Debt?

How to figure debt-to-income ratio

There are two types of debt-to-income ratios that lenders look at when you apply for a mortgage:

• The front-end ratio, also called the housing ratio, shows what percentage of your income would go toward your housing expenses, including your monthly mortgage payment, real estate taxes, homeowner's insurance and association dues.
• The back-end ratio shows what portion of your income is needed to cover all of your monthly debt obligations. This includes credit card bills, car loans, child support, student loans and any other debt that shows on your credit report that requires monthly payments, plus your mortgage payments and other housing expenses.

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What is Debt Forgiveness?

To make a long story short, debt forgiveness is when some or all of a debtor’s outstanding debt is written off.  This might happen because a lender wants to minimize the loss after a default.  When this unpaid debt is cancelled, this is considered borrower income and is taxable, unless there are any exemptions such as the Mortgage Debt Relief Act of 2007. 

What Do I Need To Know About the Mortgage Debt Relief Act?

First of all, you need to know that your tax credit can be claimed with the IRS Form 982.  You also need to know that you can only qualify if you have restructured your mortgage or gone through a foreclosure.  Talk to your lender about specific tax exemption rules and qualifications.  To qualify for the Mortgage Debt Relief Act, you must have had debt cancelled between the years of 2007 and 2013.

If you do have any cancelled debt that took place in between 2007 and 2013, talk to your lender and/or tax professional for sound advice regarding how to make the best financial decision.  If you think you're at risk for default or foreclosure in 2014, also have a conversation with your lender to see what he or she can do for you to stop that possibility.

Renting or Buying in 2016

Traditionally, part of the American dream was home ownership, and many adults worked towards that goal. Following the recent housing bubble, many people began to question whether buying a home was actually smarter than renting, with some advocating that home ownership came with lots of risks and few real rewards. That couldn’t be further from the truth, though! There are many advantages to buying your own home, and we’ve gathered up several of them below!

1.       Tax breaks. It’s been said that the only guarantees in life are death and taxes – so why not get a break on how much you owe each year?! One of the major benefits of home ownership is the tax deductions you will be eligible to take. There are tax advantage and tax breaks whether you are a home owner with juts a primary residence where you live, or whether you also own investment properties that you rent out. Home owners are eligible for tax deductions on the mortgage interest they pay, which can really add up! These tax deductions reduce your total taxable income, as long as you itemize your deductions. Lower taxable income results in a lower tax owed to the government and more money back in your pocket come April.
2.       Homes are valuable assets. When you own your own home, every month you’re be making a payment directly towards a tangible, valuable asset: real estate. When you rent, you hand your money over to someone else, who in 15, 20 or 30 years will then own land and a building that has no mortgage on it. They could choose to live there, “rent free” (save for taxes and other normal living expenses), or they could continue to earn income on it, perhaps allowing for an earlier retirement. Although real estate values can certainly ebb and flow in the short-term, in the long-term real estate is nearly always a solid move. There’s also something nice about the idea of owning a home where you know you’ll stay, where your kids will grow and where your grandkids will come and visit. That home will be a built-in part of your families’ memories. 

3.      Home ownership gives you freedom. With most rentals, you’ll be subject to a lease and all the rules, terms and conditions of that lease. You likely won’t be able to paint your home any colors you wish, replace carpet with hardwood, or get new kitchen appliances. You may not be able to own pets, or you might be limited in the type and number of pets you can own. You may even be restricted on throwing larger birthday parties for your children, having a pool to play and splash in in summer, or in planting your favorite flowers out front. But with home ownership, the freedom to make a house your home is 100% yours!

Mortgage After a Bankruptcy?

 According to the Federal Housing Administration, "A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower's payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction." So, as long as you filed for bankruptcy more than 1 year ago, and within that time you have made all required payments under your bankruptcy settlement, you will likely be eligible for an FHA mortgage.

Additionally, the federal government has a program which may be available for homeowners who are in the middle of a bankruptcy: the Home Affordable Modification Program (or, HAMP). HAMP-modifications to mortgage loans can take place during an active Chapter 13 bankruptcy case, and require that you and your bankruptcy attorney submit a HAMP-modification require to the mortgage lender or servicer.

Traditionally, conventional mortgage lenders will often require a period of 2 years to have passed since the discharge of a bankruptcy, or 4 years since the dismissal of a bankruptcy. However, once that period of time has elapsed, you will likely be able to obtain a mortgage without many roadblocks, assuming that your credit score and any down payment are sufficient – just the same as any prospective borrower.

Although a bankruptcy, whatever the reason, will likely put you on a slower path to home ownership, there is no reason why you cannot recover from a bankruptcy and move forward with your plans to own a home. Today, lenders understand that people can get in over their heads financially, many times for reasons outside of their control. Given a bit of time, and proof that you are on the road to financial recovery, you’ll find that there are many lenders willing to give prospective borrowers with a bankruptcy on their record a mortgage at competitive interest rates

6 Easy Ways to Mess Up a Home Purchase

If you’ve never purchased a home before, you might not know how easy it is to mess up a home purchase.  There are many factors that first time home buyers especially fail to remember when looking for a home for various financial and emotional reasons.  Here are the seven ways you can easily mess up your first home purchase:

Be Emotional.

One of the biggest mistakes first time home buyers make is to get emotional about the house they are purchasing.  The reason why this can be bad is it often leads to home purchases that are out of the buyer’s price range.  Figure out what features you love about that house, and look for those features in another house that’s in your price range.

Buy a Home that Needs Improvements.

Right now, it’s a buyer’s market, meaning there are a plethora of homes that are available.  Don’t get stuck with a home that needs major improvements, because you will be able to find another home that is perfectly suitable.  Repairs will cost you a lot of money, which will lead to you having a decreased savings.

Forego the Home Inspection.

You already saw the home and you think it looks great, so you decide to forego the home inspection so you can move in sooner.  Good decision, right?  Wrong.  You need to have a professional assess the state of the home and tell you whether or not any repairs will be needed now or in the immediate future.

Forget about Maintenance Costs.

Remember to factor in maintenance costs when you are planning your home budget.  You should plan to spend a few thousand dollars every year you own your home on routine maintenance.

Forget about Property Taxes.

Many first time home buyers forget to factor in property taxes, which can be extremely high in certain areas that have a higher cost of living.  Ask your lender what property taxes you’ll owe on your home before you sign any contract.  If you don’t, you could find your savings dwindling quickly.

Spending Too Much Money.

This is a no-brainer.  Don’t spend too much money on your first home.  You need to remember that you’ll most likely be making these payments for 30 years, and you’ll still need to save for other expenses such as college, medical bills, and retirement.  Buy a home within your price range, and you’ll be much happier in the long run.

Top 5 Tips for First-Time Homebuyers

Buying your first home should be an exciting time – but it can also be a stressful time, especially if you are not prepared to purchase a home when you find one that you love and want to put an offer in on. In order to try to make the home buying process as smooth and stress-free as possible, we’ve compiled a list of Top 5 Tips for First-Time Homebuyers:

1.  Determine what you can comfortably afford.

Mortgage lenders will determine how much they are willing to lend to you, based on your income, your assets and liabilities and your credit score. However, they may not take into account monthly expenses you have that don’t report to your credit bureau, such as daycare or private school tuition, and they don’t take into account savings goals you may have each month. Therefore, it’s important for you to figure out how much you are comfortable paying each month, taking into account all of your expenses and any planned savings or retirement goals.

2.  Determine how much you have to use as a down payment, and where that money will come from.

How much will you put down, and where will your down payment be coming from? If a parent or other family member will be gifting you some or all of your down payment, they may be required to sign a form stating that the money they are giving is a gift, and not a loan, so you’ll want to know ahead of time so you can inform your lender and find out what their requirements are for gifted money.

3.  Is your credit ready for a home purchase? Can you work on your credit?

Borrowers with higher credit scores, generally 720 and above, will have the easiest time working with lenders. If your credit score could use a little work, talk to your lender. They may have suggestions on how to clean up your credit, or ways to boost your credit score before you apply for a mortgage loan.

4.  Determine your wants vs. needs in a home.

This one is a fun one. Going into the home buying process with some parameters will make it easier for you, and your real estate agent, to find you your perfect home. Are you only interested in certain neighborhoods? Do you need 2, 3 or more bedrooms? What about lot size, square footage? Determining a few “needs” as well as a few “wants” will narrow the scope of homes you look at to only those that will truly interest you and be the right fit for you and your family.

5.  Look, look, look – and get pre-approved so you are ready to move!

The more homes you see, the more you’ll be able to narrow down exactly what works, and doesn’t work, for you and your family. Don’t be afraid to go to open houses, or to ask to see homes that are for sale. Getting pre-approved for a home loan by a lender is also another quasi-requirement of home buying these days. Many sellers will not accept offers on their homes where the prospective buyer hasn’t already been pre-approved for the mortgage, so it’s in your best interest to know you’ll be approved for a home loan before looking for the home of your dreams

THE FED’S NEW RATE INCREASE – WHAT DOES IT MEAN FOR HOMEBUYERS?

 

This month the federal government, via the Federal Reserve, increased its benchmark interest rate for the first time in nearly a decade. After years of historically low mortgage loan interest rates, what does this rate increase mean for future homebuyers? The good news is that this increase may not mean that you’ll see mortgage loan interest rates go up immediately – and certainly not at rates that correspond directly with the federal increase.

This interest rate hike was widely expected – both in terms of its timing and its amount. As with any market change, there will be some initial volatility as people react to the change and start to prepare for the future. However, because mortgage interest rates have been so low for so long, many people are likely to want to purchase quickly, in order to seal in the lower rates before they have a chance to rise.

John Wake from Real Estate Decoded explains that “the real estate economy is more sensitive to interest rates than most of the economy.” Because of this sensitivity, he explains, the expectations of higher interest rates can have a bigger impact on the real estate market than on other financial sectors.

Many financial experts see more of a tie between mortgage rates and the 10-year Treasury yield, rather than between mortgage rates and the Federal Reserve benchmark rate. Still, it is likely that some prospective homebuyers who were previously on the fence about purchasing may feel the push to go forward and close on a new home.

For the market, this could result in higher average home prices next year compared to last and demand increases, at least in the short term. For most people, their home will be the largest financial purchase they make, and so understandably, people want to shop around for the absolute lower interest rates and best terms that they can find.

No matter what happens to the average mortgage interest rate over the next year, you can take steps today to get yourself ready to qualify for the best mortgage rates available on the market. If you are not sure what your credit score is or what your credit report reflects, take advantage of your yearly right to request one free copy of your credit report. Review it to make sure that there are no errors on your report which could impact your ability to qualify for a mortgage. You can also work on building a down payment, unless you plan to utilize a low or no down payment options, like those available through FHA and VA loan options.

prices next year compared to last and demand increases, at least in the short term. For most people, their home will be the largest financial purchase they make, and so understandably, people want to shop around for the absolute lower interest rates and best terms that they can find.

No matter what happens to the average mortgage interest rate over the next year, you can take steps today to get yourself ready to qualify for the best mortgage rates available on the market. If you are not sure what your credit score is or what your credit report reflects, take advantage of your yearly right to request one free copy of your credit report. Review it to make sure that there are no errors on your report which could impact your ability to qualify for a mortgage. You can also work on building a down payment, unless you plan to utilize a low or no down payment options, like those available through FHA and VA loan options.

Finding the Wright Way to Buy a Home

As the events of the last few years in the real estate industry show, people forget about the tremendous financial responsibility of purchasing a home at their peril. Here are a few tips for dealing with the dollar signs so that you can take down that “for sale” sign on your new home.
Get pre-approved. Sub-primes may be history, but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. You can also put yourself in a better position to make a serious offer when you do find the right house. Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.
Choose Wright Mortgage. Used to be the emphasis when it came to mortgages was on paying them off as soon as possible. Today, the debt the average person will accumulate due to credit cards, student loans, etc. means it’s better to opt for the 30-year mortgage instead of the 15-year. This way, you have a lower monthly payment, with the option of paying an additional principal when money is good. Wright Mortgage is a locally owned and operated mortgage company. We know that each customer has specific needs, so we strive to meet those needs with a wide array of services. Wright Mortgage is fair, transparent, reputable, and a responsible mortgage broker who helps you with the mortgage process.
Do your homework before bidding. Before you make an offer on a home, do some research on the sales trends of similar homes in the neighborhood with sites like Zillow. Consider especially sales of similar homes in the last three months. For instance, if homes have recently sold for 5 percent less than the asking price, your opening bid should probably be about 8 to 10 percent lower than what the seller is asking.