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Mortgage News Matters

6 Common Mortgage Loan Myths

Applying for a Mortgage can often feel overwhelming, especially for first-time homebuyers who are completely new to the process. Confusing and conflicting information can leave many borrowers reluctant to even start the process at all.

In efforts to provide more clarity, we’ve debunked 6 common mortgage loan myths below!

  1. 20% down payment required. It is a common belief of many potential homebuyers, that no matter the type of loan you are applying for, you will be required to put up a 20% down payment. This information is harmful because it is not true and can deter a lot of people from even considering applying for a mortgage, who are sure they don’t have the appropriate amount of funds.

    Borrowers who are unable to come up with a 20% down payment can still be eligible for a loan when they get Private Mortgage Insurance or PMI. An added expense on your monthly payments, PMI provides protection to the lender in the case that the borrower defaults on his or her loan.  

    This type of insurance is a common requirement for some Conventional or FHA loans with down payments as low as 3-5%. Keep in mind that once you own 20% equity in your home, you can cancel your private mortgage insurance and continue to make your mortgage payments without the extra expense.
  2. Pre-qualification is the same thing as pre-approval. This common misconception is important to clear up, as both pre-qualification and pre-approval are extremely helpful to the home-buying process and both play an important role.

    Pre-qualification is an estimation of the amount of money you can borrow, based on your current finances and credit score. It provides insight as to which loan option is best for you.

    Pre-approval is a more in-depth examination of your finances, including a credit check, that results in a written commitment from your lender of the maximum amount of money they can lend you.

    For more on the benefits of getting pre-approved along with our pre-approval document checklist, visit our pre-qualification vs. pre-approval page here.
  3. Your down payment covers the closing costs. The down payment is usually one of the first expenses that a potential homebuyer will begin saving for. This makes sense because it is usually one of the largest upfront expenses you will have. However, when saving for your down payment, it is important to keep in mind that it does not cover your closing costs.

    Closing costs are a separate expense that covers your processing fees, like the appraisal and title insurance, and usually range between 3% – 6% of the total balance of your loan.

    For more information on Costs to Consider, refer to our article here.
  4. You must have perfect credit. Many people are under the impression that your credit must be perfect before even considering purchasing a new home. Though lenders are looking for borrowers with good credit scores, there are many options for those who have less than perfect credit.

    One option for borrowers who find themselves in this category is to consider applying for an FHA loan. Insured by the government, this type of loan is perfect for those who may not meet the qualification factors required for a traditional conventional loan program.

    It is also important to keep in mind that there are many steps you can take to work towards building good credit. For more on this, reference our guide on Credit Clean Up Tips.
  5. Applying for a mortgage will hurt your credit. While it is true that applying for any new type of loan or line of credit will harm your credit, it will only do so temporarily. This is the same in the case of applying for a mortgage. However, it is likely that you won’t see this temporary hit to your credit until after you’ve already been pre-approved.

    If you are trying to avoid any harm to your credit during this time, it is a good idea to refrain from opening any unnecessary lines of credit.
  6. You can’t be in debt and buy a home. If this myth were true, most homeowners would not be in their homes today. Debt, in many forms, is common amongst many Americans, whether they are in the process of paying off a student loan or currently making payments on a car. And neither of these things should stop you from owning a home.

    The important number to consider here is your debt-to-income ratio. This number shows the percentage of your monthly income that goes towards debt payments and reoccurring expenses. The higher your debt-to-income ratio, the riskier you are as a borrower. Therefore, you want a low debt-to-income ratio when applying for a mortgage loan.

    If you find yourself in a higher debt-to-income ratio category, consider paying down your debt or finding a way to generate more income. Both of these solutions will help you get started on a path towards a lower debt-to-income ratio and open more opportunities for you to buy a home.
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Mortgage News Matters

8 Reasons that Could Delay Closing on a New Home

At VanDyk Mortgage, we are determined to provide you with a seamless and efficient experience, from the moment you apply for your loan until you close on your new home.

Though we work tirelessly to make sure you close on time, want wanted to share some common reasons that could cause a delay.

  1. Pest Inspection. Ideally, these issues are resolved before escrow closes, but sometimes there are issues and further action may need to be taken by either the buyer or the seller.
  2. Low Appraisal. In the case of a lower-than-expected appraisal, the seller may have to lower the selling price, or the buyer will have to pay the difference in cash. In this case, we always think it is a good idea to get a second opinion before moving forward.
  3. Claims to the Title. Title insurance protects both the buyer and lender against claims on the property. If there is in fact a lien or a claim, this will have to be resolved before the transaction can move forward. By simply performing a title search, you can ensure that no party – including the IRS, state, or relative of the seller – has any legal claim to the property.
  4. Home Inspection Defects. Most individuals sign a home inspection contingency, which allows the purchaser to back out of a deal without penalty in the case that there is a major defect in the home inspection. If a contingency is not put in place, the purchaser could lose the entirety of their earnest money down. If the sale proceeds, there may be a delay due to the time it took to go through negotiations.
  5. Buyer or Seller Doubt. Having cold feet is very real, and something that can certainly delay the closing of a new home. Unless there is a legitimate reason to back out of the purchase, i.e., not waiving a contingency or a deadline not being met, the buyer will be at risk of losing their earnest money, should they decide not to go through with the sale.

    This money is used to compensate the seller for the time that the property was taken off the market, missing out on other possible offers. Likewise, in the case of a seller having cold feet, the buyer is eligible for damages from the seller.
  6. Financing Falls Through. It is best practice to get pre-approved, at the very beginning of your homebuying journey, in order to secure the best mortgage loan program for you. However, there are cases, such as a drastic increase in interest rates, a change or loss in employment, or a decrease in credit score, when financing falls through. If this happens, the homebuying process can be delayed or even stopped altogether.
  7. High-Risk Location. In some locations, homes may require Hazard Insurance. To determine if you will need this type of insurance for your new home, you can request a National Hazard Disclosure Report, and see if any national hazards in the area could affect you.

    Hazard Insurance is often greater than homeowner’s insurance and can cause a delay in the closing process. To avoid this, you can ask your agent or city planner about national hazards in your area.
  8. Survey Issue. Before closing on your home, a qualified land surveyor will draw up the boundary lines for your property. In the case of an infringement, either by a neighboring tree or fence, you may have to hire an attorney to facilitate a lot-line agreement.
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Mortgage News Matters

How to Apply for a Mortgage: The Loan Process

Navigating the steps of the loan process can feel complex – especially if it’s your first time doing so.

To help you out, we’ve put together a helpful list that breaks down the process, step-by-step, so you can focus your efforts on preparing to move into your new home, rather than worrying about how you’re going to get there.

  1. Pre-Approval. The first stage in the mortgage loan process is to apply for a pre-approval. Getting pre-approved is a more in-depth process than getting pre-qualified and will require more paperwork from you. The upside? It shows the seller that you are serious. This information will tell the seller that you can secure a mortgage and you are ready to find your new home. Once you receive your pre-approval letter, it will be valid for 90 days. For more information on pre-approval, refer to our Pre-Approval Document Checklist.
  2. Submit an application. After you’ve received pre-approval, you’re ready to submit your application! At VanDyk Mortgage, there are 3 ways you can apply; either online, over the phone, or in person. Some documentation, such as a government-issued photo ID, home address, and income, are required at this stage. For a full list of required documentation, please refer to our Application Checklist in our helpful Loan Survival Guide.
  3. Loan Submission. Once your offer is accepted, your loan package will be sent to you for the required signatures. At this time, all documentation is sent to underwriting for approval.
  4. Conditional Approval. At this stage, underwriting has reviewed, and your loan is conditionally approved contingent on the receipt of additional documentation.
  5. Final Approval. A loan processor will review the materials for completeness and send them back to underwriting for final approval. At this stage, your loan officer will begin to prepare you for the closing process.
  6. Closing. A title company or closing attorney prepares documents that are reviewed and signed by you. And… voila! You’ve just become a homeowner! Congratulations and welcome to your new home! See, it wasn’t that hard!

To get you started on your Mortgage Loan Process, reach out to one of our experienced Loan Originators today!

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Mortgage News Matters

How to Start Saving for a Downpayment

So, you’ve decided to purchase a home? Congratulations! As one of the largest financial purchases you may make in your lifetime, it is important to be aware of and start saving for your new home as soon as possible – starting with your downpayment.

The best way to begin is to create a plan of action that reasonably fits within your current lifestyle. Every homebuyer’s situation is unique to them. That is why we’ve included a range of techniques for saving towards your big purchase.

  1. Create a goal. The first step in any money-saving plan is to create a goal. To determine this, it is helpful to first decide which mortgage loan program is right for you. See our full list of Mortgage Loan Programs and the down-payment amount required for each. Once you know this information, you can start to work towards your goal.
  2. Implement money-saving techniques. Saving towards any large monetary goal doesn’t happen overnight. To help you start working towards your savings, we’ve listed a few techniques that can help get you on your way:
    • Set up an automatic transfer to a savings account. This can be done through most banks, making saving virtually effortless.
    • Save tax refunds. Tax refunds are another helpful bonus you can add to your down payment fund.
    • Save unexpected income such as bonuses or raises. Though it may be tempting to spend this unexpected income right away, think of it as a bonus you can add to your ever-growing house fund.
    • Apply for a credit card with cash rewards. If you’re going to apply for a credit card, it can be helpful to make sure you go for one that gives you cash rewards. This way, you can save this cash towards your home.
    • Don’t take on any new unnecessary expenses, such as a new car payment or car lease. Try to eliminate expenses that you can.
  3. Take advantage of first-time homebuyer programs. These are state-specific so make sure you know what is available to you based on your geographic location. For a comprehensive list of first-time homebuyer programs in each state, check out this article by Nerdwallet.com.
  4. Put your money in a high-yield savings or money market account. These accounts can accumulate interest while remaining liquid enough to be accessed at any time.

    You can also open a CD, or certificate of deposit. This allows you to accumulate more savings than a high-yield or money market account.

    Keep in mind, the money you put into a CD is inaccessible to you for a period of time and has a penalty to open. This is a good way to save money that you do not see yourself needing in the near future.