By Mitch Mitchell – MORTGAGE SENSE

OCTOBER 13, 2021

Last month we wrote about mistakes for new homeowners. But we came up with a few more. Here you go!

Is it a good time to think about buying a home? That’s a personal question and only you can accurately answer it. The running joke is that a desperate real estate agent will tell you that the best time to buy is “right here, right now,” even if that’s not true. But the reality is that with interest rates still at historic lows, even a sketchy realtor might not be wrong. Sure, the housing market is on fire lately and bidding wars are more common than ever, but it’s on fire for a reason. Now IS a good time to buy — if you’re ready.

That leads us to this week’s topic: are you really ready to buy a home? Home buying is a substantial undertaking, involving plenty of paperwork and potential snags. And since everyone — especially first-time home buyers — could use some guidance, we’re here to help.

Let’s run through six of the most common home-buying mistakes and talk about how to avoid them!

MISTAKE #1: 

YOUR EYES ARE BIGGER THAN YOUR BUDGET

It’s easy to get caught up in the whirlwind of excitement that happens when buying a new home. And if a bidding war happens — and you’re the type of person who has a fear of missing out — you could accidentally bid more than your budget will allow, even if you get pre-qualified for a larger loan. Don’t fall into this trap. You’ll be house-poor every month and have oodles of buyer’s remorse. 

 >> What to do? First of all, understand that getting pre-qualified is much different than getting pre-approved. Secondly, you want to have as much negotiation power as possible, especially if you live in a competitive housing market. Getting underwritten by a lender before shopping for a home makes any offer you put out there really stand out. It says, “I’m good for this amount of money and it’s safe to go to contract with me.” Start your pre-approval online so that you know how much house you can afford. 

MISTAKE #2: 

PUTTING IT OFF UNTIL YOU’VE SAVED UP 20%

Not long ago, a 20% down payment was the norm. But as home prices started to creep up, saving up 20% got even more difficult— especially for a first-time home buyer and especially in today’s high-priced market. 

>> What to do? There are plenty of opportunities to buy a home with a low – or even no – down payment. Start by looking into a VA loan, a USDA loan or an FHA loan. 

MISTAKE #3: 

YOU NEVER CONSIDERED PMI

If you can’t come up with a 20% down payment, which can be challenging for first-time homebuyers in this market, you’ll probably need to pay private mortgage insurance (PMI) on your loan. This part of the monthly mortgage payment goes to protecting your property in the event of a disaster or accident. Like property taxes, your monthly insurance payments can be collected and held in escrow and directly paid to your insurance company. This can be a whopping figure that might be shocking if you’re not prepared for it. Mortgage insurance can be up to 2% of the entire loan amount. That’s a big pill to swallow. 

>> What to do? The simplest — and frankly, only — way to avoid paying PMI is to come up with a 20% down payment. But depending on the type of home you’re looking to buy and the kind of financing you’re applying for, you may encounter different types of PMI. If you have no choice other than to take out a loan with private mortgage insurance, ask for one with terms that allow you to cancel as soon as you have 20% equity in the property or a loan-to-value ratio of 80%.

MISTAKE #4: 

NOTHING LEFT IN YOUR SAVINGS ACCOUNT

Don’t be in a situation where you have to empty your savings account to cover your down payment and closing costs. If that’s the case, this is NOT the right house for you. And there are more expenses than just the mortgage, property insurance, title insurance, legal fees, home inspections and unexpected repairs. Even the basics like painting, new furniture and hiring movers don’t come cheap. 

 >> What to do? It’s common practice to put away 3-6 months of living expenses to protect you from emergencies like unemployment, medical expenses or replacing a hot water heater, that sort of thing.     

MISTAKE #5: 

NOT TAKING CARE OF YOUR CREDIT

We already touched on getting pre-approved before going house-hunting, but you’ll run into roadblocks if you don’t have a handle on your credit history and credit score. Key factors that make up a credit score are payment history, the total amount owed, the length of your credit history, types of credit in use and whatever new credit accounts you may have opened. Too much credit and you may be in trouble. Not enough and you may be deemed a risk. It’s a balancing act and you’re in control.

 >> What to do? Be smart about credit and aim to use no more than 10% of what’s available. Make a concerted effort to reduce or eliminate debt before applying for a loan. And don’t close accounts in good standing. Regular, on-time payments are the solid foundation for a great credit score. See more tips on how to improve your credit score. 

MISTAKE #6: 

HIRING THE WRONG REALTOR

If you’re a first-time homebuyer — or even if you’re not — finding a compatible agent can be overwhelming! First, they’re super busy these days. And second, they always have their feelers out for their next client. Can you blame them? If it feels like your agent wants to close your transaction quickly so they can move on to the next, maybe you hooked up with the wrong one.  

>> What to do? As a first-time homebuyer, you really need to try to find an agent who is patient, can guide you through the entire process and, above all else, is in this business to help people get into new homes without a lot of stress. The best way to find a reliable real estate agent is to get a referral. Then, ask friends or family members (zero in on those who own homes) if they have any recommendations. Our advice? Take your time & do your research, ask intelligent questions and come into the relationship prepared. Here’s a great blog on how to do just that! 

Make no mistake about it!

Unless you’re in the market for a luxury yacht, buying a house will probably be the biggest purchase of your life. Depending on the terms of your mortgage, it’s a decades-long commitment. Home-buying can be exciting, but it can be complex — especially for newbies. But we’ve got your back!

Now that you know some of the mistakes to avoid, here’s something you shouldn’t avoid: Speak with a mortgage professional in your area who can look at your unique situation and tailor a mortgage that’s right for you. 

If you’re feeling vibes that say you’ve got this, great. Apply online with the Movement Mortgage Easy App. This tool will help you get pre-approved quickly by letting you upload all required documents straight into the app.

ABOUT THE AUTHOR: MITCH MITCHELL

Mitch Mitchell is a freelance contributor to Movement’s marketing department. He also writes about tech, online security, the digital education community, travel, and living with dogs. He’d like to live somewhere warm.

By Mitch MitchelL – MORTGAGE SENSE

Coming up with a down payment for a new home is often the thing that keeps people from taking the leap from renter to homeowner in the first place. That’s why US veterans, active-duty service members, National Guard and reservists who may not have saved up enough for a down payment look to VA loans to help make homeownership a reality.

VA loans allow for 100% financing of a property, meaning no down payment is required for eligible applicants. And because a VA loan comes with a 25% lender guarantee, PMI (private mortgage insurance) is not required either. 

All of this saves you money over the life of your mortgage, but there are some out of pocket expenses that come with a VA loan, including typical mortgage closing costs and a VA funding fee.

VA funding fees

Many homeowners who have purchased a home through this program — backed by the US Department of Veterans Affairs — will tell you that the benefits of the VA loan program far outweigh the applicable (and unavoidable) funding fees that come with it. These fees were recently updated, so this is an excellent time to review what kind of fees you might need to consider.

Let’s say that you’re looking to buy a $200,000 house and you’re eligible to buy that home with a VA loan. VA loans require no down payment from the borrower, however, if you’re a first-time user of the VA-backed loan program and you are going the route of putting no money down, you will be charged a funding fee of 2.3% of the total loan amount, or $4,600. If you’re able to make a down payment of $10,000 (5% of the $200,000 loan), you’d pay a VA funding fee of 1.65% of the $190,000 you’d still need to borrow, which would equal $3,135. 

This chart will help you understand how much of a VA funding fee you’d take on depending on your circumstances. Remember, the funding fee applies only to the loan amount, not the home’s purchase price.

If this is your first use of the VA loan program: 

And your down payment is…	Your VA funding fee will be…
Less than 5%	2.30%
5% or more	1.65%
10% or more	1.40%

If you’re using the VA loan program a second (or third or fourth…) time:

And your down payment is…	Your VA funding fee will be…
Less than 5%	3.60%
5% or more	1.65%
10% or more	1.40%

Federal law requires VA loan funding fees, but, as with any rule, there are exceptions. While anyone purchasing a home through a VA loan is required to pay the funding fees, the following are exempt:

• Homebuyers who receive VA disability payments for military service-related injuries
• Homebuyers who would receive VA disability payments if they weren’t receiving retirement pay
• Homebuyers entitled to receive compensation, but who are not presently in receipt because they on active duty
• Homebuyers who are serving on active duty that provide evidence of having been awarded the purple heart
• The surviving spouses of military personnel who died while in service, or of veterans who died due to service-related disabilities and who is receiving Dependency and Indemnity Compensation (DIC)

VA loan closing costs 

While closing costs are generally minimal with a VA loan, homebuyers may want to budget for these as well. Unlike funding fees, closing costs can not be rolled into the loan amount.

The following fees may apply to your VA loan application:

• Charges to pull credit reports and credit scores
• Costs to do a property title search 
• Determination of whether the home requires flood insurance
• Taxes and assessments based on federal, state and local laws

Additional fees the VA allows an applicant to pay

The VA regulates which fees VA loan applicants can be charged. These smaller expenses are often included in a lump-sum lender fee: typically about 1% of the total loan amount. Note that even though Movement Mortgage waives all lender fees for VA loans, we thought it would be helpful to list some of these expenses so you’ll be aware of what other lenders may cover with their lender fees:

• VA loan application fees
• Document preparation fees
• Mortgage prep and/or assignment fees
• Notary public fees
• Postage

Fees the VA does not allow an applicant to pay

While some are common with conventional mortgages, the Department of Veterans Affairs does not let the following fees to be charged to a VA loan applicant:

• Lender attorney fees
• Real estate commissions
• Broker fees or compensation
• Transaction Coordinator (TC) expenses
• Termite inspection fees (in most states)

Can sellers pay VA closing costs?

This is a great example of how VA loans can help homebuyers save money. Because buyers using the VA loan are restricted in what they can and cannot pay when it comes to closing costs and other fees, it is common for sellers to cover some of these costs. That’s right: often, the seller pays!

Sellers aren’t required to pay a borrower’s closing costs, but it’s commonly negotiated. Veterans Affairs allows property sellers to pay a percentage of the purchase price toward the buyer’s closing costs, often around 4%. But seller concessions can also go higher if they contribute to pre-paid fees, paying points, etc. Compare that to conventional mortgages, which can cap seller contributions toward closing costs at 3%.

Is a VA loan right for you?

If you’re a US veteran, active-duty service member, a reservist or a member of the National Guard and you’re looking to buy, refinance a VA loan or want to learn more about VA homeownership benefits, reach out to us today. 

Movement Mortgage can answer your questions about eligibility and help you make the right decision regarding a VA loan. Find a loan officer in your area to get started or apply online. 

By Mitch Mitchell – MORTGAGE SENSE – JANUARY 20, 2021

If 2021 is the year you’re going to make the leap to becoming a first-time home buyer, we’re rooting for you. But before you go out and start house-hunting, remember that the initial step is to get pre-approved for a home loan. To do that, you’ll want to get a handle on your credit history and credit score. The key factors that make up a credit score are:

• payment history
• the total amount owed
• length of credit history
• types of credit in use
• new credit accounts

If your credit is less than perfect, non-existent, or otherwise holding you back, it may be time to consider some ways to increase your score so that you can begin the process of buying your first home. Improving a credit score to buy a house takes time, effort, and focus. To help, we pulled together five tips on how to improve your credit score before you apply for a home loan.

1. No credit is no good

Sometimes a lower credit score is given simply because a person has no credit history to base a score on. Some people simply are adamant that it’s not a good practice to borrow money. While that’s rare in this day and age, it is possible. If you haven’t borrowed any money for a student or car loan and you haven’t opened any credit card accounts, there’s no history to make up your credit report at all. 

Having no credit can make a lender hesitant to work with you. If you’re hoping to qualify for a mortgage down the road, you’ll want to rectify that sooner rather than later. Open a credit card or two and make a few purchases on those cards so that you start building a record of using credit and paying it back on time. Over time, being diligent with payments on those cards can show a potential lender that you are a responsible borrower and a good prospect for a home loan.

2. Be smart about credit 

Being responsible for using existing credit is the best way to improve your credit score. For example, if you have a charge card for a retailer or a bank card that offers future travel points, use it on repeatable purchases like groceries or gas for the car. Keeping the balances low and consistently paying off those purchases every month will create a history of responsible credit behavior that will go a long way towards improving your credit score. 

Aiming to use no more than 10% of your allotted credit line is also a good rule of thumb. It shows that you won’t misuse your credit and fall into debt. Also, keep in mind that maxing out a credit card can hurt your score even if you pay it off in full every month. This is even true on a card with a low credit limit, so know the credit limits on each account you have.

3. Make a plan to reduce debt (or better yet, eliminate it) 

It doesn’t take long for a little bit of debt to become a serious long-term problem. Paying for something like a vacation with revolving debt — like the kind you get with many credit cards — can take years to pay off and damage your credit score. That’s not something you want on your credit report if you’re looking to buy a home. What’s needed is a concerted effort to reduce or eliminate debt. 

Many people drowning in debt try increasing monthly minimum payments by just a bit across all their accounts, but that barely moves the needle. Instead, it might be better to tackle the problem by focusing on one account at a time. If you make a significantly bigger payment to only one account each month until that debt is completely repaid — while still making the minimum payment on all other accounts — you’ll notice the debt shave off more substantially. When one is paid off, leave it be (remember, don’t close it) and rinse and repeat with your next account. Keep it up until all your debt is paid down. 

4. Look for lower interest rates  

Another thing you can do to reduce debt is to ask for a lower interest rate. The chances are that you opened a charge card account or bought a car when interest rates were higher. Because so much of a monthly payment goes towards the interest charge and not the actual balance, higher interest rates keep you in debt longer. It’s a well-kept secret, but some lenders can and will renegotiate interest rates. Just be forewarned: customers who’ve paid on time every month are more likely to cut a deal on getting a lower rate.

It also pays to keep an eye out for promotions offering lower interest rates. Balance transfers (from one card or one bank to another) can often get you a lower rate, but be cautious: promotional rates often have expiration dates. Try to pay off any balances before the promotional period ends or you may be subject to higher interest rates after that.

5. Don’t close accounts in good standing

If you have outstanding balances on credit cards, car loans, or student debt — but they’re in good standing and you’ve been making your monthly payments — keep at it. Regular, on-time payments are the solid foundation for a great credit score. But if you’re thinking of paying off a balance entirely and closing down an account, hold that thought for a second. 

Credit bureaus — the businesses that create credit reports — love when borrowers have zero-balance accounts. It shows that even though you have credit available, you’re responsible enough not to use it. While getting rid of an account may sound like a good idea, it could actually hurt your credit score. Keeping an active account open with no balance looks better than having a closed account. Wait until after you close on your new home to cut up any charge cards you no longer need.

Ready to improve your credit score this year?

There are many great federal financing programs available for first-time homebuyers, including FHA, VA, and USDA loans. Plus, you might want to look into conventional mortgages from Fannie Mae and Freddie Mac or home renovation loans. Many U.S. states and cities also offer first-time buyer programs and grants for a down payment, financing, and closing cost assistance. 

When it comes to applying to be pre-approved for a home loan, it pays to lay the groundwork with a good credit score. Contact a loan officer in your area to learn what else you’ll need to prepare for and to discuss which program might be right for you.

“The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.”
— Strength to Love, 1963 Dr. Martin Luther King, Jr.

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