Category: Tips & Advice

How to Get Started: Finance Your Vacation Rental

Finance Your Vacation Rental | Mortgage Broker Texas

Do you have a vacation rental that you are hoping to finance this holiday season? The process for securing financing for a short-term rental is different than a normal residence. So, read below to learn about lending options and how to get started.

Traditional Financing

If you’re buying your first vacation rental property, the most familiar option to you will probably be a traditional or conventional loan. A traditional loan offers some of the most competitive interest rates on the market — but also has some of the most restrictive lending requirements and is the least scalable option for investors looking to grow a property portfolio.

Global Home Finance will generally look at two factors to qualify the loan: the creditworthiness and income. We allow a maximum debt-to-income ratio of around 43%.

Asset-Based Mortgage Loan

Unlike a traditional loan, asset-based loans are evaluated by looking at the actual or potential income of a given property (rental income), rather than an individual borrower’s W2 income and debt-to-income ratio.

Global Home Finance will look at the income of the property and calculate the Debt Service Coverage Ratio (DSCR) to qualify the loan. This type of loan is a significant advantage to an investor because borrowing power is not constrained by individual income.

There are options to consider when thinking about purchasing a second home. So, contact Global Home Finance today to investigate the best available financing option when buying a vacation home. We are here to help you along the way!

5 Red Flags to Look for When Buying a Home

No Crossing Street Signal | 5 Red Flags to Look for When Buying a Home | Mortgage Broker TX

No matter what your idea of the perfect home may be, there are some things that shouldn’t be overlooked in your home search.
 
Read on to find out five of the biggest red flags to look for when buying a home.

1. Structural Issues
Be sure to check for cracks around any window frames within the home as you tour it. Also, consider having a home inspection done by a structural engineer.

2. Roofing Damage
Roof damage is expensive to repair, so look for missing shingles or shingles that may be “curling.” If you aren’t sure what to look for (or just can’t get a good view), it never hurts to have a contractor check out the roof for you.
 
3. HVAC Flaws
Proper heating and cooling is essential to any home. When in doubt, hire a licensed HVAC inspector, and then do a cost-benefit analysis before making any decisions.

4. New Paint
As you tour homes, be on the lookout for any individual walls that may have been painted. This could be a sign of damage, such as a water stain or an improper wall repair. If you suspect that to be the case, be sure to ask about it. 

5. Unknown Neighborhood
Don’t forget to do your research on the local neighborhood as you house hunt. You want your neighborhood to be a good fit. So, inquire about an HOA and never be afraid to ask about the school district and businesses in the area.
 
Remember, your home is an investment in your future. We’re here to help you find qualified professionals to help you avoid these red flags and the best mortgage solution for your next home purchase in Texas!  

Verifying Your Down Payment, Closing Costs, Assets, Income and Debts

People in Meeting | Verifying Your Down Payment, Closing Costs, Assets, Income, and Debts

A critical step in the mortgage loan application process is to verify the sources for your down payment, closing costs, reserves and assets. The Government Sponsored Entities that buy or insure mortgage backed securities have guidelines in place that all lenders follow in order to have the loan purchased or insured from these entities. The lender’s underwriter must verify you have sufficient cash to be able to bring to the closing table on purchases or enough months of payment in reserve in your asset accounts for certain mortgage transactions.

Down Payment & Closing Costs
Documenting that the down payment comes from your own personal accounts and that you will have savings and/or other liquid assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.

Take extra care to document the sources for any monies to be used for the down payment or closing costs. Keep canceled checks and bank statements from new deposits over 10% of your monthly income that are non-payroll or cash deposits if you are planning on obtaining mortgage financing soon. New Anti-Money Laundering laws may require you show some extra paperwork when getting a home loan if you have not had the money in your account more than two months.

Acceptable Down Payment & Closing Costs Sources

  • Cash in a bank account
  • Mutual funds / stocks / IRA / 401(K)
  • Proceeds from the sale of another property
  • Gift from an immediate relative

Assets
Collect information about your personal assets that add to your net worth and help to prove your credit worthiness.

Common Assets Considered in a Mortgage Loan Application

  • Stocks, bonds, mutual funds, 401(K) and retirement accounts
  • Life insurance
  • Personal property estimate – cars, boats, antiques, jewelry, etc.
  • Other real estate or property

Income and Employment
The lender will want to confirm your current gross income and have evidence of stable employment. Documentation requirements vary depending upon a number of factors – including the source of income (hourly, salary, salary + bonuses, salary + commission, commission, self-employed, etc.).

Debts
Your lender will want to review a list of all your current debts. This along with your credit report will provide the lender with a snapshot of your obligations. The lender will want to confirm that you will not be overextended when the mortgage payment is added to your current debt load.

Bankruptcy & Home Mortgages

Woman Looking Away | Bankruptcy & Home Mortgages

A bankruptcy filing affects your credit score negatively, but it doesn’t mean you have to wait 10 years before you can qualify for a mortgage. Many consumers who have filed for bankruptcy have been able to obtain a mortgage as soon as one year after the bankruptcy on a home purchase and even during the bankruptcy on a Chapter 13 bankruptcy.

While credit card companies may care about what happened before you filed for bankruptcy, many mortgage lenders are more interested in your recovery — what you’ve done since your filing. It won’t happen overnight, but here are some tips and things to keep in mind when you inquire about a mortgage with a tarnished credit past:

Give explanations. No mortgage lender is going to ignore the fact that you’ve filed bankruptcy and he or she will likely want to know the cause of the filing. Your lender will be particularly interested in whether the same situation could happen again. Your chances of being qualified are much better if your bankruptcy was caused by a single event such as a loss of employment or a death in the family, than if it was the result of “just spending too much.”

If the bankruptcy resulted from a single event, it is important to show your lender paperwork describing the incident, such as the layoff notice or death certificate. You may also want to bring in court documents to indicate when the bankruptcy was filed and discharged and what debts where a part of the bankruptcy.

Demonstrate good money habits now. Many people who file bankruptcy swear off credit altogether, however, it is important to re-establish your credit rating. Get a secured credit card or take on some sort of loan — furniture, a car or a major appliance — to demonstrate that you are able to make timely payments. Make sure you are making other payments (utility bills, cell phone, etc.) on time as well. You won’t turn things around in a year but your credit score will improve over time.

Dispute any credit report errors. There’s no need to add to your troubled credit history with errors on your credit report. Get a copy of your credit report from each of the three major credit reporting agencies: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com. If you encounter any errors, inform the CRA in writing what information you believe to be inaccurate and request deletion or correction.

Save your money. Lenders may be more willing to loan you money if you’ve saved up a considerable amount of money for a down payment.

Live within your means. Be reasonable when the time comes to look for a home.

401k Down Payment

Ceramic Pig | Using Your 401k for a Down Payment

You’ve finally found the home of your dreams. You believe you can qualify for at least some kind of home loan. There’s just one thing standing between you and your new house: The down payment.

Many home buyers today opt to use funds from their employer’s 401(K) program to come up with the down payment on a house. Ordinarily, you can’t take money from your 401(K) plan unless you retire, leave the company or become disabled, but many company plans permit certain “hardship withdrawals” when there is an immediate and heavy financial need, including the purchase of the employee’s principal residence.

The drawback to a hardship withdrawal is that you will pay taxes and penalties on the amount withdrawn from your plan, which often must be paid in the year of withdrawal. And while hardship withdrawals are allowed by law, your employer is not required to provide them in your plan. Check with your employer’s human resources department if you’re not sure if your 401(K) plan allows hardship withdrawal.

Another approach may be to borrow against your 401(K) – often as much as 50 percent of your account balance. You pay interest on the loan, but the interest goes back into your account. The money you receive is not taxable as long it is paid back and plans can give you anywhere from five to 30 years to pay back your loan.

There are risks involved in borrowing from your 401(K). If you lose your job or leave your employer, you must pay back the loan in full within a short period, sometimes as little as 60 days. If the money is not paid back in that time, it is considered a withdrawal from your plan and subjected to the same taxes and penalties. And while 401(K) accounts can usually be rolled over into a new employer’s 401(K) without penalties, loans from a 401(K) cannot be rolled over.

In addition, because the funds withdrawn from your account are no longer earning compound interest, your account will be smaller when you retire. And you’ll be replacing pretax money with after-tax money.

Some lenders will count the money you borrowed from your 401(K) as an additional debt that will go along with your car payments, student loans and credit cards. While it may seem unfair since you are borrowing your own money, most lenders view it as a payment obligation that affects your debt-to-income ratio in qualifying for a home loan. It may be a factor in whether you decide to make a hardship withdrawal from your 401(K) and pay tax penalties or borrow against it.

Are You Pre-Qualified or Pre-Approved for a Loan?

Young People at Booth | Are you pre-qualified or pre-approved for a loan?

Before you begin to shop for a new home, you should set up a time to meet with one of our licensed Residential Mortgage Loan Originators so we can figure out how much you can afford. This will put you in a better position as a buyer. That’s when it is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan. The difference between the two terms will be crucial when you decide to make an offer on a house.

To get pre-qualified for a loan, I will collect information about your debt, income, and assets verbally. We’ll look at your credit profile and assess goals for a down payment and get an idea of different loan programs that would work for you. I will issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow.

It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend. Getting pre-approved for a loan gives you competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount.

Mortgage Broker vs. Retail Loan Officer

Meeting in Conference Room | Mortgage Broker vs. Retail Loan Officer

When you work on your application for a mortgage loan, you should know the difference between a retail loan officer and a licensed Residential Mortgage Loan Originator working for a mortgage broker. Since both give the same outcome (obtaining financing for your home), it’s common to confuse the two. Yet it will be helpful to understand how they differ so you know what to expect from them as you enter your mortgage application process.

Mortgage Brokers
During the mortgage loan process, an individual or firm who is an independent agent for the mortgage loan applicant, that’s you, as well as the lender is a mortgage broker. Your mortgage broker will stand as a facilitator between you and the lending institution; which may be a credit union, bank, trust company, finance company, mortgage corporation, or even an individual investor. Which lender offers the loan program that is best for you? What lender is giving the best rate today? What lender has the lowest closing costs today? A mortgage broker will help you find the right fit and can utilize many tools to help save you money when deciding where to place your mortgage. You give your loan application to your broker, who then works toward the goals you told them during your initial communications to find the best lender and product for your wants, needs and qualifications. Your mortgage broker then assists your work with the lender chosen until the loan closes. The borrower may pays a commission through settlement to the broker only when the loan closes or they may choose to have the lender pay the brokers fee through a lender premium credit. On average customers pay about .625% of the loan amount less in closing costs, for the same rate, when using a mortgage broker versus a retail loan officer!

What is a Retail Loan Officer?
The most important difference between a mortgage broker and a loan officer is that a loan officer works on behalf of a lending institution (a bank, credit union, or others) to process loans solely originated from that institution. They may have the ability to promote loans to fit many different situations, but all the loans will be products of the same lender. They are generally not licensed and required to pass state mandated testing, but exempted by their banking institutions training and bank status. Most Retail Loan Officers end up working for Mortgage Brokers when they gain enough experience. Many large banks higher their retail loan officers straight from college with finance degrees or from other industries with sales experience, but little to no mortgage origination experience.

A retail loan officer (also called an “account executive” or “loan representative”) speaks to the borrower but works for the lender. A loan officer will walk the borrower through the selection, and application of the loan and then hand the loan off to a processor and underwriter to approve the loan and then hopefully close the loan. Either a salary or commission is given to loan officers by their employers. The loan officer only sells their bank’s mortgage products and rates. The guidelines can be very restrictive depending on the lending institution’s policies.

Looking for a Mortgage? Call 972-724-3222.

Home Loan Definitions

Business People High-Fiving | Home Loan Definitions | Mortgage Broker Texas

Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.

Points (optional)
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.

Appraisal Fee
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.

Credit Report
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.

Interest Payment
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15. Your first monthly payment begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing an interest payment covering the accrual period between May 15 and May 31 may be required.

Escrow Account
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account. These are not technically Closing Costs and are considered pre-paid items as you will generally have to pay taxes and insurance on the home even if there is no loan.

Beware of Bi-Weekly Mortgage Reduction Services and Savings Programs

Woman Holding Hundred Dollar Bills | Beware of Bi-Weekly Mortgage Reduction Services and Savings Programs

If you search for “bi-weekly mortgage” with a search engine, you will be overwhelmed by the number of companies offering “Bi-weekly Mortgage Reduction Services” or “Bi-weekly Savings Programs.” Beware, you are entering dangerous waters.

These “Reduction Services” and “Savings Programs” are charging you fees to “make a bi-weekly mortgage payment” for you. The enticement is that they will save you an impressive amount of money on your mortgage and reduce the number of years you pay on your mortgage.

The real story is that they are not actually making bi-weekly payments on your mortgage. They are making bi-weekly deductions from your bank account. These funds are placed into an account from which your monthly mortgage payment is made (which only takes 24 deductions – but during the course of a year 26 deductions will be made from your account). With the extra 2 deductions, the “Service” makes an additional mortgage payment. In other words rather than making 12 mortgage payments, 13 payments are made.

The enticement is that they are providing a special service to you that would either not be possible for you to get on your own or that you won’t have the time or discipline to make it happen.

The real story is that you can easily make an additional mortgage payment each year. An easy way to do this is to have your mortgage payment automatically deducted from your account each month with an additional 1/12 payment to be applied to the principal amount. At the end of 12 months, you will have made an additional payment. And you won’t have to pay any fees to a “Service”.