A good credit score is important for more reasons than just obtaining new credit. These days, it can factor into everything from landing a new job to getting the best deal on your insurance policies. It's more important than ever to avoid late payments on your mortgage!

A 100 point drop for one late mortgage payment?

It’s true. A single 30-day-late mortgage payment can cause your score to drop by as much as a hundred points. Credit scoring algorithms vary based on many factors, and in some instances, the damage may be even greater and last for years.

The Costs Accumulate

At the time, a single missed payment will cost you only a late fee, but the expense really adds up on your next loan or missed opportunity. Low credit scores typically mean a higher rate and cost. Higher rates can mean hundreds or thousands of dollars of extra expense over the life of a loan.

Missed payments are usually unplanned.

Usually, events beyond our control lead to late payments, such as an accident, illness, job loss or family issue. At other times, carelessness or a hectic life may result in a forgotten payment.

What can you do?

• Plan for the unexpected. Maintain an emergency cash reserve account equal to at least 3 months of living expenses or more.
• Automate. If you're prone to forgetting or don't have a scheduled time to sit down and pay bills, set up auto payments through your checking account or put a perpetual reminder on your calendar.

Little other than time will decrease the negative impact of a late payment, so prevention is the one sure remedy. If you don't already have a good system in place to assure timely payments and are not sure what's best, reach out anytime. We'll be happy to help!

Helpful Credit Resources

• How to Manage Your Credit Score
• How Much Can You Save by Improving Your Credit Score
• An Easy-To-Understand Guide To Your Credit Score and the Factors that Influence It
• Did You Know You Have Multiple Credit Scores?

 

 

If you're on the journey to homeownership, you've likely encountered the terms "principal" and "interest" in relation to your mortgage. These terms represent the fundamental aspects of what you're borrowing and the associated costs. However, there's more to your mortgage payment than just these two elements. Collectively, these expenses are referred to as "PITI."

What does PITI Stand For?

PITI is short for principle, interest, taxes, and insurance. This is what makes up your monthly mortgage payment.

Deconstructing the Four Components of a Typical Mortgage Payment

While most mortgages include these four core components, it's worth noting that certain loan types, like interest-only loans, may exclude the principal component. Additionally, some mortgages require private mortgage insurance (PMI) or mortgage insurance (MI), and properties such as condominiums and cooperatives may come with common/maintenance charges or homeowner's association (HOA) fees.

• Principal: The amount that pays back and reduces the loan balance. For instance, if you purchase a $500,000 house with a $100,000 down payment, your principal amount would be $400,000, calculated as $500,000 minus $100,000.

• Interest: The ongoing cost of borrowing the money.

• Taxes: Real estate or property taxes, held in an escrow account.

• Insurance: Homeowners or hazard insurance, held in an escrow account. Can also include mortgage and/or flood insurance. If your down payment is less than 20% on a conventional mortgage, you'll likely need to pay for private mortgage insurance (PMI). However, once you've accumulated 20% home equity, you can eliminate PMI, reducing your overall PITI payment. If you put down 20% or more, you can bypass PMI altogether.

Beyond your payment, it is wise to budget for some maintenance expenses. The cost of upkeep for your home will vary with the age, type, size, structure, and materials used.

Why is PITI Important to Lenders?

Mortgage lenders, such as Greenway Mortgage, set limits on how high your debt-to-income (DTI) ratio can be. If your PITI payment exceeds your DTI, it could result in a smaller mortgage pre-approval or, in the worst case, loan denial.

There's a general rule of thumb suggesting that your total monthly debt, including mortgage payments, car payments, credit cards, utilities, and more, should not exceed 36% of your gross monthly income. Lenders usually follow a similar guideline when assessing a borrower's eligibility for a mortgage, though the specific criteria depend on the lender, borrower, and mortgage program.

First, let’s clarify what the lender does when qualifying a borrower for a mortgage. The lender qualifies a borrower for a maximum monthly payment that they can afford based on the borrower’s current financial situation, as well as the down payment amount.

Remember, your monthly mortgage payment includes PITI – principal, interest, taxes, and insurance. Many online mortgage calculators don’t include all four components. Again, just because you qualify for a certain monthly payment, that doesn’t mean you should purchase a home that puts you right at that limit or anything close to it.

To determine how much you can borrow from a lender, consider using our Mortgage Affordability Calculator. It provides a lender's perspective on the amount you can comfortably afford.

What’s Not Included In your PITI?

• Utilities
• Maintenance and Repairs
• Condo or HOA Fees

Bottom Line:

In summary, PITI—comprising principal, interest, taxes, and insurance—forms the foundation of your monthly mortgage payment. Understanding and managing these components is crucial when pursuing homeownership. Lenders evaluate your PITI payment in relation to your income and debt to determine your mortgage eligibility. Remember that your PITI doesn't cover utilities, maintenance, or condo/HOA fees, so a comprehensive budget is essential for responsible homeownership.

 

Knowing key housing terms and how they relate to today’s market is important.  When mortgage rates and home prices rise, it impacts how much home you can afford. Terms like appraisal (what lenders rely on to validate a home's value) and the inspection contingency ( which gives buyers essential information on a home's condition) directly impact the transaction. 

The homebuying process can be intimidating if you're not familiar with certain key terms used throughout the process. That's why we've complied this quick guide to help get you started! Let’s dive right in.

Appraisal

A report highlighting the estimated value of the property completed by a qualified third party. Lenders rely on appraisal to validate a home’s value and ensure they’re not lending more than the home is worth. All in all, the appraisal is a critical step when buying a home!

Closing Costs

The fees required to complete the real estate transaction. They are paid at closing. It’s important not to get caught off guard by closing costs. Closing costs encompass a variety of expenses above your property’s purchase price. They include things like lender fees, title insurance, government processing fees, upfront tax payments, and homeowners’ insurance. Keep in mind that closing costs are typically between 2% and 5% of the total purchase price of your home. 

You can ask your Greenway Mortgage Loan Officer for a complete list of closing cost items, including points, taxes, title insurance and more!

Credit Score

A number ranging from 300-850 that’s based on an analysis of your credit history. This helps lenders determine the likelihood you’ll repay future debts.

Learn how to manage your credit score here so you can establish and maintain a healthy and legitimate credit score.

The better your credit score, the better the interest rate you’ll receive. In fact, a good credit score can save you hundreds of dollars a month on mortgage payments and possibly tens and thousands over the course of your loan.

Down Payment

Down payments are typically 3.5%-20% of the purchase price of the home. Some 0% down programs are available to eligible borrowers. Here are a few programs:

• No Money Down FHA Loan
• FHA Down Payment Assistance Program
• USDA Home Loan
• Check out all our Loan Programs here

Mortgage Rate

The interest rate you pay to borrow money when buying a home. The lower the rate, the better!

Pre-Approval Letter

A letter from your mortgage lender that shows what they are willing to lend for your home loan. This is a critical step in today’s competitive market and should always be step number one.

Getting an upfront loan approval will help you:

• Beat out the competition

• Negotiate with power

• Know how much you can afford

Click here to  know what documents you’ll need to gather in order to get a pre-approval.

Inspection Contingency

A provision in a contract requiring an inspection to be completed. While it can be tempting to waive in a competitive market, the home inspection is essential. It will give you information on the home’s condition and potential repairs. Bottom line: Don’t skip the home inspection.

Affordability

A measure of whether someone earns enough to qualify for a loan on a typical home based on the most recent price, income, and mortgage rate data. As prices and mortgage rates continue to rise, that will impact how much home you can afford.

Equity

The value in your home above the total amount of liens against your home. With today’s price appreciation, many homeowners are realizing they have more equity than they thought and they’re using it to move!

Bottom Line:

If you’re ready to get started on the home buying journey let’s connect! One of our Greenway Loan Officers can guide you every step of the way and answer any questions that may come up.

 

It's true rising interest rates can make a big difference in your monthly mortgage payment. But interest rates are only one factor in the cost of financing a home. The market changes that typically come with rising rates can be beneficial and even help mitigate higher payments.

Low-Rate Environment vs. Average Rate Environment

Low-Rate Environment

In a low-rate environment, buyers are likely to rush to the market. That creates stiff competition, which can lead to a frenzy of bidding wars and rapidly rising prices.

Average Rate Environment

In a calmer environment, you’re less likely to compete against other buyers. You’re more likely to:

• Have time to see and compare homes.

• Negotiate on price.

• Receive seller concessions, such as a credit towards closing costs or funds to reduce your rate.

• Enjoy the safety of important contingencies like home inspections and mortgage financing.

• Avoid making a rash decision you may regret later.

In fact, a lower price at a higher rate can be comparable to paying an inflated price at a lower rate. In other words, the real cost of a home today may be no different than it was when rates were lower, but competition was fierce and prices were at a premium.

If you’re comfortable making the payment you secure today, you can have peace of mind knowing your monthly cost will be even easier to make if you’re income rises. And if rates fall, refinancing can help you save even more.

History shows there’s one thing that rates don’t change about the housing market. It’s proven true whether mortgage rates were at their peak, at historic lows, or hovering around their average. Home values tend to rise over time. We can’t predict the future as populations increase and the amount of buildable land stays the same, it’s likely values will keep going up over time. And when home values rise, homeowners gain equity and build wealth.

Bottom Line:

If you’re considering a move, don’t let rates hold you back. You may be surprised at the tools we have to help you reach your goals, no matter the market. A pre-approval at today’s rate is a great place to start. Reach out when you’re ready.

 

We are well into the new year now and the housing market is still experiencing constant shifts and changes which leaves many people wondering what will mortgage rates be like in 2023 and will home prices decline? We have the answers and insight to all these questions and more.

Let’s take a look!

How will mortgage rates trend in 2023?

There are reasons to be optimistic that rates will be improving in 2023. As we all saw, rates more than doubled in 2022.

• Many forecasters indicate that rates will drop below 6% sometime in 2023.
• The last Federal Reserve rate hike was only 50 bps instead of the 75 bps of the last few hikes, as inflation is slowing. If that continues, we’ll see the Fed continue to ease off.

Will home prices decline in 2023?

Homes are staying on the market longer, but supply is still low and there are more buyers than homes available so it's still a seller’s market which means continued upward pressure on home prices. 

Whatever your situation, it's always best to get pre-approved so you know what payment you can afford and what price range you should be looking at.

Should I pull equity out of my home in 2023?

A recent survey by MeridianLink found that 21% of respondents were planning to pull equity out of their homes in 2023.

If you have high interest credit card debt and a super low mortgage rate, it may make sense to refinance and cash out into a higher mortgage rate.

Remember, it does depend on your specific scenario so please reach out to a Greenway Mortgage Loan Officer so we can review your needs.

What will housing inventory look like in 2023? 

Most economists are forecasting less home sales in 2023. Redfin predicts a drop of 16% year-over-year as would-be homebuyers hold off until the economy stabilizes.

People will only move if they have to, so inventory might increase a bit but it will stay tight.

There are only 3.3 million home for sale currently according to the National Association of Realtors (NAR). Total inventory will stay near historic lows which will prevent home prices from dropping. However, this means that less people will be moving. In addition, builders are backing off starting new home construction as they continue to try to offload the homes already built.

All in all, homes will sit on the market longer. In 2022 we saw homes stay on the market for about 11 days. In 2023, we could see homes staying on the market for 2-3 weeks.

How is today’s housing market similar (or different) from the 2008 market?

The housing climate of 2008 is different from todays. Why?

• We are not seeing an alarming rate of foreclosures in today’s housing market.
• Potential homebuyers have been waiting things out due to unpredictable interest rates and downward trending home prices. These are all temporary reasons as things could change quickly!
• Prospective homebuyers are saving money and planning for their future home purchase. Pent-up demand will mean recovery could be fast as soon as market conditions trigger that recovery.

What will the economy and housing market look like in 2023?

We certainly wish we had a crystal ball to answer this question.

• Regardless of rates, demand for homes remains strong. Many people still plan to move, upgrade, or downsize and enter as first-time home buyers.
• The spring market is usually hot because this is when potential homebuyers will start their home search. We may see a seasonal uptick during this time.
• In almost every recession there’s been, the housing market has led into the recession and then out of the recession. Experts expect a similar experience.

Bottom Line:

We wish we had a crystal ball to predict what’s going to happen with mortgage rates or price appreciation, but we unfortunately can’t control that. Remember, the team at Greenway Mortgage is always here to help answer any questions you have. We are happy to sit down with you to discus which home buying option best suites your scenario and find out how much home you can afford. We’re here to help.

Here are some helpful resources:

• Loan Products
• First Time Home Buyer Resources
• Mortgage Calculators
• Get Pre-Approved
• Apply Now
• Contact Us