This is one time in life when your sparkling personality and good intentions don’t matter so much as the financial facts!
Lenders want to know: Can you afford the loan? Will you pay the loan?
The answers are calculated using documents. Mortgages are loans that span decades and require the lender to risk a lot of money on your promise to pay. Your commitment is a promise to pay back the lender over many years to come.
With that much money and trust at stake, you have to provide documentation that you can do just that.
Income, employment, assets: Just like on a rental application, you have to prove you are employed. With a mortgage, you will need copies of tax statements, paycheck stubs, and W2 forms. You want to prove steady income over at least two years in the same line of work, if not at the same employer. This tells the lender that you do work and likely will work in the future. If you are self-employed, you’ll need to provide more documents.
The best case is that you also have a savings account in which you have at least two months of mortgage payments. If you will be dead broke after you sign the mortgage, this might go against your application.
Debt: Lenders use a formula called the debt-to-income (DTI) ratio. You can figure it out yourself. Simply add up all your monthly payments (credit cards, auto loans, child support, alimony) and divide that by your monthly income. The percentage you get is your DTI ratio. That should be 36 percent or less. What you don’t want is maxed-out credit cards or applications for new credit.
Down payment: Do you have enough cash to make the required down payment? Can you document where you got the money? Best case: Equity from a home you are selling or your own savings.
Purpose: If you are buying a home, do you plan to live in it? If it is to be a rental, you may need to show more information.
Ask the Expert: We’re thinking of buying a home, but what do the fed rate increases mean for mortgages?
Mortgage rates have been up and down following the rate increases by the Federal Reserve, beginning with the one in March this year.
Federal Reserve rate increases are aimed at controlling inflation, and while they have affected mortgage rates, the Fed’s actions and mortgage rates haven’t shadowed each other. For example, mortgage rates had a soft response to the Fed’s rate increase in June.
Mortgage rates are still very affordable, and increases have been modest. The 47-year historical average for mortgage rates is 8.1 percent. Today’s rates are well below this.
The key idea to remember is that a fixed-rate mortgage can be a hedge against inflation.
That’s important in today’s economy when inflation is cutting into budgets. A mortgage at today’s rates remains the same for the loan term. That locks in predictable housing costs not affected by inflation. While renters may see rates rise in coming years, homeowners won’t.
Even if rates return to the extra-low rates of 2020 and 2021, homeowners are still not locked in and can refinance.
Meanwhile, the housing market generally is softening somewhat, with well-priced homes selling briskly and over-priced homes reducing their prices somewhat.
Mortgage rates today are still very reasonable. At the same time, there is still high demand in the housing market. Although inventories are below normal, if you find a home you like, it’s still a fantastic time to buy.
Virginia REALTORS® releases 2023 Economic & Housing Market Forecast
Virginia’s largest trade association has released its 2023 Economic & Housing Market Forecast, predicting what is ahead for the commonwealth.
“Sales activity in Virginia’s housing market cooled significantly in 2022, and we’re on track to have our sharpest annual drop in closed sales in more than a decade,” says Virginia REALTORS® Chief Economist Ryan Price. “We expect the slowdown will continue in 2023, as higher interest rates will continue to stifle market activity.”
Virginia REALTORS® 2022 President Denise Ramey says, “Even with the slower sales activity this year, prices continue to trend upward because of the limited supply. However, it’s likely that we will see price growth slow down in the coming year.”
- Total Jobs in Virginia: In 2023, we forecast that 0.3% more jobs will be added than in 2022 (approximately 13,000 jobs). As economic conditions continue to weaken nationally and here in Virginia, job growth will level out in 2023.
- Unemployment: Virginia’s unemployment rate is expected to rise in 2023, climbing to 3.5% by the end of the year, 0.7% higher than 2022.
- Home Sales: Our projections are for a decrease in sales in 2023, 2.5% lower than Virginia home sales in 2022. The market slowdown is being driven by rising mortgage rates, climbing prices, and tight inventory conditions, all of which combined are leaving more buyers on the sidelines.
- Home Prices: We predict the 2023 median home price in Virginia to increase by 2.9% over 2022. While home prices will still see an upward trajectory in many markets around the state, the pace of growth will continue to ease in the coming year.
- New Housing Permits: Our predictions are for a 3.6% reduction in new housing starts in Virginia in 2023. Demand for new homes has softened, and housing starts have dipped, a trend that will continue next year.
- Mortgage Rates: It is expected that the 30-year fixed-rate mortgage rate will gradually recede to approximately 5.2% by December of 2023, down from where they are now.
“As Virginia’s economy continues to shift, the professional expertise of a REALTOR® is critical for buyers and sellers trying to navigate this challenging housing market,” says Virginia REALTORS® 2022 President Denise Ramey.
Click here for more details on the Virginia REALTORS® 2023 Economic & Housing Market Forecast.
How to sell your property with peace of mind
Over the past two years, demand for real estate has been rising. Are you considering moving in with your partner or retiring to a seniors’ residence? Now’s the perfect time to put your house up for sale. Here are a few things to consider to ensure the sale goes as smoothly as possible.
Surround yourself with the right people
First and foremost, do business with an experienced real estate broker who knows the market inside and out. Real estate professionals take a lot off your plate and handle a variety of tasks, including:
• Setting a fair and impartial selling price
• Verifying information about the property
• Taking photos and videos
• Staging the home
• Promoting your ad on different websites and online platforms
• Managing showings
• Preparing contracts and various documents
• Evaluating purchase offers
Real estate brokers are subject to an ethical code that governs their handling of your property. Therefore, you can rest assured they’re trustworthy and have your best interests in mind. Moreover, a real estate broker will help you avoid making costly rookie mistakes.
Furthermore, find your future home before putting your residence up for sale. It’s a good idea to work with a housing consultant or the same real estate broker handling the sale of your home to make your life easier.
Similarly, relying on the expertise of a mortgage broker will save you a lot of work, especially when it comes to transferring your mortgage.
In short, surrounding yourself with the right people is the key to a stress-free experience. Contact a broker near you to get started.
Real estate brokers have access to a vast network of other brokers and an impressive pool of potential buyers. Therefore, they’re best positioned to help you sell your home fast.
Mortgage vocabulary explained
Getting a mortgage is an essential part of buying a property. Here’s a short glossary to familiarize you with the most important terms.
• Mortgage loan. A type of loan typically obtained from a financial institution to purchase a home or other real estate property. The property itself serves as collateral to secure the loan. Moreover, the lender reserves the right to seize the property if the payments aren’t made.
• Down payment. An upfront payment you make to purchase a property. The amount paid is usually a percentage of the purchase price and can range from as little as three percent to as much as 20 percent.
• Mortgage loan insurance. You must buy mortgage loan insurance if your down payment is less than 20 percent of the property’s price. The insurance can be paid upfront or added to your monthly payments.
• Interest rate. A fixed or variable percentage is added to the amount of your mortgage loan. In short, it’s the price you pay to the financial institution for taking on your loan.
• Amortization period. This refers to the length of time it takes to pay off your mortgage.
• Mortgage term. The length of your current mortgage contract is referred to as the term. After the mortgage term expires, the remaining balance must be renewed, refinanced, or paid in full.
• Pre-approval. When you get pre-approved for a mortgage, the lender estimates how much you might be able to borrow based on your income, credit history, assets, debt, and down payment.
Contact a mortgage broker in your region for more information about mortgages or support for buying a home.
Question: In 2020 I lost my job and went into bankruptcy. But now I am back on track and I would like to buy a house. Is it even possible to get a mortgage?
Yes, it is possible to get a mortgage after bankruptcy.
For a conventional mortgage, a lot depends on the type of bankruptcy. For Chapter 7 bankruptcy (you’ve sold your assets to discharge your debts as much as possible), typically, you have to wait four years, but it is possible that your situation could qualify as extenuating circumstances.
For Chapter 13 bankruptcy (you’ve completed your debt repayment plan), you generally need to wait two years from the discharge date. This period is shorter for FHA, VA, and USDA loans.
You’ll also need a 620 minimum credit score for a conventional loan, so keep your balances low on credit accounts and always pay on time. For FHA loans, a credit score of 580 is permissible, and your score could be as low as 500 if you have a 10 percent down payment.
You’ll need a cash down payment. With FHA loans, this could be as little as 3.5 percent.
Another type of loan can benefit people coming out of bankruptcy if they have cash on hand. The non-qualifying mortgage loan (non-QM) is suitable for people in special circumstances, typically self-employed people who don’t have pay stubs but do have a lot of cash and a high credit score. It can also benefit those with cash and a high credit score but a recent bankruptcy.
In 2022, here were the characteristics of the typical non-QM loan:
* Average credit score was 771
* Average down payment 24 percent
* Average Debt-to-Income (DTI) ratio was 37 percent
You generally need a DTI of 43 percent or less to finance a house. A good DTI is about 35 percent or less. You calculate DTI very simply: Monthly debt payments divided by gross income. Add up all the payments you make in a month, including student loans and child support, but don’t include utilities, groceries, and gas.
House selling: should you ever disclose the details of a competing offer?
If you’re selling your home and have several interested buyers, find out if disclosing the amount of a competing offer could help you get the best price.
Who can disclose this information?
Depending on your state, your real estate broker may not be allowed to tell other buyers the amount of a competing offer. However, they can disclose how many other offers are on the table.
If you’re selling your home privately, the decision is yours. You can either tell potential buyers what others have offered or keep this information to yourself.
Why should you share this information?
If you choose to share these figures, you may want to do so after shortlisting the best bids to see if any buyers wish to increase their offer. You could also remain open throughout the entire process and provide this information upfront to anyone interested in putting in an offer.
The first option may allow you to sell your home well above the asking price. The second option may reduce the number of potential buyers but increase the competitiveness of their offers.
Whatever you decide, consulting a professional will help make your sale successful.