John Colby

Posted by John Colby on 2/25/2018

Buying a home is one of the more complicated purchases that you’ll make in your lifetime. It’s not something that you can just open your wallet, pull out a wad of cash and buy. There’s a warm-up period for a house hunt. You need to prepare before you even start the process of the purchase. There’s a lot of different things that you should do to ready yourself to buy a home. You’ll need to organize your finances, find a real estate agent and ready yourself. If you’re looking to buy a home in the near future, it’s time to get busy! 

Keep Your Credit Score In Check

Your credit score is so important for so many reasons. The highest your credit score can be is 850 and the lowest it can be is 300. You’ll get a really good interest rate on a home if your credit score is 740 or above. A lower interest rate can save you a lot of money over a year’s time. 

The good news is that you can spend time repairing your score. This will include paying down debt, asking for credit limits to be raised and correcting errors that may be on your credit report. You want to be sure that you’re using 30% or less of your total available credit. As always, if your bills are paid on time, it will help you to keep that score up. Also, stay away from opening new credit cards, as this can bring your score down due to frequent credit checks. 

Put Gifts To Good Use

Whenever you get a financial gift, whether it be for a wedding, a Christmas bonus, or a birthday gift, make sure that you save it for your home purchase. You’ll need quite a bit of capital between closing costs, fees and down payments. You’ll be glad you saved the money once you start the home buying process. You’ll also want to make sure that you have and emergency fund built up. You don’t want to buy a home without some sort of a financial cushion behind you. 

Research Real Estate Agents 

Your real estate agent will be your right hand person when it is time to buying a home. You’ll want to know that your agent is knowledgable and can help you in this big decision. Your real estate agent is the person who will help you reach your goals, and you want to feel comfortable with them. Ask for recommendations and do your research.  

Get Preapproved

Sellers love buyers who have been preapproved. This shows that they’re reliable and financially able to buy a home. A preapproval can be done a few months in advance of buying a home. It will take an in-depth look at your finances including:

  • Proof of mortgage or rent payments over the last year
  • W2 forms for the past 2 years
  • Paycheck stubs for the past 2 months
  • List of all debts including loans and court settlements
  • List of all assets including car titles, investment accounts and any other real estate you may own.

Buying a home is a big deal but with the right preparation, you’ll be on the road to success and ready to secure a home purchase.

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Posted by John Colby on 8/27/2017

Stronger economic indicators can lead to more jobs, higher wages and house building expansion. A stronger economy can also lead to interest rate spikes. Inflation is another change to watch for as the economy strengthens.

Economic growth could cause your mortgage payments to balloon

Both rising interest rates and inflation can have an impact on your monthly mortgage payments. Inflation's impact on mortgages may be second hand, especially considering that inflation is generally caused by an increase in consumer spending.

Inflation is created when consumer demand outpaces supply. To offset the difference, retailers might increase the costs of goods. As the cost of goods rises, consumers may have less disposable income to turn to in order to pay their bills, including their mortgage.

Another element that can cause prices to rise is the cost of items like fuel and technology. For example, rising fuel costs can cause public transportation and shipping costs to go up. When this happens, prices on material goods may spike.

Dance between interest rates and residential mortgages

Interest rates have a more direct impact on mortgages. First time home buyers may have no choice but to pay higher monthly mortgages if interest rates go up. Because rising interest rates are generally viewed as favorable by lenders, rising interest rates could also spell larger opportunities for home shoppers to secure a mortgage.

Additionally, interest rates can significantly impact monthly mortgage levels for homeowners with an adjustable rate mortgage. It was this upward shift that had a negative impact on people who bought an owned houses just prior to the kickoff of the Great Recession. Anyone who has experienced an increase in her credit card interest rates knows how much rising interest rates can impact a monthly expense.

This is one of the downsides of rising interest rates for homeowners. Not only might homeowners see their monthly mortgage rise after interest rates go up, homeowners also might see their credit card bills go up.

Fortunately, there are steps that homeowners could take to offset both inflation and rising interest rates. Signing a low to moderate fixed mortgage is a good first start, if interest rates on the fixed mortgage are at competitive levels. That way, should interest rates rise, homeowners won't have to worry that their monthly mortgages will loom larger. They can also manage a more stable budget and better know where they stand financially should an unexpected event like a medical issue or a house repair arise.

Building cash reserves is another way that homeowners can offset inflation and rising interest rates. To take the jolt out of building cash reserves, homeowners can start small. For example, homeowners could start by depositing a quarter of their income tax returns into a separate, interest bearing account.

They could also use bonus checks and a portion of their commissions (for homeowners who work in sales) as cash reserves. The point is to keep building the savings. Eventually, the cash reserves might be used to purchase a new house or to make upgrades at a current home.

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Posted by John Colby on 12/18/2016

Being self-employed comes with a lot of perks. Self-employed workers often have the freedom to set their own schedule, work from home, and take breaks whenever they feel like it. They also have the ability to write things off as business expenses on their taxes. When it comes to buying a home, this last perk can become a huge problem. If you own your own business or work as a freelancer, odds are you'll be deducting things from your taxes that the average employee doesn't: travel expenses, advertising, licensing, equipment, repairs, or even rent for your office. When tax season rolls around, all of these deductions feel like a godsend. But if you plan on buying a home, all of these costs will appear as negative income. For people who spend a lot of money on their business or freelancing, it could do a lot of damage to your apparent income when lenders take a look at your finances. However, you do have options when it comes to getting approved for a mortgage that is to your liking. In this article, we'll cover some tips on how to apply for a mortgage when you're self employed to give yourself the best chance of approval.

Carefully document your income

When you sit down with a lender and hand them your proof if income, you want to make it as obvious as possible that you're earning money in a reliable and predictable way. Lenders will want to see multiple documents that can help paint a better picture of your income and finances, including:
  • Bank statements
  • Schedule C tax forms
  • Profit and loss tax forms
  • Completed tax returns
  • Credit score (they will run a credit check)

Separate your business and personal finances

If you own your own business, you likely have business banking accounts you use for expenses and invoices. But freelancers and contract workers often simplify things by just using their personal checking and savings accounts for income. To make things clear for lenders, you should put your income and business expenses into a separate business account. Not only will this make it easier for lenders to quantify your income, but they can also use this information to see that your expenses are for helping your business rather than personal spending.

Timing is everything

There are a number of factors that go into choosing the right time to apply for a mortgage. Being self-employed only complicates the matter since your income might not be as steady as your average wage worker. You'll want to commit to a mortgage at a time when you've had at least two consecutive years of good, reliable income. You'll need to prove this with the aforementioned documents (bank statements, tax forms, etc.). Part of this planning could be to avoid large business expenses in the two years leading up to your mortgage application. This isn't always possible, of course, but it could be enough to boost your apparent income to get you approved for a better loan.

Seek specialized lenders

Some lenders are aware that there is a large portion of the country made up of self-employed workers and small business owners. They go out of their way to work with people who are self-employed so they can give them fair deals on their mortgages. To find specialized lenders, you'll have to do some research online, but it could make all the difference when it comes to getting approved for the loan you're looking for.

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