5 Myths That Keep Millennials From Becoming Homeowners

Frederick Nosal — First Vice President, Residential Lending

Though most Millennials are already well down the path of “adulting,” with careers, car and student loan repayments, and even starting to save for retirement, many haven’t taken a critical next step in their financial lives: homeownership.

Behind this hesitation are a handful of persistent myths.

Myth# 1: Renting saves me money.

Rent is an expense you pay to live in someone else’s real estate investment. If you were spending that same amount on a mortgage payment, you would actually be investing in an asset you own. It would be yours to sell and borrow against. It could even appreciate over time, which would help you build long-term wealth. Here’s a calculator that can help you put this in dollars—potentially your own.

Myth#2: I don’t make enough to buy a home.

You may not be able to buy your dream home right away, but the odds are good you can find one you’d be comfortable owning and can already afford. After all, you won’t be paying for your home all at once. While you can try different scenarios online to see what’s affordable, we recommend first-timers talk to an Old Second Mortgage banker. Not all mortgages are alike. Some lenders, like Old Second, participate in a variety of programs for first-time buyers that make affordability easier. 

Myth# 3: I still have student loans, so I can’t get a mortgage.

While your student loan balance may seem high, just focusing on how much you owe can be misleading. The amount you are required to pay back each month is what influences your mortgage approval. Also, federal student loan programs offer numerous options to ensure your payments are affordable, even with a car loan and mortgage payment. Many borrowers are able to make adjustments that allow them to comfortably repay their debt and make a housing move.

Myth# 4: It’ll be years before I can afford a down payment.

While experienced homebuyers typically make a larger down payment, first-time mortgage programs can require far less. Some are available with as little as a $1,000 investment. Depending on where you live, you may be able to access grants that cover a portion or all your down payment. This is where working with an Old Second Mortgage banker comes in handy. We can help you access the right programs for your situation. 

Myth# 5: Owning a home is a big responsibility.

While having a big property can mean a lot of yardwork and maintenance, you have options that reduce the “sweat equity” associated with homeownership. From new construction to high-rise condos or townhomes with shared maintenance costs, you can own without giving up your weekends to home maintenance chores.

Myth #6: Getting a mortgage is complicated.

You don’t have to do this alone. Talk to us. We listen and are always ready to answer questions. The only dumb question is the one you don’t ask, so ask us anything. We’ll help you understand what’s affordable, calculate how much different types of properties will cost and prequalify you so it’s easier to work with a real estate agent.

We’re here—online, by phone and in person. As your community bank, we aren’t going anywhere. So, ready when you are. After all, you may not do this every day, but we do.

The Truth About Student Loans and Mortgage Applications

David M Kozuh, First Vice President Sales—Residential Lending David Kozuh, Vice President—Residential Lending   Things have changed. But, not in the way many potential borrowers think. Many still think it’s harder to get a mortgage than it used to be. Not necessarily. Despite the Financial Crisis of 2007–2008, banks have been helping homebuyers and owners take advantage of the low interest-rate environment all along. Even Millennials, despite their student debt loads, have been getting approved for mortgages. It’s also still possible to get a mortgage with a down payment of less than 20%. And, first-time homebuyer programs that provide money for down payments may even make it a little easier to afford a new home than in 2008. What Has Changed Since the crisis, the process of applying for a loan has improved. Many lenders, Old Second included, have made initiating a loan request even easier, leveraging online and mobile technology for applications, document gathering and communication. But, the biggest change involves the way an application is now processed. It takes longer…much longer. What could be done inside of 30 days in 2008, may now take longer. No home loan lender is immune—we are all subject to the same regulations. And, it’s about to get a little worse. It’s Not You, It’s the New Federal Regulations Whether you are a first-time homebuyer or an experienced homeowner, in the aftermath of the financial crisis there has been a return to the kind of lending standards—operational checks and balances—that most of us have used to apply to loans for decades. Those standards require time to analyze and verify that each mortgage applicant is qualified for and entering into the right type of loan for their financial circumstances. As of Oct. 3, a new rule from the Consumer Financial Protection Bureau, “Know Before You Owe,” will take effect. It is intended to offer additional protection by ensuring you understand the terms and consequences of your loan agreement at closing. This new rule will add a few more days to the closing process for all mortgage lenders no matter how automated their internal processes are. While a degree of patience has re-entered the mortgage process, we believe it ultimately ensures that you’ll gain full advantage of our expertise. Whether it’s a 30-year fixed mortgage, an adjustable rate, a line of credit for remodeling or a refinancing into a 15-year loan that will help you retire mortgage-free, our goal is—as it’s always been—to make sure you enter into the right financing structure.

Student loans are a reality for millions of Americans, many of whom are Millennials with dreams of becoming homeowners. However, contrary to a widely held belief, the two things—student loans and homeownership—are not mutually exclusive. You can afford to have both, even when you use a mortgage to buy your home.

How Student Loans Impact Mortgages

When you apply for a mortgage, the lender will look at your existing debt. That typically includes outstanding credit card balances, car loans and student loans (whether they are deferred or not). We then look at what you are paying toward each on a monthly basis, versus what your make, to determine how much would be left over to make payments on a mortgage.

Generally, lenders are required by the loan programs not to accept an application if your existing debt-to-income (DTI) ratio will exceed a certain level. The last thing we want is to create financial stress by letting you borrow more than you can comfortably afford to repay. However, there are ways to decrease your DTI that can make it easier for you to both afford and qualify for a mortgage.

Manage Your Student Debt

Student loans, especially those that are part of the federal loan programs, tend to have low interest rates and long payback periods. There are also several repayment options available to you to ensure your payments are affordable. Among these is an income-based option, which ties your monthly payment to your income. As your income changes over time, the payment adjusts to what you can afford. For many, this means that they have lower monthly payments in the early part of their careers. That can leave them with enough discretionary income to make mortgage payments while repaying their student loans.

Student loans can also be deferred, which frees up monthly income. Although, when you borrow, we will still consider the loan in our calculations, typically using a figure of 1 percent of the outstanding balance in our analysis of your monthly debt load. However, if you are considering applying for a mortgage through the Federal Housing Administration (FHA) program, your deferment will not be a factor in the DTI calculation.

Other Preventive Measures

Often, the bigger obstacle to qualifying for a mortgage is not how much student debt you have but how well you’ve handled it and how much non-student debt you are carrying. Before applying for a mortgage, it helps to address these factors first.

For instance:

  1. Have a year or more of on-time payments. Know what you owe, when it is due and whom you are expected to repay. Missing payments or a history of late payments will come back to haunt you when you apply for a mortgage.
  2. Manage your debt. Repay credit card balances and establish a pattern of paying them off in full each month. If you are working through an outstanding balance, look for options that might lower your rate and allow you to speed up your payback period.
  3. Carry only your debt obligations on your record. If you have debt but your parents are repaying it or a portion of it, it should be shifted off your record, where it counts toward your DTI, and into their names. Depending on the circumstances, there are a variety of ways to do this. It’s something your lender can discuss with you.
  4. Don’t focus so much on the down payment. There are many first-time homebuyer programs that were designed to make monthly payments affordable, using a low down payment. For some student debt holders, therefore, it may make sense to save for a 3 percent down payment and direct the rest of their discretionary income toward paying down their student loans before applying for a mortgage.
  5. Don’t assume; talk to a lender. We have access to a variety of loan programs and strategies and know which local incentives you may qualify for that would help your cause. As bankers, we are also able to look at your total financial picture for ways to set you up for long-term financial success.

To learn more about your best options for qualifying for a mortgage, whether you have student loans or not, give us a call at 877-866-0202. Let’s sit down and talk about what we can do to help you realize your homeowning goal.

Mortgage Tips for the Self-Employed

David Kozuh, First Vice President—Residential Lending David Kozuh, Vice President—Residential Lending   Things have changed. But, not in the way many potential borrowers think. Many still think it’s harder to get a mortgage than it used to be. Not necessarily. Despite the Financial Crisis of 2007–2008, banks have been helping homebuyers and owners take advantage of the low interest-rate environment all along. Even Millennials, despite their student debt loads, have been getting approved for mortgages. It’s also still possible to get a mortgage with a down payment of less than 20%. And, first-time homebuyer programs that provide money for down payments may even make it a little easier to afford a new home than in 2008. What Has Changed Since the crisis, the process of applying for a loan has improved. Many lenders, Old Second included, have made initiating a loan request even easier, leveraging online and mobile technology for applications, document gathering and communication. But, the biggest change involves the way an application is now processed. It takes longer…much longer. What could be done inside of 30 days in 2008, may now take longer. No home loan lender is immune—we are all subject to the same regulations. And, it’s about to get a little worse. It’s Not You, It’s the New Federal Regulations Whether you are a first-time homebuyer or an experienced homeowner, in the aftermath of the financial crisis there has been a return to the kind of lending standards—operational checks and balances—that most of us have used to apply to loans for decades. Those standards require time to analyze and verify that each mortgage applicant is qualified for and entering into the right type of loan for their financial circumstances. As of Oct. 3, a new rule from the Consumer Financial Protection Bureau, “Know Before You Owe,” will take effect. It is intended to offer additional protection by ensuring you understand the terms and consequences of your loan agreement at closing. This new rule will add a few more days to the closing process for all mortgage lenders no matter how automated their internal processes are. While a degree of patience has re-entered the mortgage process, we believe it ultimately ensures that you’ll gain full advantage of our expertise. Whether it’s a 30-year fixed mortgage, an adjustable rate, a line of credit for remodeling or a refinancing into a 15-year loan that will help you retire mortgage-free, our goal is—as it’s always been—to make sure you enter into the right financing structure.

Being self-employed and in control of your professional life is empowering. However, when it comes to borrowing money to purchase a personal residence, it can also put you at a disadvantage, if you are not properly prepared.

The Challenge

The main issues for self-employed mortgage applicants arise from proving income is sufficient and consistent enough to support a mortgage payment and supplying the “correct” version of income on the application.

When you are an employee, reporting your earned income is straightforward. You state your salary and bonuses and back up the amounts for verification purposes with W-2 forms and tax returns. The lender can easily call your employer as a final check.

When you work for yourself, you may have an accumulation of 1099s and invoices if you have a variety of clients or gigs. Some self-employed borrowers may own and run multiple businesses, which means the only way a lender can verify income is to pour through dense tax return schedules. It is a much messier and time-consuming process.

Even then, the income many self-employed individuals report on their tax returns may differ from their actual take-home pay. One of the advantages of being self-employed is taking more expenses as business deductions to minimize tax bills. This is great at tax time, but it can diminish your borrowing power.

When Income Isn’t Income

Some self-employed borrowers report gross receipts as income. However, this is business revenue. Income is found on line 38 of the federal tax return. It is a much lower number.

Working With You

While income qualification is essentially a standard requirement, it can help to work with a lender that has the flexibility to customize a mortgage to your circumstances. For instance, Old Second doesn’t package all of its mortgages for resale, the way many larger banks and online mortgage firms do. We hold a collection of mortgages for our own portfolio. This gives us the flexibility to customize more of our mortgages to our clients’ circumstances. We can take the time to understand your situation and even talk to your accountant to develop a more accurate assessment of your household’s cash flow.

What You Can Do

For some practical tips on how to improve your mortgage application’s appeal, click here for our infographic of suggestions. To learn more about how Old Second can help you qualify for a mortgage, give us a call at 1-877-866-0202 or start the application online at oldsecond.com.

Whether you are a serial entrepreneur or a member of the gig economy, knowing what to expect when applying for a mortgage and preparing accordingly can enable you to exercise more control over how lenders perceive and process your application.

Taking the Stress Out of Closings

Alaine Bussler, Residential Closing Manager00001

David Kozuh, First Vice President—Residential Lending

Making the decision to buy a new home is thrilling, and the last thing we want is for the mortgage process to interfere with that. That’s why we make sure you know what to expect each step of the way. If you have a question or don’t understand something in a document you’ve been sent, we are here to talk you through it.

New Transparency

In the past, much of the stress in the closing process came from the way lenders were required to provide disclosure and loan documents to you. It made it harder to know how much your home—and your loan—would really cost after fees. That was typically something that came at the very last minute, without adequate time to review.

That has changed. The disclosure requirements are now much easier to read and understand. We are able to give you the first document, The Loan Estimate, three days after you apply for a mortgage, and the second document, The Closing Disclosure, three days before you close. This gives you time to review the terms and amounts you are agreeing to and enables you to ask questions if there is anything you are unsure of.

The Loan Estimate

Like its name implies, this three-page document summarizes the terms and price of your loan. It provides the information needed to develop a better understanding of your mortgage quote, including the amount you can expect to pay monthly based on the estimated closing costs.

The Closing Disclosure

The Closing Disclosure is an itemized account of the final settlement expenses and is provided three days before you close. Specifically, it confirms the final terms, how much cash you will need to bring to your closing, the loan details and the total cost of the loan. The Closing Disclosure also provides an accounting of any changes in the amounts that appeared in the Loan Estimate, along with reasons for them.

In combination, the two documents enable you to understand what, if anything, changed before agreeing to the final terms.

Big Numbers Shouldn’t Lead to Tense Times

The changes to the disclosure law essentially make the way we work with our borrowers—taking the time to answer questions and being transparent about what’s being agreed to—standard to the industry.

Give us a call, at 877-966-0202 and let’s talk about what we can do to keep your mortgage experience as stress free as possible.

 

5 Ways to Benefit from an Annual Mortgage Review

Greg Kuda, Vice President—Residential Lendinggkuda1_600

If you’re like most people, you probably meet with your financial advisor at least once a year to review how changes in your life and in the securities markets could impact your invested assets. However, few people think to request a similar check-in with their loan officer to conduct a review of their mortgage. Yet, periodically ensuring your current loan terms remain in your best interest is an equally smart money management move.

Your Biggest Asset Is Usually Your Largest Expense

With the recent recovery in home values in our area, it’s likely that your home equity has also increased. That rise may enable you to strengthen your overall financial situation or help you realize other financial goals.

For instance, if you bought your home several years ago and took advantage of one of the low-down-payment programs, your home equity may be high enough now that you are no longer required to pay Private Mortgage Insurance (PMI) each month. Being able to eliminate that expense either by having your home re-appraised or through a refinancing can reduce payments by $100 a month or more.

Similarly, if your family is expanding and you are thinking of adding on to your house, buying a vacation property, or your children are fast-approaching college age and you are looking for money to help pay for college, it could be more affordable to access your home equity through a second mortgage or by refinancing than through other financing arrangements.

5 Potential Benefits of Refinancing

  • Eliminate mortgage insurance
  • Pay off faster
  • Lower monthly payment
  • Cash out
  • Potentially reduce taxes

Where You Started Versus Where You Are Today

It’s natural that after making a big decision, especially one involving a lot of paperwork, like a mortgage, to resume your regularly scheduled life and not give it another thought. However, given the amount of money you have invested in your home and the size of your monthly mortgage payment, proactively managing your home loan through periodic reviews has the potential to help you meet more of your financial goals even sooner.

When to Review Your Mortgage

  • Interest rate environment changes
  • Life changes (marital status, new baby, college-bound child, retirement)
  • Remodeling or have plans to
  • Home equity rises above 20%

To schedule your annual mortgage review, contact your loan officer here or call 1-877-966-0202.

A Different Way of Investing

Rich Gartelmann CFP® Senior Vice President/Head of Wealth ManagementRich Gartlemann Bio Picture

More often than not, when people talk about their investments, they talk about how well they did versus “the market” or about how much they gained in a single stock. The problem with measuring performance this way is that investing really isn’t like a sporting event where you keep score against an opponent. The only way you “win” is if you have enough money to achieve your financial goals. If you don’t, it won’t matter that your portfolio beat the S&P 500 Index for 10 years straight.

Focus on Results, Not Numbers  

When asked about their goals, often people will say, “I just want to have a million dollars by the time I retire.” That is a big round number, but is it enough? Too much? It depends on the type of retirement you want and the sources of income you’ll have available to support you.

Similarly, there are many investors who start selling stocks and buying bonds when they turn 65, because they believe that when they hit this age they need to invest conservatively. It may be the right action and, depending upon the current market condition, it may not even be a conservative move. Interest rate risks and rising inflation rates can devastate bond investments at certain points in an economic cycle.

If a person turning 65 today is in good health and still enjoys working, they are probably not ready to retire. Even if they are looking forward to retiring, they need to think about how to manage their assets in a way that will support them for another 30 years.

Match the Investments to the Timeframe

The trick to financial planning really isn’t the math as much as determining the journey. Think about where you are in your life and what you want to achieve next. Then, decide what you hope to achieve after that and, from a financial standpoint, what you wish to achieve in the long term.

The list will change over time, and it’ll be different for everyone. However, it may include things like:

  • Buy a home
  • Earn a graduate degree
  • Start a business
  • Pay for my children’s education
  • Pay off my home
  • Buy a family vacation home
  • Eat out whenever I want
  • Travel more
  • See every professional sports team play a game at home
  • Afford health care expenses
  • Avoid estate taxes for my family
  • Support charitable causes
  • Retire early
  • Just keep doing what I love and not retire

To know what you need to afford what you want requires adding some details to your goals and a timeframe. From there, your advisor can work with you to set a dollar goal and calculate how much you need to save to achieve it, if it is an expense. Your advisor can also help you decide how much you need to invest and how to invest your savings to create enough income to achieve ongoing goals, like retirement.

When it comes to investing, we focus less on the big numbers and more on helping you achieve big results.

For more information on how we approach and deliver goal-driven wealth management services, visit us here or call 630-844-5730. We can’t wait to talk to you about what we can do for you today.

 

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

The Best Time to Refinance a Mortgage

Troy Langeness, Vice President—Residential Lending

Troy LangenessToo often, homeowners refinance in reaction to interest rate levels, assuming that if rates are low or about to rise, it’s a good time. But, it may not be the best time.

For that, the determining question should be: Is now the right time for your circumstances? Because when it comes to refinancing, it’s not really about the current level of interest rates as much as it is about what you personally will accomplish by pursuing one.

What a Refinancing Can Do for You

Refinancing has a cost—generally adding up to several thousand dollars. This is why you should work with a lender to make sure going through the process will be worth the expense.

The basic rules of thumb for determining that include your intention to live in your home for at least four to five years and, when the numbers are crunched, that the refinancing will either literally pay for itself within 18 months or help you achieve some other financial goal.

These goals could include:

  • Shortening the pay-off period for your home so that you will own it free and clear before you retire. This is usually accomplished by replacing a 30-year mortgage with a 20-, 15- or 10-year mortgage.
  • Lowering your monthly payment by refinancing your current home loan balance at a lower interest rate, enabling you to put more money into savings or take on other expenses.
  • Consolidating high-interest debt (such as credit card balances or auto loans) with lower-rate mortgage debt to make monthly payments more affordable and tax deductible.
  • Accessing the home equity you’ve built up over the years to purchase another asset that you might not be able to finance otherwise due to circumstances beyond your control.
  • Eliminating private mortgage insurance (PMI), which is mandatory on loan to values greater than 80 percent.
  • Locking in a fixed rate and retiring an adjustable-rate mortgage (ARM).

Online refinance comparison calculators can help you estimate the benefits of refinancing. But, talking to a lender who will listen, check your numbers and even customize the loan structure to make sure refinancing makes sense for you is highly recommended before you apply.

How To Prepare For a Refinance

Other Considerations

Once you determine that refinancing is right for you, be aware that the approval process for home-based lending has changed dramatically since 2009. Nearly all the changes were made to improve consumer protection. That said, refinancing takes more documentation than it used to.

Even when these loans are handled online, they now require a deeper dive into your credit history. Borrowers are required by the government-sponsored enterprises, including Fannie Mae and Freddie Mac, to do more explaining about their assets, sources of income and any recent money transfers that result in large deposits. These, in turn, need to be documented to establish their paper trails.

Old Second continues to leverage technology to ensure your refinancing is as efficient as possible. We accept applications online, face to face or by phone and offer the option of electronic signatures on many of the documents.

If you think a refinancing would help you accomplish your financial goals, call us. We’re always happy to talk it through and create the right loan structure for your situation.

Mortgages Built to Order

Jeri Ott, Vice President/Mortgage Loan Originator

Jeri_OttWhen it comes to residential mortgages, most banks offer the same lineup. These off-the-shelf solutions are structured to conform to the mortgage agencies’ guidelines (Fannie Mae and Freddie Mac) so that they can be resold in the secondary market.

As a borrower, this means if your property or financial situation does not conform to these standards, your mortgage request will be denied.

We Do Things a Little Differently
Although we sell some of our conforming mortgages on the secondary market, Old Second actually holds many of the mortgages we originate for our own portfolio.

We do this, in part, because properties in this area tend to be larger and many are income producers, such as farms and equestrian estates. These types of properties don’t qualify for conforming mortgages.

Borrowers who buy vacant land with plans to build their dream home also have trouble obtaining conforming loans. In these situations, not only do we lend, we don’t require our borrowers to offer additional assets to collateralize the loan over the lot’s value. When it comes to construction loans, we’re able to lend 80 percent based on the appraisal of architectural plans. This opens up the option of new construction to more people. We also allow our borrowers to be their own general contractor, which can offer additional cost savings when building on a vacant lot.

Keeping It Local
When we do hold a mortgage for our portfolio, we also service the mortgage. While few borrowers still make their payments at the local branch, borrowing locally means if any questions or issues arise, you know exactly who to call. That accountability is extended to all of our customers, even if we didn’t originate the loan and don’t service it. Advocating on their behalf by jumping on a call with their servicer or escrow agent to clear up an issue—when asked and when appropriate—is just something we do.

While a portfolio loan can be suitable for some borrowers, it may not be the right choice for everyone. Applying for a mortgage just isn’t a situation where one size fits all. That’s why it’s important to sit down with a lender before making any decisions. We can look at your whole picture and help you choose the right mortgage type for you and your property. After all, the costs associated with each loan type can have a significant impact on your finances not only today but also for years to come.

Present at Closing
All of our residential closings are held in our local branches. This way we can literally stay with each mortgage until it’s completed and funded. If last-minute questions arise or documents need amending, we can address them within minutes.

For more information on the different types of loans we can offer, download this handy comparison chart. Then, call us. We look forward to sitting down with you and talking things through so that you choose the best loan structure for your situation.

 

TRID Leads to Better-Informed Homebuyers

Tabitha Roach, First Vice President—Residential Lending Operations

RoachT_BUS0036qcThe Consumer Financial Protection Bureau revised the closing procedure for residential mortgages last October. The result: the TRID (TILA/RESPA Integrated Disclosure) rule. Also called “Know Before You Owe,” this rule is intended to:

  • Make shopping and comparing borrowing options and costs easier across lenders.
  • Present information in a more easily understood way, with less legalese and simpler wording.
  • Provide borrowers with enough time to review loan terms before agreeing to them.

While buyers will receive two new disclosure documents as a result of TRID, these replace four of the old forms. The first of these forms is the loan estimate. It will be provided within three days of a lender receiving a potential borrower’s information. This includes the borrower’s name and social security number, the property value and address, and with the amount of the loan request. This disclosure will then allow borrowers to make apples-to-apples cost comparisons among all the lenders they are considering using before proceeding with their application.

Objective: No More Surprises

The second document is the closing disclosure. This replaces the old settlement statement, which was not previously given to borrowers until after the loan was final.

Under TRID, homebuyers now have three days to review their loan’s final terms—and the associated dollar amounts—before committing to them.

The closing disclosure will also provide borrowers with a thorough list of any fees that were incurred with the transaction. This means lender fees will be itemized, as well as inspection fees, title fees, seller fees, etc.

By “knowing before owing,” borrowers arrive at the closing table better informed.

Timing Is Everything

There’s no denying TRID was a big deal for the mortgage industry. Frankly, it required substantial procedural changes for closing mortgages. But for those of us who were prepared, it has been a plus for our customers.

The only additional request being made of borrowers is one most were doing anyway: getting their fully executed contract to their loan officer immediately upon acceptance of their purchase offer.

Because TRID extended the closing process by six days, the sooner we can begin the loan review, the sooner we can gather the information needed to approve the loan request, prepare the necessary TRID disclosures, and keep the closing on schedule.

Should you have any questions about TRID, your mortgage request, the closing procedure or any other matter related to your home loans, call us. We’ve always worked hard to keep our borrowers informed; TRID has simply incorporated it into the federally required forms.

7 Stress Relief Tips for First-Time Home Buyers

Phillip DeLaFuente, Vice President/Mortgage Lending

PDeLaFuenteAs exciting as buying a new home is, it can be highly stress inducing. While we do our best to reduce the worry related to the mortgage process, here are seven common stress points and our tips for minimizing them.


Tips for Minimizing Home Buying Stress
           

  1. Your credit score. As soon as you find yourself thinking about home ownership, request your FICO score…and that of your co-borrower. Many credit card companies now supply this to you when you go online and sign into your account. It’s also something mortgage lenders can get for you.Knowing the score is important because it determines how much your mortgage will cost you. Generally, if your score is near or below 660, you may not be able to access favorable first-time homebuyer programs, like those provided by the Illinois Housing Development Authority (IHDA).

    Scores, however, are not set in stone. Talk to your lender about what you can do to raise yours before applying for a mortgage.

  1. Potential borrowing limit. Before you look at houses, it helps to know which ones you should be looking at. Getting prequalified for a mortgage lets you know how much house you’ll be able to afford.Prequalification involves sharing your tax returns and paystubs with your lender and discussing your outstanding debts (car loans, credit card balances, etc.) and other commitments on your income (such as child support). If your income is a little low or your debt too high, your lender can offer suggestions for improving your debt-to-income ratio before you apply for your mortgage. 
  1. Affordability. Don’t mistake the most you can afford with what you’ll feel comfortable paying each month. Remember, as you move through life, your expenses and priorities will change. Choose the monthly payment that will cause you the least amount of financial stress, rather than the maximum amount you can borrow.
  1. New debt inquiries. Once you’ve been prequalified for a mortgage, don’t apply for any new debt, such as store credit to finance furniture purchases. That could throw off the debt-to-income ratios that were used for the prequalification. New inquiries will also lower your credit score. If it’s unavoidable, be upfront with your lender. Bankers hate surprises.
  1. Down payment. Knowing where the money will come from well in advance will significantly reduce your stress. Money for a down payment can be borrowed, but it has to be from a collateralized loan from an asset such as a 401k retirement account, which is why your lender will request that you document the source. It can be cash, as long as that cash has been “seasoned,” meaning it has been in your bank account at least two months. If it’s a gift from relatives, there needs to be a written statement from them saying as much.
  1. Closing costs. The most stressful phase of a home purchase is the last. There are many moving parts that need to come together for the transaction to close. Recent regulatory changes now provide you with your closing statement three days prior to closing. This gives you time to deal with any last-minute details, like the amount due for any prorated real estate bills and fees.
  1. Not knowing what you don’t know. The best way to manage home-buying stress is to talk to your lender. We’re as interested as you are in making the transaction go as smoothly as possible. Never hesitate to give us a call.