5 Mortgage Tips For Today

Our Santa Barbara Branch Manager Kelly Marsh was published in the Santa Barbara News-Press on January 1, 2017. She highlights the 5 mortgage tips of today!

As duplicated from above.


1) Have the best credit score – and how to get it. A good credit score can make a big difference in the mortgage process. As a matter of fact the most influential determinant of your mortgage rate is your credit score. It can help a borrower get a lower interest rate, which can save thousands of dollars over the life of the loan. The higher your credit score, the lower the interest rate on the mortgage. If you’re aiming for the highest credit score then pay close attention to how much debt you carry. This is called credit utilization – the amount you have borrowed compared to your credit limit – and this is a key factor in credit scores. It is always best to stay at or below 30 percent of your credit card limits to avoid a negative impact on your credit scores. The higher your credit card balances compared to the credit limit the more impact your credit score will have. If possible it is best to avoid applying for any new credit as this can also have an impact on your credit scores. You don’t need perfect credit to get approved for a mortgage. You can obtain a free credit report by going to www.annualcreditreport.com.


2) How much money do I need to buy a home? A common home buying misconception that exists is that you must have a 20 percent down payment to purchase a home. This is not always the case. When a buyer asks about the amount of money needed to purchase a home, the best answer is that it depends on various factors of the client’s particular scenario to determine which loan options they will have available. On October 17, 2016 according to Ellie Mae, whose mortgage software handles more than 3.7 million applications annually, the average down payment is shrinking as more first-time home buyers enter the market and as mortgage guidelines ease nationwide. It is even quite common to have less than 20 percent down in Santa Barbara! The benefit of having 20 percent down is that you will avoid mortgage insurance, called PMI (Private Mortgage Insurance). There are other ways to avoid paying PMI with less than 20 percent down but there will still be an added cost either in the rate or monthly for less than 20 percent down. There are several loan programs that allow less than 20 percent down and some will even allow zero-5 percent down depending on the loan amount and loan program. A VA loan is for qualified veterans, active-duty military folks and some reservists and allows for zero down up to the county loan limit, which in Santa Barbara is $625,500. USDA offers financing for some areas in Santa Barbara County, which also is a zero-down program. FannieMae and FreddieMac will allow 5 percent down up to the county loan limit of $625,500, so there are a lot of options out there that allow for less than 20 percent down payments.


3) Seek mortgage pre-approval before you start looking for a home. I always advise my prospective clients to begin the pre-approval process before they begin their home search to find their dream home. The pre-approval process allows clients to know the exact price range of homes they qualify for so they can then confidently begin shopping for a home with realistic expectations. Knowing your price point will save you time so you don’t consider homes that exceed your desired monthly housing expense. It can also give us time to improve credit scores and make changes to other items that can have an impact on a client’s purchasing power. I can help you with the pre-approval process, even if you don’t have all your down payment money. This is part of the planning process. Some clients will walk away from our first meeting ready to make offers and other clients will have homework or a plan of action to get them to a place of pre-approval. Making offers on homes before you’re pre-approved can create a more stressful transaction. There never should be a cost or obligation to a lender to get pre-approved.


4)  Property Taxes & Supplemental Taxes. An important part of homeownership is to understand your property taxes, especially your first year when you will most likely get a supplemental tax bill. In California, a property tax bill is calculated based on the value of the property at the time of purchase, which is typically your purchase price. When you close on your home your lender will calculate the property taxes based on the estimate of the future tax bill after you are re-assessed. Property tax bills are due in two installments. The bill is sent in October and installment one is due by Dec. 10. Installment two is due by April 10. Depending on when you close on your home and the workload of the county, the assessor may or may not complete a re-assessment in time to recalculate the property taxes based on your new purchase price. If the re-assessment is not completed by your county tax assessor by the time the tax bills are generated and distributed, your property tax bill will be based on the previous owner’s assessed value. Some borrowers include the property taxes with their monthly mortgage payment. Their lender will pay their property tax bill even if it is based on the previous owner’s assessed value. Lenders, however, will not automatically pay the supplemental tax bill but you can call and request that they pay this, and some lenders will but not all. If you get a Supplemental Tax Bill later in the year, this will be for the difference between your assessed value and the previous owners assessed value.  This typically only happens one time during the first year of ownership. The following year the property tax bill will reflect the accurate assessed value. We always recommend our clients call us with any questions they have regarding property tax bills.


5) How long does it take to get a mortgage?  The amount of time it takes for a mortgage to get approved and financed will vary from lender to lender. It is extremely important to know the timeline before making offers on homes. A low interest rate environment may increase the loan volume, increasing the timelines for lenders to get things completed. Getting pre-approved ahead of time can cut down your timeline. A top mortgage lender should be able to get a mortgage financed within 30-45 days from application for purchase transactions.  Typically refinance transactions will take longer as they are not under the same timelines as a purchase transaction and purchase loans are usually priorities for lenders. It is important to understand that there are many reasons a mortgage loan can be delayed. With current regulations and compliance the paperwork required can be quite a lot to some clients so providing everything your lender requests in a timely manner is important to get the process going through smoothly and on time.