missed payments, accounts in collections, or high levels of credit card debt? Just because you have a troubled credit history doesn’t mean you won’t qualify for a refinance. But it’s important to evaluate whether you’ll qualify for terms that are as good as your current mortgage. Credit problems could lead to a higher rate that minimizes the benefits of refinancing.

A previous refinance

Banks often have internal guidelines on how often they’ll refinance a mortgage. In some cases, the limits run between six months and two years. If you’ve recently refinanced to capture the benefits of lower interest rates, for example, it’s important to remember that you may need to let some time elapse before you’re able to refinance again.

Change of residence

Let’s say that you bought a starter home and at some point you outgrew it or decided to upgrade. Rather than sell the property, you held onto it as an investment and rented it out. Refinancing a property where you no longer reside may prove to be more challenging. Banks see lending on investment properties as more risky than a primary residence; after all, foreclosure doesn’t mean that you’d be losing the roof over your head. Expect to face more stringent credit and income level demands when refinancing an investment property.

Carrying a second mortgage

If you’re carrying a second mortgage on your home, that may complicate your refinancing application for two reasons. When you’re refinancing to consolidate two loans, a bank may consider that a “cash out,” even if you’re not actually receiving money. The second instance has to do with loan priority. Should you default, the oldest loan usually gets priority in repayment from auctioning off the property. But if you’re refinancing your main mortgage, the bank is unlikely going to be willing to take priority behind a smaller loan. Success depends on the mortgage companies working out an agreement.

Are you a homeowner in Las Vegas who is considering refinancing your mortgage? Contact Sydnee Johnson today to discuss your options. Experienced lenders can help you navigate even the most complicated situations.

Why You Should Never Lie on a Mortgage Application

You should never, ever lie on a mortgage application. Whether you’re thinking about an outright lie or simply an exaggeration, there are several reasons it’s not a good idea. Mortgage companies have sophisticated fraud detection systems in place; chances are greater than not that any errors or mistruths will be discovered. The consequences range from having your application denied to facing potential criminal charges for bank fraud. Here’s a closer look at why individuals sometimes lie on mortgage applications – and honest strategies that can get you a better result, no matter what your concern.

Mortgage FraudUnderstanding mortgage fraud

It may be a small jump in your mind from stretching the truth about your income or expenses to committing fraud. But banks and other lenders take a hard line on mortgage fraud. According to the FBI, mortgage fraud is one of the fastest growing white collar crimes in America today. If you commit mortgage fraud, you’ve either omitted or misrepresented details on your signed applications.

Usually, these issues are detected during the loan process. However, if they’re detected once the loan is in effect, the bank can demand full repayment. It can also lead to investigations, fines, and jail time. Mortgage fraud most often involves overstating your income, leaving out critical details such as debts, making false statements, identity theft, or lying about occupying a property.

Finding another solution

In some cases, borrowers are trying to increase their perceived income to boost the total amount of the mortgage they’re eligible for or they’re trying to hide a bad credit scenario. Rather than go down this dark road that can have serious consequences, remember that it’s possible to obtain a mortgage under a wide range of circumstances.

Take the time to understand the bigger picture of your situation. Determine your specific concerns. Do they relate to past credit indiscretions? Perhaps you think your income is too low to qualify for a mortgage. Maybe your debt-to-income ratio seems too high. Whatever the reason, contact a qualified lender. Explain your situation in detail to this person. With their expertise, they’ll be able to evaluate all of your options.

There are a number of different lending programs that fall outside traditional loans, from first-time homebuyers programs to second chance loans with alternative lenders. There are also different ways of structuring loans that can give buyers more flexibility on the total amount of the purchase or covering closing costs. Finally, if all else fails, an experienced lender can give you strategic advice on where to focus your efforts to improve your chances of approval the next time you apply.

Are you a prospective homebuyer in the Las Vegas area? Contact Sydnee Johnson today to arrange for a personalized consultation and learn more about how to successfully fill out a mortgage application.

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