Happy Independence Day!

 

Happy Independence Day from us at Work and Associates Home Loans!

We hope you have a safe holiday weekend!

Phone: 916-847-3090

1350 Old Bayshore Hwy Ste. 520

Burlingame,  CA  94010

margeate@workhomeloans.com

NMLS ID 394275 | DRE ID 01769353

What To Look For When Buying A House

Buying a house is a major decision. It’s critical to know what to look for when buying a house so you enter the process with clarity and purpose. Having criteria for your dream home and neighborhood could mean the difference between finding the right fit—or making a mistake. 

Here are some key criteria to consider when buying a home: 

•  Price. What can you afford to spend on a property? The pre-approval letter from your lender will include the maximum loan amount you qualify for. Consider your down payment amount and what you can afford in monthly mortgage payments coupled with recurring debts and household expenses (like daycare, groceries, utilities, tuition, etc.). You’ll also want to have savings set aside for home maintenance and major repairs. 

• Location. The neighborhood, city, town or state you want to live in is almost as important as a home’s amenities. Do you care about peace and quiet, or proximity to recreation or entertainment? What about being close to shopping, dining, grocery stores, schools and job hubs? 

• Commute time. How long would your commute to and from work and/or school be? Will you have easy access to public transportation and how important is that for your day-to-day needs? 

• Schools. If you have or plan to have children, you’ll want to research the quality of the schools a home is zoned for. Pay attention to school ratings, test scores, teacher-to-student ratios and other success metrics to evaluate schools and school districts in the areas where you’re looking for a home. 

• Home type. Owning a single-family home tends to come with higher upfront costs and maintenance responsibilities than buying a condo or townhome. Condos and townhomes tend to be smaller and less expensive. However, you’ll likely pay higher monthly homeowners association or condo fees for shared amenities, services and maintenance. 

• Design and upgrades. A new construction home is brand new, energy-efficient and can be tailored to your design tastes. The same goes for a flipped home, which is a property that is bought, fixed up and resold in a short timeframe. With a flipped home, you won’t have a say in design elements, but you’ll likely pay more than an existing home because it’s been upgraded. Or you can buy an existing home that may need to be updated but the price might be lower. 

• Condition. Some properties may need minor cosmetic repairs like new paint and carpet, while others need significant renovations or require you to replace major costly systems. Do you have the extra cash, time and energy to account for a house that’s not move-in ready? 

• Space. Consider how many bedrooms, bathrooms, offices and other spaces you may need. Do you want a large kitchen or a specific number of bedrooms to accommodate a growing family? Does the property check off all of the boxes right now—or does it have the potential to add those spaces in the future? 

• Energy efficiency. Utility bills can impact your monthly budget. How’s the property’s energy performance? What would need to be done to improve it? Are the appliances, windows and other structures energy-efficient? What direction does the home face and how does that impact energy usage? 

• Square footage. How big does the home need to be to match your lifestyle, family and storage needs? Keep in mind the larger the home/property acreage, the higher your costs to maintain it. A larger home also means you’ll pay a higher purchase price. 

• Parking. Do you want a garage/off-street parking, or are you okay with parking your vehicle on the street? Do you need other outdoor storage spaces for a boat or RV? 

• Property additions. Do you want a property with the interior or exterior space to extend the property or convert the loft or garage into an additional room? Is there a basement space you could finish down the road to add to your livable square footage? 

• Outside space. Do you want a garden, patio or back deck? How much maintenance are you able and willing to do? If you’re buying a townhome or condo, will you have access to any private outdoor spaces, or are they shared with other residents? 

• Historical district. Check if the home is located within a historic district. This might impact your ability to extend the property or make changes to its exterior. 

• Potential drawbacks. Is the property on a busy road, next to a highway or railway track, in a food desert or in a high-crime area? Decide what issues you are willing to live with before you buy. These properties may also take longer to resell and be harder to rent out. Source

Contact us with any questions regarding buying a home, we would love to assist you! 

Phone Number: 916-847-3090

DRE ID # 01769353

NMLS ID # 394275

What is an FHA loan?

An FHA loan is a type of mortgage insured by the Federal Housing Administration (FHA), which is overseen by the U.S. Department of Housing and Urban Development (HUD). While the government insures these loans, they’re underwritten and funded by FHA mortgage lenders. Many big banks and other types of lenders offer them.

FHA loans have a low minimum credit score and down payment requirement, which makes them especially popular with first-time homebuyers. You can get an FHA loan with a credit score as low as 580 if you have 3.5 percent of the home’s purchase price to put down, or as low as 500 with 10 percent down. These flexible underwriting standards are designed to help more borrowers become homeowners.

You can’t buy just any home with an FHA loan, however. You can’t use this loan to buy an investment property or vacation home. Based on your credit and finances, the lender determines how much mortgage you’d qualify for within the FHA loan limits for your area.

Who are FHA loans best for?

FHA loans are generally best for borrowers with lower credit scores, limited down payment savings or both. This might include first-time or younger homebuyers, or those with smaller incomes.

How do FHA loans work?

FHA loans work like most other mortgages, with either a fixed or adjustable interest rate and a loan term for a set number of years. There are two term options: 15 years or 30.

You’ll also pay closing costs for an FHA loan, such as appraisal and origination fees. The FHA allows home sellers, a home builder or a mortgage lender to cover up to 6 percent of these costs.

To insure these loans against default — that is, if you were to stop repaying your loan — the FHA requires borrowers to pay mortgage insurance premiums, or MIP. These go into the Mutual Mortgage Insurance Fund (MMIF), which helps cover loss claims. Although you’ll pay the premiums as the borrower, FHA mortgage insurance protects the lender — not you.

FHA loan requirements

Here’s an overview of the requirements for an FHA loan:

• FHA credit score: As low as 580 with a 3.5 percent down payment or as low as 500 with a 10 percent down payment
• FHA down payment: At least 3.5 percent down if your credit score is at least 580, or at least 10 percent down if your credit score is between 500 and 579
• FHA debt-to-income (DTI) ratio: At most 43 percent (up to 50 percent in some cases)
• FHA occupancy rules: Primary residences between one and four units
• FHA mortgage insurance premiums (MIP): An upfront premium of 1.75 percent of the loan principal, typically paid at closing; plus annual premiums between 0.15 percent and 0.75 percent depending on down payment and loan amount and term, typically paid monthly

FHA minimum credit score

If you put just 3.5 percent down, the minimum credit score for an FHA loan is 580. You can qualify with a score as low as 500, but you’ll need to make at least a 10 percent down payment. Keep in mind that the FHA sets this limit, but individual lenders might require a higher score.

FHA down payment

For an FHA loan, you’ll need a down payment of at least 3.5 percent. This minimum increases to 10 percent if your credit score is between 500 and 579.

FHA loans allow borrowers to use down payment funds from sources other than their savings, such as a gift from family. Borrowers might also be eligible for down payment assistance to help cover the cost.

FHA debt-to-income (DTI) ratio

To meet the DTI ratio requirements for an FHA loan, your combined monthly debt payments, including your mortgage, shouldn’t exceed 43 percent. No more than 31 percent of your income should go toward your mortgage payments.

That said, your lender could make exceptions for your overall DTI up to 45 percent, 50 percent or even 57 percent with an FHA loan, assuming you have mitigating factors like a lot of liquid assets or can make a sizable down payment.

FHA mortgage insurance

All FHA loans require you to pay mortgage insurance, which is split into two components:

• Upfront premium: 1.75 percent of the loan amount, which is paid either at closing or incorporated into the final loan amount
• Annual premiums: Amount varies based on down payment, loan amount and loan term

For example, if you’re an FHA borrower who opts for a 30-year term and a 3.5 percent down payment, you’ll pay 0.55 percent of the loan amount, divided by 12 and added to your monthly payment. That means if you borrow $300,000, you’ll pay $1,650 a year — or $137.50 monthly — for MIP. Source

DRE ID # 01769353

NMLS ID # 394275

What Is Mortgage Refinancing?

Mortgage refinancing can help homeowners save money by reducing their interest rate and improving the terms of their mortgage. If interest rates have dropped since you first took out your mortgage, refinancing may lead to significant savings.

However, refinancing may not pay off in every situation. Learn what mortgage refinancing is, how it works and when it might save you money.

How does a mortgage refinance work?

Mortgage refinancing allows you to replace your existing mortgage with a new one, ideally with a lower interest rate and more favorable terms. When you refinance, you'll receive money up front to pay off your old mortgage. Then, you'll begin paying the balance of the new loan.

If you're considering a refinance, you have a few options:

• A traditional refinance covers only the amount you still owe your lender, known as the principal.
• A cash-out refinance, on the other hand, replaces your old mortgage with a larger one that allows you access the difference between the two loans in cash, which can be used to fund major expenses, such as a college education, or renovations that might increase the overall value of your home.

Common reasons for mortgage refinancing

You might refinance your mortgage for a number of reasons:

• Lower your interest rate. If market conditions or other circumstances have changed over the life of your loan, you may qualify for a new mortgage with a lower interest rate. For example, interest rates may drop if the economy has improved since you first took out your mortgage. Alternatively, an increase in your credit scores may boost your creditworthiness in the eyes of your lenders, which may help you qualify for a better interest rate. Your credit scores are among the factors that lenders consider when setting the interest rate and other terms of your mortgage.

• Change the mortgage length. Refinancing may allow you to shorten the length of your loan. This means you'll pay off the mortgage faster, leading to fewer interest payments over time. Depending on your new loan's interest rate, however, a shorter term may mean you owe higher mortgage payments each month.

• Change the mortgage type. If you have an adjustable-rate mortgage (ARM), your interest rate may change in response to market conditions. Fluctuations in your interest rate can get expensive, especially if you took out your loan when rates were low. To help stabilize or lower your interest rate, you might refinance to a fixed-rate loan.

• Access cash. A cash-out refinance allows you to borrow against your home equity with a new loan that's worth more than what you owe on your current mortgage. You'll then receive a lump sum in cash you can use to pay for major purchases. Cash-out refinance loans typically have lower interest rates than personal loans or credit cards.

How to know when to refinance your mortgage

Should you refinance or not? Unfortunately, there's no definitive answer to this question. Whether a refinance is right for you depends on your unique circumstances.

If you're considering a mortgage refinance, evaluate whether your financial situation has meaningfully changed since taking out your original loan. Have your credit scores improved? Have you increased your income significantly? If either applies to you, you may now qualify for a better offer from your lender.

Next, determine if market interest rates have dipped in the intervening years. Consider refinancing only if your lender offers a new interest rate that is at least 2% lower than your current rate. You'll also need to consider the current length of your mortgage. If you only have five years of payments left, it's likely best to stick with your current loan. If your mortgage is new, be aware that most lenders have a waiting period of zero to 210 days before you'll be able to refinance. Attempting to refinance before this period is up could result in a significant penalty fee.

Finally, don't forget to factor in closing costs — a collection of fees and other expenses you'll pay on closing day. These generally total between 2% and 6% of the loan amount, adding a high cost to your refinanced loan. Before you sign on the dotted line, make sure that your closing costs don't exceed any potential savings. Source

DRE ID # 01769353

NMLS ID # 394275

Happy Fathers Day

 

Happy Fathers Day from us at Work and Associates Home Loans to all of you!

Phone: 916-847-3090

1350 Old Bayshore Hwy Ste. 520

Burlingame,  CA  94010

NMLS ID 394275 | DRE ID 01769353

What Not to Do Before Buying a House

When it comes to buying a home, people tend to make the same mistakes over and over. The problem is, the repercussions can last for years. Skipping the home inspection or even small oversights can delay the closing date or have long-term consequences.

1. Don’t ignore your credit history

Your credit history impacts mortgage eligibility and the interest rate you’ll receive. A strong credit profile signals to lenders that you’re a reliable borrower, leading to lower interest rates and saving you thousands over the life of the loan.

What to do instead:

Before applying for a mortgage, review your credit report. Search for any errors such as accounts you don’t recognize or incorrect payment statuses, and dispute inaccuracies early on. Even minor errors can negatively impact your credit score.

2. Don’t miss a payment

When planning to buy a home, consistent on-time payments are essential. Even one missed payment can lower your credit score and raise red flags for lenders. If you’re still paying another mortgage, missing a payment will make you ineligible for a loan for at least a year for most lenders.

What to do instead:

You may want to set up automatic payments for bills including credit cards, student loans, car payments, and utilities. Regardless, make all your payments on time so you don’t get disqualified and experience delays in the homebuying process.

3. Don’t max out your credit card debt

Maxing out your credit cards is one of the biggest mistakes you can make before closing. Credit utilization is how much credit you’re using compared to your limit. For example, if you have a credit card with a $10,000 limit and you have a $2,500 balance, your credit utilization is 25%.  This ratio significantly impacts your FICO score, and can lead to a higher interest rate on your loan. 

What to do instead:

Before applying for a loan, aim to keep your credit utilization below 30%, ideally around 10%. If your credit utilization is too high, pay down existing balances and avoid bigger purchases with your cards. 

4. Don’t make large purchases using debt

Taking on new debt, like car loans, furniture, or even cosigning loans can impact your ability to qualify for a mortgage. Larger purchases can increase your debt-to-income (DTI) ratio, a key factor lenders use to assess how much house you can afford.

What to do instead:

Before buying a home, hold off on any large credit-based purchases. Even if you can afford the payments, adding new debt may reduce your loan approval or lead to higher interest rates. Instead, focus on keeping your financial profile as steady and low-risk as possible.

5. Don’t drain your savings account

While it’s tempting to put every dollar toward your down payment, it’s a mistake to empty your savings account. It’s always best to have a financial cushion for unexpected expenses. That way you’re covered for surprise repairs, medical bills, and even job changes.

What to do instead:

Aim to build an emergency fund with at least three to six months of living expenses. Additionally, set aside extra savings for closing costs, moving expenses, and any home updates or repairs you may need right away. A healthy reserve account can protect your investment from day one.

6. Don’t start house hunting without mortgage pre-approval

To understand how much you can truly afford, mortgage pre-approval is key. Without a pre-approval letter, you might get attached to a home outside of your budget or miss out to another buyer who’s already qualified.

What to do instead:

Getting pre-approved helps you understand how much you can realistically afford based on your credit, income, and debt. It also shows sellers that you’re a serious buyer, giving you a competitive edge.

7. Don’t select the first lender you find

Don’t just go with the first mortgage offer you receive. If you shop around first, you could end up with a lower interest rate and better terms. 

What to do instead:

To start, request quotes from multiple lenders, including banks, credit unions, and mortgage brokers. Compare interest rates, closing costs, and loan terms carefully. Even a small difference in rate could save you thousands.

8. Don’t neglect looking at different loan types

Don’t assume a conventional loan with a 20% down payment is the only path to homeownership. There are many alternative mortgage options, and you might overlook a program better suited to your financial situation.

What to do instead:

Take time to research different loan types, including FHA loans with low down payment requirements, VA loans for eligible veterans, USDA loans for rural areas, and adjustable-rate mortgages (ARMs) that may offer lower initial rates.

Common loan types include:

• Conventional Loan: Offers flexible down payment options as low as 3% with private mortgage insurance (PMI). These require a higher credit score and must fall within conforming loan limits.
• FHA Loan: Require only 3.5% down and designed for buyers with lower credit scores. They do include mortgage insurance for the entire loan term.
• VA Loan: For eligible veterans, active-duty service members, and their families, a VA loan offers several advantages: no down payment, no mortgage insurance, and often lower interest rates.
• USDA Loan: For buyers looking in eligible rural or suburban areas, this option requires no down payment. Income limits apply based on location and household size.
• Adjustable-Rate Mortgage (ARM): Begins with a lower fixed rate, then adjusts based on market trends. These can help you save early on, but carry the risk of rate increases.
• Fixed-Rate Mortgage: Offers predictable monthly payments and a stable interest rate for the loan’s duration. This is ideal for buyers who plan to stay in their home long-term.

9. Don’t forget to budget for closing costs

Many buyers focus on saving for a down payment, but overlook another major expense: closing costs. These fees are due at the end of the home buying process, and should be budgeted for. 

What to do instead:

Before making an offer, talk to your lender about an estimate of your closing costs so you can plan ahead. 

They typically range from 2% to 5% of the loan amount and may include:

• Application fee: Up to $500
• Appraisal fees: $300-$500
• Home inspection fee: $300-$500
• Title insurance: 0.5%-1% of the mortgage amount
• Loan origination fee: 1% of the loan amount
• Escrow fees: 1% of the home sale price
• Recording fees: $125
• Property taxes: Varies
• Homeowner’s insurance premiums: Varies

10. Don’t change jobs

Changing jobs right before or during the mortgage process raises concern for lenders. Even if the new position has a higher salary, a sudden shift in employment can delay or jeopardize your loan approval.

What to do instead:

Most lenders look for at least two years of steady employment in the same line of work. This consistency signals financial stability and lowers the risk in their eyes. If possible, hold off on any career moves until after closing. Source

Before You Apply For A Mortgage, Do These Six Things

If you only read this paragraph, we hope you’ll take away this one, must-have lesson for homebuying: it’s an extensive process and we recommend a thoughtful, measured, step-by-step approach. The more time you invest in preparation and careful consideration, the more you’re likely to enjoy the result of your home purchase.

1. Check your credit scoreTwo-story white home with many windows and a big yard with a tree out front

Your credit score plays a huge role in your home loan as it’s a reflection of your ability to handle money and pay debts in a timely manner—all of which are important to lenders. People with better credit scores can also gain lower interest rates, which can lower monthly payments. In general, the higher your score, the better.

Getting your credit score is easy. Federal law entitles you to one free credit report annually from AnnualCreditReport.com. Their report will include scores from the three credit reporting agencies (Experian, Equifax and TransUnion). We also recommend checking out each site just to familiarize yourself with reporting agencies (sometimes they offer free reports as well).

Once you receive your report, review it carefully.

What is your credit score? If you plan to apply for a conventional mortgage, you’ll need a score of 680 or more. However, your score can be lower for other types of loans like a FHA, VA, USDA or NIFA loan.

Is the information correct? If not, now is the time to correct any mistakes that appear in your report. Visit the Federal Trade Commission’s page to learn how to dispute errors on your credit report.

Do you need to make improvements? If your score is lower than you’d like, consider making a few spending changes to improve your score. Experian and Equifax explain further in these blogs on gaining a higher score. 

2. Determine how much you have for a down payment

Your down payment is essentially the first payment of your home’s selling price. The more you can put down, the more you can reduce your home loan, which then reduces your monthly payment. Depending on your income and recommended loan, a down payment can be as low as 1.25% for a VA loan or 20% and more for a conventional loan.

Knowing your down payment can also help your mortgage loan officer recommend a loan that fits your needs. Knowing your down payment will also help you determine a home price and monthly payment that suits your income.

Down payments can come from savings you’ve put away, the equity in a home you’re selling and even a gift from a relative or friend. Some people can also qualify for a down payment grant.

We know it can be tempting to stretch your dollars to get a lower monthly payment. However, it’s important not to dip into your emergency fund and leave yourself without a safety net. Like we said before, a careful, measured approach is always the way to go.

3. Figure out your real monthly expenses to estimate an ideal home payment

So, credit score: check. Down payment: check. Now let’s add up your potential monthly expenses so you’re not surprised down the road;

• Mortgage insurance. If you plan on getting a conventional loan, but are unable to put 20% down, you’ll need to have mortgage insurance. Your lender can help you determine the additional monthly cost. Not all loans will require mortgage insurance and your mortgage loan officer can help you determine what type of loan is right for you.
• Utilities. Age, design, square feet and occupants all play a factor in how much you can expect to pay for water, gas and electricity (let’s not forget about garbage, either). Some utility companies will provide a 12-month average cost for a specific property, which makes it easier to calculate your monthly expenses.
• Home insurance. Plan for the big “uh-oh” with a solid home insurance policy. In the Midwest, we’re almost guaranteed to have occasional extreme weather and the more you can plan, the better. Call a few reputable insurance agencies and ask for a no-obligation quote.
• Non-home monthly expenses. Add it all up—groceries, insurance, cable, internet, subscriptions, clothing, haircuts, gym memberships, health care, the costs of owning a pet, vacations, planned gifts, fuel and others (be sure to look at the monthly and yearly cost for a big picture view). Did you get it all the first time? It’s always a good idea to take a second look.
• Home maintenance. Homes, like all things, will eventually need updates and repairs. Multiple sources, like bobvila.com, suggest setting aside 1–4% of your home’s value every year for maintenance. You may not spend that much every year, but setting that money aside will help with expenses that eventually happen (air conditioners only last for so long).

It might take a little work to track down these numbers, but it’s time well spent. You’ll have a highly detailed look at your potential monthly expenses and have a better understanding of how much house you can afford.

4. Figure out your debt-to-income ratio (DTI)

Your DTI is the percentage of your monthly income that is used to pay your debts. It’s also used by banks to determine if your income and debts are in a range that will also support a home loan. Most lenders look for a DTI of 43% and below. A mortgage loan officer can help you do the math or can follow this formula:

• Add up your monthly debt payments (these do not include monthly expenses)
• Then find your monthly income before taxes (gross income)
• Then divide your monthly debt by your gross income
• Then multiply the result by 100 to get your DTI as a percentage.

5. Get your paperwork together

Your lender will want proof of your current financial standing, including income, debts, savings and investments. Common documents include:

• Identification information (social security number, birth date, full legal name)
• Residence history (current and previous two years)
• If you are a renter, include the landlord or management company contact information and be able to show you have made rent payments on time for at least one year
• Employment history (current and previous two years—include company names, addresses and your title)
• If you are self-employed, provide a profit/loss stamen for the current and previous year
• Tax returns and W-2s (previous two years)
• Pay stubs (last two months)
• Other income
• Bank, investment and retirement account statements (last two months)
• List of other assets such as autos or other property
• List of monthly debt obligations (use the list you created to figure out your DTI)
• Written explanation of any derogatory information on your credit report

6. Find a bank you’re comfortable with

Buying a home is one of the largest purchases you’ll ever make—that no one trains you for. There are plenty of online guides, but experience is always a better teacher, which is why it’s important to find a bank and mortgage loan officer to help you at every step. You WILL have questions. Then you’ll have even more. And we take the extra steps to make sure you feel comfortable and knowledgeable throughout the process.

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