It’s no surprise to anyone that the real estate market along Florida’s Gulf Coast is booming. In fact, St. Petersburg has one of the quickest growing real estate markets in the country. Young couples, working professionals, investors, and retirees are flocking to this region to purchase first homes, vacation properties, or retirement homes in one of the country’s most beautiful regions.
While the idea of purchasing a home can feel exhilarating, the truth is that it can be overwhelming; even more so if you are applying for a mortgage for the first time, obtaining a mortgage on a post-retirement fixed income, or purchasing a second home.
To help our future Florida homebuyers, OUTCOAST reached out to Tracie Mayo with Mayo Mortgage Group to walk us through some need-to-know steps to secure a mortgage loan.
Have your paperwork ready.
“There are several items your mortgage company will need,” says Mayo. “Basic documentation includes, but is not limited to, two (2) years of your most recent W-2 and/or 1099 forms, two (2) of your most recent bank statements from all accounts with funds that will be used for closing, two (2) of your most recent paystubs showing thirty (30) days of earnings, and your driver’s license for identity purposes.”
Understand your net-worth vs debt-to-income ratio.
“It’s important to note that while your overall financial worth is important to mortgage companies, your debt-to-income ratio is a bigger determiner of whether or not you’ll be approved for a loan. In other words, if you are on a fixed-post-retirement-pension income with a significant amount of money in the bank, you may need to make a larger down payment on the home, pull from investments, or pay off any outstanding debts before applying for a loan.”
Decide whether it’s best to pay cash upfront or better to secure a mortgage.
As a Certified Mortgage Planning Specialist, Mayo works with each client to determine what makes the most sense for them. “Every scenario is very individualized. If someone is retired, we need to discuss their options to see if it makes sense to pull money out of their investments to pay cash for a second home or if they should finance that second home and take advantage of any tax benefits and leave their investment money where it is. Mortgage rates are still very low and can make sense financially when someone has the ability to make more with their investment portfolio.”
Discuss the pros and cons of a small vs large downpayment with your mortgage professional.
Mayo says there are advantages of a higher down payment, however, there may also be advantages to putting less money down. “Borrowers should evaluate the pros and cons of each and discuss with their mortgage professional which option makes the most sense.”
“A bigger down payment helps minimize the amount of money borrowed; the more you pay up front, the smaller the loan. You might qualify for a lower interest rate if you put more money down. You might also be able to eliminate private mortgage insurance (PMI) and other fees with a larger down payment.”
“However, the advantages to putting a smaller amount down should also be evaluated. A buyer can generally buy sooner if they put a lower amount down. Saving 20 percent to put down on a new home can take years. If a buyer puts all of their money down on a new home, they may not have a sufficient emergency reserve fund when needed. They may also want to hold money back to make small improvements to the new home, as well.”
Consider your credit score. Is yours high enough?
“When a client is being approved for a mortgage, many things are taken into consideration,” advises Mayo. “There are minimum credit scores for different programs. The credit score is a huge factor when getting approved; however, the debt-to-income ratio also comes into play. When reviewing the entire scenario with a client, we look at the entire picture in order to determine which program makes the most financial sense. The higher the credit score, the lower the interest rate; however, property type, down payment amount, occupancy type, and debt-to-income ratios all come into play when pre-approving someone.”
“I would say the minimum credit score someone should aim for is 620. However, my advice is to pay all debt on time, keep your credit utilization low when possible (balances should be kept at 30% or lower of the credit limit), and don’t close out your credit accounts. Use them responsibly. If you follow that advice, your score will continue to increase over time.”
Learn about the special programs available for first-time homebuyers.
“There are many programs out there for first-time home buyers. There are lower down payment options, lower private mortgage insurance (PMI) rates, down payment assistance programs, etc. Not all special programs make sense from a financial standpoint, but can be utilized if needed.”
“There are some zero-down programs available in certain circumstances. If a client is a veteran, they can utilize that benefit and put zero percent down. The same applies for USDA eligible properties, which are generally in rural areas.”
Understand APR vs Interest Rate
“There is a big difference between the mortgage interest rate itself and an APR. Annual Percentage Rate (APR) reflects the mortgage interest rate plus other charges. Those charges include the rate itself, any points paid, any fees associated with the mortgage, and any other charges. The interest rate itself is the cost paid each year to borrow the money. It does not reflect the fees or any other charges the client may have to pay for the loan.”
When it comes to APR, Mayo says the APR is a relative consideration. “Some people are more than willing to pay a higher rate to get the type loan needed. Some people are more interested in getting a lower rate and possibly paying points to get that rate. Those points would increase the APR but not the interest rate.”
“The APR is usually higher than the interest rate, but it’s important to note that rates change daily and different loan programs come with different rates and costs.”
For more information on securing a loan, reach out to Tracie Mayo with the Mayo Mortgage Group.