Mortgage – Winston Wang: Mortgage, Real Estate, Communications Hill

Pros and Cons of Putting Less Than 20% Down

January 19, 2024/0 Comments/in Mortgage/by Winston Wang

When it comes to buying a home, one of the most significant decisions you’ll need to make is how much to put down. While the traditional advice suggests a down payment of 20%, many buyers opt for less. Here are some pros and cons of putting less than 20% down on a mortgage.

Pros

1. Lower Initial Investment

The most apparent benefit of a smaller down payment is that it requires less money upfront. This can make homeownership more accessible, especially for first-time buyers or those with limited savings.

2. More Liquidity

By putting less money down, you can maintain more of your savings for emergencies, home repairs, or other expenses. This can provide a safety net and financial flexibility. While it is possible to borrower money against your house, it requires additional processing time and costs.

3. Opportunity Cost

Investing a large sum of money into a house means those funds are not being used elsewhere. By putting less down, you may have more money to invest in retirement accounts, the stock market, or other ventures that could potentially yield a higher return, even when accounting for the cons below.

Cons

1. Higher Monthly Payments

A smaller down payment means a larger loan amount, which can result in higher monthly mortgage payments. This can strain your monthly budget and leave less room for other expenses.

2. Private Mortgage Insurance (PMI)

If you put down less than 20%, you’ll likely be required to pay for Private Mortgage Insurance. PMI is an extra fee added to your monthly mortgage payment until you’ve paid off 20% of your home’s value.

3. More Interest Over Time

The smaller your down payment, the more you’ll borrow, and the more interest you’ll pay over the life of the loan. This can significantly increase the total cost of your home.

The Bottom Line

Putting less than 20% down makes the most sense when you simply do not have 20% down. This will allow you to access your liquid assets more quickly and you could possibly break even every month if you invest the extra funds. Consult with your mortgage professional to see if putting less than 20% down makes sense for you.

5 Tips to Get Your Mortgage Loan Approved Quickly

July 31, 2023/0 Comments/in Mortgage/by Winston Wang

Fill out your mortgage loan application with these tips. insta_photos – stock.adobe.com.

Buying a home is a big decision, and one of the most important steps is obtaining an underwritten mortgage approval from a mortgage lender. The process begins with filling out a mortgage application. Filling out a mortgage application may seem overwhelming, but with the right preparation and knowledge, it can be a smooth and straightforward process. It is important to take your time and double check that your mortgage application is accurate and complete. This will ensure that the underwriter has the necessary information to underwrite your loan.

Here are some tips on how to fill out a mortgage application:

Read the instructions carefully. The mortgage application will have terms that may be unfamiliar to you, so it’s important to read the instructions carefully. This will help you understand what information is required and how to input the data correctly.
Gather all necessary documents. Before you start filling out the application, gather all the documents you’ll need. This includes documentation to show your income, assets, and debts. A general rule of thumb, is to provide two of the most recent documents of your assets, paystubs, and W2s.
- For asset statements, avoid screenshots and current balances. Those often will not include the full account number, account holder’s name, or transaction details. Instead, download the full month’s statement in PDF format. You do not need to provide more assets than you need in order to qualify. For example, for a $1,500,000 purchase price and 10% down, you would need to show qualifying assets of $150,000 for down payment. Also, ask your loan consultant for the addtional amount of assets needed for closing costs and reserves. It is better to provide statements from fewer institutions than a
- For income, provide two of your most recent paystubs and two years of W2s. If you have received performance cash bonus for the past two years, obtain the year end or fiscal year end paystubs from the past two years. For RSUs, in addition to two year end paystubs, provide your grant award letter/agreements for the past two years, and also obtain your vesting schedule.
- For self employment or business income, provide two of your most recent years of tax returns.
- For rental income, provide two years of 1040 Schedule E, lease agreement, most recent mortgage statement, homeowner insurance policy, property tax statement, and HOA bill (if any).
Be accurate and complete. The accuracy of your information is essential. If you make a mistake, it could delay the approval of your loan or even disqualify you altogether. When entering your income, enter as a monthly amount if the application is asking for monthly. Base pay, bonus, commission, and RSUs should be entered separately. Ask your loan consultant if you are not sure.
Be honest. It’s important to be honest and complete on your mortgage application. Income and assets need to be supported by your documentation. Do not guess or estimate.
Ask for help if you need it. If you’re not sure how to fill out the application or what documentation to provide, don’t be afraid to ask for help from your loan consultant.

Filling out a mortgage application requires you to be accurate and complete. A mortgage application that is inaccurate or incomplete will require you to spend additional time making corrections and may delay your close of escrow. By following these tips, you can increase your chances of getting your loan approved and for buying the home of your dreams.

What to Expect When Applying for a Mortgage

May 30, 2023/0 Comments/in Mortgage/by Winston Wang

Buying a home is a big decision, and one of the most important steps is getting a mortgage. The mortgage application process can be daunting, but it doesn’t have to be. Whether you are a first time or seasoned home buyer, you can make the process go more smoothly and reduce stress by understanding what to expect.

Financial Preparation. Before diving into the mortgage application process, it’s crucial to evaluate your financial situation and make necessary preparations. This includes reviewing and improving your credit score, gathering financial documents such as bank statements, tax returns, and pay stubs, and saving up for a down payment. Lenders will assess your financial stability and ability to repay the loan, so being prepared in advance will expedite the process.

Pre-qualification. Pre-qualification is a quick and informal process that gives you an idea of how much you can borrow. To get pre-qualified, you will need to provide the lender with some basic information about your income, assets, debts, and credit score. You will also need to provide the purchase price, down payment, type of home, and location.

Pre-approval. Pre-approval is a more formal process that includes obtaining your credit history through a hard pull of your credit report. It is wise to get pre-approved for a mortgage before you start shopping for a home so you can save time focusing on homes that are within your purchasing power. If you find a home that you want to make an offer on, you will often need to submit it before the seller’s deadline. You will save time and stress by having a pre-approval ahead of time. You will need to submit a completed mortgage application and provide documentation to support your income, assets, and liabilities. After reviewing your application and documentation, the lender will be able to provide you a pre-approval letter.

Underwriting. After you receive a pre-approval, the next step is for the underwriter to review your application and make an underwriting decision on whether to approve your loan. If your loan is approved by the underwriter, you will receive a credit approval letter. You can use this instead of the pre-approval letter to show the seller that you are in a stronger and more confident position to close escrow faster.

Appraisal. The lender will order an appraisal of the property you want to buy ensure that the property is valued at your purchase price, at the minimum. The appraiser will take measurements, take photos and compare other similar properties that have recently sold. The appraiser will then write up a report that includes justification for the valuation.

Closing. Once your loan is approved and the appraisal is complete, you’ll need to close on your mortgage. This is the final step in the process, and it is when you will pay for the remaining down payment, closing costs, and sign all of the closing paperwork.

Here are some additional expectations when you apply for a mortgage:

If you are applying to different lenders and want to compare for the “best deal”, make sure to compare beyond just the rate and APR. Look at the points (if any), fees charged by the lender and third parties, and the pre-paid items.
A quoted interest rate is usually tied to an “excellent” credit score. Ask the lender what is the assumed credit score for the quote that is quoted.
If you are applying for a “jumbo” loan, you will likely need 6 months or more of PITI reserves. This tells the lender that you can pay for your mortgage, insurance and taxes in case you need time to look for a new job.
If you submit an application with inaccurate fields and missing documentation, it will delay your pre-approval. You should ask the lender for help if unsure about what to provide.
Be patient during underwriting. Once your loan is submitted to underwriting, it goes into the underwriting queue with other loans. It can take several days for your loan to be next in line for review by the underwriter.

Mortgage Closing Costs and How to Save

May 4, 2023/0 Comments/in Mortgage/by Winston Wang

Understand and save on mortgage closing costs. Yurii Kibalnik – stock.adobe.com.

If you are planning to buy a home, you might be wondering what are mortgage closing costs and how much they will affect your budget. Mortgage closing costs are the fees and expenses that you pay when you finalize your home loan. They can include things like appraisal fees, title insurance, origination fees, recording fees, and are charged by third party service providers, government, and the lender. The typical costs range from 1.5% to 2% (or more) of the loan amount and are paid at closing time.

The stage of the loan will determine which closing costs document is available for you. If you are not yet in contract with the seller, you may receive an Approximate Loan Cost Illustration (ALCI) or similar document that gives you an idea of what the costs could be. After you get into contract, you will receive a Loan Estimate document as part of the Initial Disclosures. This is where you can see a sectionalized break down of the mortgage closing costs.

Some of the most common closing costs include:

Appraisal: This is a fee that’s paid to an appraiser to determine the value of your home.
Title and escrow service: This is a fee that’s paid to a title company to research the title of your home and to insure you and the lender against any title defects.
Lender origination: This is a fee that’s charged by the lender for processing and underwriting your loan.
Government fees: These are fees that are paid to the government for the transfer of real estate and to record the mortgage documents.
Escrow or impound account: These are fees that are paid to an escrow account to hold money for property taxes and insurance.
Homeowners insurance: This is insurance that protects your home from damage or loss.
Prepaids: These are expenses you pay in advance of mortgage payments and cover a specific period of time. Prepaids typically include mortgage interest, property taxes, homeowner’s insurance, homeowner’s association dues, and mortgage insurance.

Ways to save on closing costs:

Lender credits: Your lender may offer you credits as part of your loan. The amount of credits is dependent on the specifics of your loan scenario such as loan to value ratio, credit score, loan product and interest rate.
Seller credits: The seller may offer credits as a sales incentive.
Agent credits: Your buyer agent may offer you credits from part of the commission received from the sale.
Rolling the closing costs: If you are refinancing, you can roll the costs into the loan amount. This does not reduce the costs but spreads it out over the life of the loan so you do not need to pay the entire amount at closing time.
Keep in mind that any credits you receive for your home purchase cannot exceed the total closing costs.

Mortgage closing costs are an inevitable part of buying a home. It’s important to factor them into your budget when you’re buying a home. By understanding what goes into closing costs and possible ways to save, you can make your home buying process smoother.

ARM or Fixed Rate Mortgage: How to Choose

April 25, 2023/0 Comments/in Mortgage/by Winston Wang

Fixed rate vs adjustable rate mortgage pros and cons. Vitalii Vodolazskyi – stock.adobe.com.

One of the biggest decisions you will need to make as a home buyer is whether to choose an Adjustable Rate Mortgage (ARM) or a fixed-rate mortgage. Both types of mortgages have their pros and cons, and the choice largely depends on your individual financial circumstances and goals.

Fixed rate mortgages have an interest rate that does not change for the life of the loan, typically 10, 15, 20 or 30 years. This means that your monthly payments will be the same each month through the entire loan term, regardless of market fluctuations. However, fixed-rate mortgages typically have higher interest rates than ARMs. If you plan to own your home for a long time, a fixed rate mortgage may be a good option for you as you can lock in a predictable payment for the life of the loan. A fixed rate mortgage is amortized over the same number of years.

On the other hand, an ARM offers an initial interest rate that is lower and fixed for the first 5, 7, or 10 years, making the initial monthly payment lower. After the initial fixed years, the rate will adjust every 6 months or 1 year. The rate adjustments will stop after you refinance into a new loan or sell your home. If you plan to own your home for a short period of time or anticipate lower refinance rates before the rate adjusts, an ARM may be a good option for you. There are caps and limits in place to protect you from large increases in the interest rate, including the frequency of rate adjustments, the maximum interest rate increase per adjustment period, and the lifetime interest rate cap.

An example of an adjustable rate mortgage is a A 7/1 ARM, or a 7-year adjustable rate mortgage, is a type of mortgage where the interest rate is fixed for the first 7 years and then adjusts annually for the remaining 23 years of the loan term. The amount of adjustment is based on an index such as the weekly average of the 1-year US Treasury securities adjusted to constant maturity of one year, as made available by the Federal Reserve. Another example is a 10/6-month ARM, or a 10-year adjustable rate mortgage, is a type of mortgage where the interest rate is fixed for the first 10 years and then adjusts every 6 months for the remaining 20 years of the loan term. The amount of adjustment is indexed to the 30-day Average Secured Overnight Financing Rate (SOFR), as published in the Federal Reserve Bank of New York. The initial fixed-rate period of 7 or 10 years means that your interest rate will not change during this period, regardless of any fluctuations in the market.

Here are some factors to consider when choosing between an ARM and fixed-rate mortgage:

Your financial situation. If you plan to move within within the next few years or anticipate refinancing into a lower rate, an ARM may be a good choice. You can save hundreds of dollars each month by choosing an ARM term that matches your ownership timeframe. If you plan to own your home for a long time, a fixed-rate mortgage may be a better option.
Your risk tolerance. If you are on a tight budget and comfortable with the risk of your monthly payments going up, an ARM may be a good option. However, if you are not comfortable with this risk and want to know exactly how much your monthly payments will be for the life of the loan, a fixed-rate mortgage may be a better choice.
The current interest rate environment. If interest rates are expected to rise or have peaked, you may be able to get a good deal on an ARM mortgage. However, if interest rates are currently low, a fixed rate mortgage may be a better option.

If you are unsure which mortgage option to choose, it is advisable to seek guidance from a mortgage professional. They can help you evaluate your goals and circumstances, assess your risk tolerance, and provide valuable insights into the pros and cons of each mortgage option. Additionally, a mortgage professional can help you navigate the complex process of mortgage application and ensure that you get the best help possible.