3 Things That Affect Your Mortgage Payment

If you are looking for a house to purchase, the best thing you can do to help yourself is to get pre-underwritten. I’ve written another post speaking to pre-qualification, pre-approval, and pre-underwriting.

The reason pre-underwriting is important is the contract can be affected. The contract has two approval processes built into it.

The first is the approval of the borrower. This is where the pre-underwriting comes in. If you are pre-underwritten, it means that the people involved in the loan are fully approved. Their credit, income, employment, debts, etc. has been verified and the lender is confident that the loan is affordable.

What Is Your Home Worth Button

The second approval is for the property. This is where the inspections, appraisal, and general condition of the property is considered and approved. If something comes up during inspections, it doesn’t appraise, or even if a storm comes in and damages the house and it cannot be fixed, the contract could be affected or even terminated.

After you have finally closed on a house, there are many things that can affect the mortgage payment.

Appraisal Value Of A New Construction Home

Every city places a value on your property based on the market conditions in the area. When you purchase a new construction home, sometimes the first year taxable value of the property is based on the price of the land.

Many people get surprised the second year when their mortgage payment goes up several hundred dollars because the city has now attached the house to the appraisal. The year after that, it can happen again.

If you aren’t careful, you can become mortgage poor.

Appraisal Values Go Up

Mortgage Appraisal Values

There haven’t been many times when the value of your property goes down. In 2008, during the housing crisis, property values tanked. People walked away from their properties instead of dealing with the dramatic decrease in value.

Since then, property values have been on a continuous increase in value. The city increases the appraised value of the property. You have an opportunity to dispute the value after notification and then the new value generates additional tax income for the city. This can also contribute to making someone mortgage poor.

Population Increase

Mortgage Appraisal Values

The economy is based on scarcity. The more of something there is, the less expensive it becomes. At least most of the time. When there are not enough of something, the prices go up. This is true for housing also.

Currently, in the DFW Metroplex, many companies and people are relocating to the area. As a result, the inventory of available homes is low which has been raising the prices of homes.

That can be good news or bad news depending on where you are in the market. If you are someone who is selling their home, higher prices means more money in your pocket. If you are buying a home, it will cost more for the home you want to purchase.

Bonus Tip – Interest Rates

Mortgage Interest Rates
St. Louis FED Graphic

Most people are familiar with interest rates – at least a little. It is the cost of borrowing money to purchase something. With credit cards, the interest can be as high as 30% depending on your history. For houses, the interest rates are historically low at this time.

Interest is what it is but you have some control over the amount you pay. Keeping your credit healthy, living within your means, and saving some money for later are all ways you can help get the best interest rates when it comes to purchasing a home.

Remember, there is a difference between a need and a want.

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Why Get More Credit?

Credit, Bad – Debt-Free, Good

Credit Cards

If you’ve read any of my previous blog posts about credit, you know that I’m not a fan of people getting all kinds of different credit. I am a firm believer that being debt-free is an amazing way to live. You never have to worry about where your money needs to go, how much you need to make to pay all those various bills, or worry about what will happen if something happens like a job loss or a medical diagnosis.

You may also know that I am now a REALTOR®. I want to help people learn about that process so they can get into a home that they can afford without stressing about the increasing costs of ownership.

My Friend Paul

Paul Nolte

As a REALTOR®, a trusting and honest relationship is established. If you are a seller, I represent you in any negotiations once a Listing Agreement is signed. If you are a buyer, I represent you in any negotiations once a Buyer’s Representation Agreement is signed. Without an agreement, you are on your own when it comes to navigating the contract paperwork and any negotiations.

Paul Nolte is one of the partners and a preferred Mortgage Loan Originator from Home Team Mortgage at our Ebby Halliday, REALTORS® office in the Plano/Willow Bend area.

We’ve had several conversations about clients who need help getting a loan. One reason a contract will fall through is an issue with credit. That’s why it is so important to start working on your credit immediately, preferably six months before you want to purchase a home.

Paul has provided an article on how to improve your credit when preparing to purchase a home.

My Take

Debt-Free

Although I can appreciate having a variety of credit avenues open to show credit worthiness, sometimes, that is not a good thing for people.

If you have a habit of keeping a balance on your credit cards, then maybe a better way would be to keep one credit card and maintain control of your spending.

I was divorced in 2002 after an almost 15-year marriage. After six years, I managed to pay off my debts and only kept one credit card. Over time, I had several car loans for various lengths of time and maintained a zero balance on my credit card. With a credit score over 800, I had no problems qualifying for a loan for a house.

Everyone needs to decide their own path when it comes to finding a great home. If you choose wisely, your credit can help you achieve the goals you want. However, if you neglect what is happening with your credit, it may prevent you from getting that house.

Trip-Ups

Here’s a brief list of things that can trip you up when trying to purchase a home.

  1. Missed payments on loans.
  2. Late payments on credit cards
  3. Late utility payments
  4. Eviction
  5. Bankruptcy
  6. Foreclosure
  7. Too much debt-to-income ratio. If you owe more than about 36% of your income towards bills, you may not qualify for a loan.

There are also ways people can sabotage the loan process.

During the contract period, you start to purchase items for your home:

  1. Riding mower
  2. Refrigerator
  3. Washer and dryer
  4. Vacations

Once you are under a contract, do not make any changes that could affect your credit or your debt-to-income ratio. You’ll have time to purchase those items after you move into your new home.

Reach out to me so we can work together to make sure any credit issues are addressed before trying to purchase a home. Visit my business website for contact information.

Get the Pre-Underwritten Brochure!

 

Saving On Mortgage Interest

How Much Interest?

Last October, my wife and I were in a head-on collision with someone who was drinking and had no insurance. As a result, we ended up buying a car that needed to be financed. Still waiting on the lawyers to finish the case. We got some money for the car we had but not near enough to make up for the cost of the newer one.

Also, since moving to this area, we had been renting but in March, we closed on a new home.

Needless to say, we are no longer debt-free at the moment however, we can easily look back and know that if we had not been debt-free before all this came about, we probably would not be able to do what we have done. We were fortunate to be able to close on the house with a 4.125% interest rate.

What is interesting is that over the life of a 30 year mortgage, you can end up paying almost as much in interest as it cost to purchase your home in the first place. In other words, if you purchase a home for $200,000.00 with an interest rate of 4.125%, the interest over the life of the loan can be as much as $149,000.00.

Here are a few ways that you can start to not only save on some of that interest but also cut down the length of your loan by years.

Bi-Weekly Payments

Make half your mortgage payment every two weeks instead of once per month. This does a couple of things. First, since half your mortgage payment is made early, that is two weeks that you are not paying interest on that half of your mortgage payment. Second, there are 26 payments per year that way instead of 12 monthly payments. This means that over the course of a year, you are also making an extra months payment which will go towards principle, further reducing your interest.

Extra Principle Payments

With this idea, you simply make extra principle payments. What I mean is that when you have some extra cash available, you simply make a payment towards your principle. It does not matter how much this is. It could be as little as $7.00 or as much as an additional mortgage payment. For every dollar you put towards principle, it is another dollar that you will not have to pay interest on so the earlier you start, the better off you will be.

Bonus Payment

If you are at a job that pays a bonus, why not put it towards your mortgage? This is money that you typically would not plan on getting anyway so why not use it to help get out from under your mortgage.

Having been debt-free before, I know what it means to not have a mortgage payment. When you owe no one, the stress in your life goes way down. Wouldn’t that be nice?

Living Small

Huh?

Living Small?

Usually, people talk about living large. Unfortunately for most people, forcing ourselves to live large puts us in financial situations we regret later.

Being married to a United Methodist pastor and being on disability myself, keeps us from living beyond our means. When we were first married, we had some issues juggling three houses after moving to a new city. It took a while to get out from under two of those houses and we were concerned about getting into another home right away so we rented when we first made our latest move.

Living Beneath Your Means

When we made this latest move, we decided to live on my wife’s check and start to save my check. It has worked well for a while now. It sure helped that we were debt-free when we made the last move. Sure, there have been things that have interrupted that plan of savings. An auto accident, physical therapy and doctor visits, and the purchase of a new (for us) car have taken its toll right now but we still live below our income.

Results

As a result of living below our means, we have maintained a debt-free lifestyle. The exception right now is the car. We financed the car because we are working on a settlement from insurance for it.

We have recently made the decision to purchase a new home which will give us our first home together as a married couple. It is an exciting time and although we are financing the purchase, we are already talking about plans to pay it off early.

For instance, did you know that if you split your mortgage payment and pay it every two weeks instead of once per month, you can save a ton of money in the form of interest savings? Also, paying just a little extra on your mortgage can save a lot. For example, on a $300,000 mortgage, if you pay an extra $100 per month, you can cut the length of a 30 year loan by a few years. Now that’s some savings.

Savings Challenge

Here is an update on the savings plan.

We are up to $312.00 in savings. There was a $100 jump from last week because it is the new pay period. We decided to pay the larger amount on the weeks we get paid and the smaller amounts on the weeks where there is no paycheck. This will balance out the savings so that we are not scrimping every week or running into a situation where we are short on cash around Thanksgiving and Christmas when historically we need more liquidity in our funds. Let me know how you are doing with your savings plans.