How Much of an Effect Does Student Debt Really Have on Home Ownership?

/0 Comments/in /by

College kids aren’t just coming out of school with a degree; they’re also leaving with a heap of student debt.

But while college grads may be strapped with a few years of student loan repayments ahead of them, that doesn’t necessarily mean that the debt should be an obstacle to getting approved for a mortgage.

Of course, there are a few other factors that will play a part in whether or not a stamp of approval will be granted, such as employment history and credit score.

What Do Lenders Really Care About?

Three metrics typically come into play wen lenders are deciding whether or not to approve or deny a loan application:

▪          Credit score

▪          Income compared to expenses

▪          Employment history

Let’s have a look at each in more detail.

Credit Score

Even if you have a ton of student debt that you still need to pay off, that doesn’t mean that your credit score necessarily has to suffer. As long as you are making your monthly payments in full and on time every month, your credit score should be healthy (as long as you’re doing everything else right).

Lenders will usually feel more comfortable loaning out a big chunk of change if your credit score is 750 or higher. To have a score like this, it means you’ve been making all of your payments promptly and have a solid history of using your credit. The last thing you want your potential lender to see on your credit report is a string of late payments, collections, or even bankruptcy.

This goes for your student loans too. If you want to boost your chances of getting a mortgage, make sure you’re always paying your student loan on time.

However, forbearance will have a negative effect on your credit score. Forbearance (or ‘deferment’) allows you to put a temporary halt on making your federal student loan payments, or temporarily decrease the amount of money you pay. If your student loan is in forbearance, it’ll reported to credit bureaus as a non-paying debt, which will do nothing but cause your credit score to plummet.

This doesn’t mean that lenders don’t mess up from time to time. In fact, according to the Federal Trade Commission (FTC), about one in four consumers find errors on their credit reports that could negatively affect their credit scores. That’s why you should always pull your credit report before applying for a loan to see if there are any mistakes that should be rectified. If you find anything incorrect on this report, the credit bureaus are obligated to investigate.

Income and Expenses

One thing that lenders take a good hard look at when scoping out potential borrowers is all the expenses in relation to overall income. They want to make sure that you can easily and comfortably afford to continue to pay off your current expenses, in addition to taking on additional debt.

To figure this out, lenders will usually look at a couple of equations:

Debt-to-income ratio – Basically, this fancy number represents nothing more than your monthly gross income that is dedicated to paying off current debts (along with taxes, fees, and insurance). More simply put, it’s the amount of debt you’ve got compared to your overall income, and is expressed as a percentage. Lenders usually like to see borrowers with a debt-to-income ratio of no more than 36 percent – the lower, the better.

Payment-to-income ratio – Also expressed as a percentage, your mortgage should ideally not exceed more than 28 percent of your total income. Any higher than this number could flag the lender to hesitate further burdening you with added debt.

Your student loan debt could have an affect on how your lender believes you’ll be able to pay a mortgage. If your total debt payment (your student loan, mortgage, and other miscellaneous debts) are calculated to be more than 36 percent of your income, you can probably assume that a mortgage won’t be approved. But if you can keep it under this number, you have a shot at approval.

Employment History

An important factor that lenders will look at before approving you for a mortgage is your employment history. They want to know that there is a stable source of income that’s readily available to pay the mortgage off every month. While some lenders are pretty stingy and want to see at least two to five years of work experience in the same industry, other lenders are satisfied with at least one year to help determine your regular income.

This is a toughie for recent college grads who haven’t had enough time to accumulate this much work experience. That’s why graduates might want to consider renting for a few years first. This will provide the opportunity to continue to build good credit by paying the rent on time and every month. Lenders like to see history like this before approving anyone for a mortgage.

However, if you’ve been working for a few months after graduating, and have maintained a steady job throughout school, this may count for something if you’re considering applying for a mortgage right out of the gates.

 

Student loans on their own won’t prevent you from getting approved for a mortgage, despite what many might believe. Other factors also come into play, including your credit history, your income, and your total debt amount. If these numbers are pretty healthy, and you’ve been pretty responsible with managing all your debt, there shouldn’t be anything standing in the way of getting a mortgage.

What is an “Umbrella Policy,” and Do I Need One?

/in /by

Do you need to purchase home insurance when you buy a property?

You should – just about every mortgage lender will need to see proof of property insurance in order for a loan to be approved. And even if you don’t need or have a mortgage, having home insurance is definitely money well-spent in case your home is ever burglarized, vandalized, or is victim of a flood or fire.

But what about an umbrella policy? This isn’t exactly a mandatory expense. In fact, this might be a foreign concept to many homeowners.

It’s totally up to you whether or not to buy an umbrella policy. Here is some advice to help you decide whether or not this purchase is one you should make.

Umbrella Policy – Defined

umbrellapolicy3

First of all, let’s talk about what an umbrella policy is. Essentially, this policy offers purchasers additional liability coverage beyond typical home or auto insurance.

Not only does it protect your physical home and the belongings within it, it also protect other assets, including your investments, savings accounts, retirement fund, and even your future earnings from any major claims or lawsuits as a result of an accident that you are responsible for. An umbrella policy can even protect your name from being slandered.

So, if your liability coverage doesn’t totally cover any damages of an accident or incident on your property that you’re responsible for, an umbrella insurance policy will kick in where your other liability coverage has left off. Basically, an umbrella policy is designed to protect you when your auto or home insurance simply isn’t enough.

How Exactly Does an Umbrella Policy Work?

Let’s illustrate by example how an umbrella policy would take action in certain circumstances.

If you are involved in a car accident which was entirely your fault, and the other driver was injured, your current auto insurance will cover the other driver up to whatever limit you chose for your policy. If, for example, you chose $200,000, that’s how much the other driver will be covered for.

But if $200,000 isn’t enough to cover this expense, you could be sued for the amount over and above what your current auto insurance policy covers. That means your personal assets could be vulnerable for the taking.

Where exactly are you going to come up with that extra cash to cover what the other party is demanding? If you had an umbrella policy, these additional costs would be covered so that all of your assets would be protected.

Another example would be an incident on your property resulting in injury to another person. Let’s say you neglected to adequately shovel your driveway or de-ice your walkway. Should a postal service worker approach your front door to deliver mail, and slips and falls during this trek, he or she could sue you for injuries over and above what your current liability policy covers you for.

An umbrella policy would come into the picture to pick up the slack in this case.

How Much Does an Umbrella Policy Cost?

You can expect to pay anywhere between $150 and $300 a year for a $1 million umbrella policy. Homeowners can purchase these policies in $1 million increments, typically up to $5 million. The second $1 million will usually cost about $75 a year, then about $50 a year for every $1 million that follows.

There are certain factors, however, that could affect how much you pay for your policy, including:

 

▪          Your job

▪          Your driving record

▪          Your hobbies

▪          Pets

▪          Prior lawsuits

Factors Not Covered Under an Umbrella Insurance Policy

Even though an umbrella policy can protect you under a variety of circumstances, there are certain lawsuits that it won’t protect you against, including:

▪          Malpractice lawsuits

▪          Damage caused by business-related activity

▪          Intentional damage you cause to any person or property

▪          Workers compensation claims

An umbrella policy also does not cover you if you’re actually the one harmed and require an expensive medical procedure. In this case, you’ll have to depend on your health insurance to flip the bill for these expenses.

Should You Buy This Policy?

All homeowners and retirement fund investors should seriously consider buying an umbrella policy. But even those without such assets should consider buying it. Think about other assets that you might own – like your car, savings account, and your future paychecks that are at risk if you’re ever slapped with a lawsuit.

At the end of the day, if you’re involved in any activity or possess anything that could put you at an increased risk for liability, an umbrella policy can help bail you out of financial hot water.

Buyers Are Now Armed With More Detailed Information Thanks to New Mortgage Disclosure Rule

/0 Comments/in /by

As of October 1st, home buyers will be armed with more information about their mortgages, and will be given more time to review their mortgage rate and fee quote documents.

Right now, the law requires borrowers to fill out two disclosure forms when applying for a home loan. In addition, two forms also need to be completed on or just before closing. These forms were intended to protect borrowers from fee abuses, and have been around for a while.

The Truth In Lending Act (also known as TILA) is designed to protects borrowers from being blindsided by unknown closing costs by regulating how mortgage fees and conditions are calculated and communicated.

The Real Estate Settlement Procedures Act (also known as RESPA) protects borrowers from being victimized by unnecessary real estate transaction expenses by preventing various housing services from paying each other money in exchange for customer referrals.

Currently, borrowers are required to receive a Good Faith Estimate and an Initial Truth In Lending disclosure within three days of applying for a mortgage. This disclosure document outlines the quoted interest rate on the mortgage, terms, and total fees over the course of the loan.

Lenders also have to provide borrowers with a HUD-1 before closing. This form stipulates in detail all the fees associated with the real estate transaction, including exactly how much money will be needed to close on the transactions, and the final Truth In Lending disclosure.

Simplifying the Process With the New TRID Rules

While this information is very helpful for consumers, it can be rather complex to figure out. Not only that, but consumers may be too late to make any adjustments after comparing the initial Good Faith Estimate and an Initial Truth In Lending disclosure to the final HUD-1.

The Consumer Financial Protection Bureau (CFPB) has taken over these regulations, and combined them to form the TILA-RESPA Integrated Disclosure Rule (TRID) which will take effect October 1st this year. The process is made simpler under the new TRID rules with the merging of the Truth-in-Lending form and the HUD-1 form to create The Closing Disclosure, a unified 5-page document. Only the buyer will receive the Closing Disclosure.

These new disclosures are aimed to provide borrowers with much more detailed information about their mortgage packages, and will give borrowers a lot more time to review them. Consumers are to receive a Loan Estimate Form within three days of applying for a mortgage. This form outlines the breakdown of fees, interest rate, amount of money necessary to close, conditions, and costs over the life of the loan.

Consumers will then receive a Closing Disclosure Form a minimum of three days prior to closing. This form is very similar to the Loan Estimate document, but also differentiates the expenses paid by the buyer, seller, and other parties involved in the transaction. This gives borrowers more time to go over the final terms of the mortgage. But because of such an extension of time to go over these documents, the closing process will also take longer to complete.

Fee Disclosure

Borrowers will have the advantage of greater transparency in accurate disclosure of all fees associated with their home loan. After the borrower applies for the loan, lenders will have to disclose these numbers.

 

Since the fees will be alphabetized and categorized, it should be easier for borrowers to compare estimates between mortgage lenders. Loan Estimates (LE) expire after 10 days, but buyers are not obligated to continue the transaction. However, once the borrower decides to proceed, the fees are then locked in.

If you’re planning on applying for a mortgage in the near future, be sure to speak to your mortgage specialist to find out exactly how these new rules will affect your home loan process. While home buyers should anticipate a 3-day delay in closing, the new TRID rules should improve the overall mortgage and closing process.

Is Fall a Good Season to Sell? Yes, and Here’s Why

/in /by

Rumors are always swirling about when it comes to the best time of year to sell a property. While plenty of people have traditionally believed that the spring and early summer are the bests weeks of the year to sell, there’s no reason why the fall can’t be just as fruitful.

Despite what many people think about the real estate market, the fall can be a lucrative time of year to sell your house.

Consider these three factors:

  • Buyers are back from summer holidays
  • There’s less competition
  • Listing photos will look awesome with fall foliage

Let’s elaborate a bit to show you precisely why you shouldn’t write off the fall season when it comes to listing your home for sale.

 

Vacationers Are Back From Summer Holidays

No matter what time of the year it is, buyers will always be out there on the prowl for a home. Regardless of the season, when a buyer is serious, they’ll be looking 24/7, even through traditional holidays. With the ability to browse listings online these days, there’s always a chance for a buyer to come across your property, regardless of what month you’re in.

After Labor Day comes and goes, buyers are more focused on their quest for a new home. Once the kids hit the books once again, home buyers are refreshed and ready to get down to business. And the need to be in a new home for Thanksgiving and the holidays in December has typically been a driving force for fall home sales.

 

The Competition is Less Fierce

As mentioned above, parents are busy getting their kids ready and settled in school in the early fall, and are even starting to stuff their turkeys in time for the holidays. This shifts their focus away from listing their homes, at least temporarily.

Plenty of people still have the mentality that real estate slows right down by October and is pretty much at a stand-still from Thanksgiving until February. As a result, many possible sellers just assume that there’s no reason to list their properties during these months.

This means that if you list your home in September or October, there is less competition out there for you to deal with. You’ll most likely have the benefit of getting more buyers’ attention on your place thanks to a potential seller’s market. And the fewer number of homes on the market, the better your chances of scoring a higher selling price.

 

Awesome Curb Appeal and Listing Photos

You absolutely cannot underestimate the power of curb appeal and first impressions that buyers get from listing photos. And the fall provides the perfect setting to create spectacular photos for your listing.

You’ve probably already noticed the leaves on the trees are already starting to take on a bright color change. Early fall is a gorgeous time of year with the vibrant reds, oranges and yellows adorning the vegetation.

Color-turning fall foliage can make your property look amazing in pictures. Take advantage of this time of year to take exterior photos for your listing to make your home as appealing as possible to buyers. Just don’t forget to sweep the falling leaves off your driveway and walkways.

At the end of the day, there will definitely be a bunch of motivated buyers during the last few months of the year who are in search of the right house, despite the possibility of there being less inventory. Less competition, more focused buyers, and amazing curb appeal; the perfect ingredients for a successful sale!