Over the past six months, QCity Metro has asked readers to submit their home-buying questions. Below, Tori Calhoun, a senior mortgage originator at Fifth Third Bank, will answer these questions. Calhoun has been at Fifth Third for more than 13 years and has put countless customers into their dream homes.
About Tori Calhoun
Tori has received the President’s Circle Award and is consistently a Platinum Top Performer at Fifth Third. She brings a vast amount of mortgage knowledge to her customers and is able to overcome issues, challenges, provide counseling, and analyze each financial situation to make sure it is the best fit for each client’s needs. Tori is local to the Charlotte area and has lived in North Carolina all her life.
Should I co-sign my daughter’s mortgage or provide down payment funds?
I would like to assist my adult daughter in purchasing a property. Which of these options is best: Should I be a co-signer on the mortgage, meaning both my name and hers would be on the deed? Or, should I provide the funds she needs for a down payment/closing costs with just her name on the mortgage? My credit score (800s) is higher than hers. I live in Charlotte; she lives in Maryland. The property my daughter will purchase will be in Maryland, where she has lived for the past three years. She is renting there, and I am renting now in Charlotte. I sold my condo in Charlotte in January 2019, so I understand that I would be considered a first-time homebuyer since more than 3 years have elapsed since ownership.
That is very generous of you to assist your daughter with her first home purchase! She is a lucky lady! I would suggest option 2, for a few reasons. If your daughter can qualify for the home loan in her own name, it would be best to let her do that instead of jointly taking on the debt and obligation to repay it. When you co-sign for any debt, that debt becomes part of your financial obligations. By letting her do it on her own, you are not responsible for the debt, nor would you incur any credit derogatory should she default on the loan. It’s the best way to ensure that you maintain your 800+ credit rating while keeping your financial obligations low. It also allows you to remain eligible to be a first-time homebuyer again and possibly take advantage of first-time homebuyer programs since you are currently renting as well and may be looking toward home ownership again in the future.
Credit score vs mortgage applications
How hard is a person’s credit score hit when they complete mortgage paperwork?
A mortgage credit inquiry is considered a hard inquiry. It consists of a report from all three credit bureaus — Experian, Equifax, and Transunion. Typically, the impact is small and temporary. How many points does vary between each bureau, each customer, and their overall credit history. According to FICO, a hard credit inquiry will drop your credit score between 1 and 5 points. When shopping for a mortgage, it is best to do so in a 30-day window. Most credit scoring models will count multiple inquiries as one, which helps minimize the impact as well.
When price exceeds loan amount
I’m angry! I have an excellent credit score and two approval letters from lending institutions. But the price of the house I want so elevated that it exceeds the value, so I must come up with the difference? Is this legal? The house certainly will not appraise for that amount? Wink wink! Help! I want to buy a home!!!
I understand your frustration, as I have dealt with these situations multiple times over the past year with my customers. The market, along with supply and demand, play a major role in driving home prices. Appraisals and valuations are mainly driven by comparable and recent sales in close proximity to the subject property. It is legal for a seller to market and sell their property for any amount they choose. Most sellers will try to negotiate terms and the price to help the transaction go through if the appraisal comes back slightly low. However, they are not required to lower their price based on a low appraised value, and they can refuse to do so. At this point a buyer will have to decide if they are going to pay the difference or withdraw from the transaction. It can be a very stressful and upsetting situation for all parties involved. More times than not, I see sellers, buyers and agents try their best to come to terms to help all parties involved accomplish the main goal.
What are HELOCs?
How do HELOCs work, and what’s needed to qualify for one?
Home Equity Lines of Credit (HELOCs) can be a great resource to have available. The specific qualifications do vary from lender to lender, but usually you must have good credit, reliable income, and enough equity in your home to allow you to open a home equity line.
The lender will do some type of appraisal on the property and allow you to borrower up to a certain percentage of the value, less any other mortgage obligations the property already carries. Example: Your home is worth $250,000 and you owe on your current mortgage $174,000. The lender allows you to have 85% total loan-to-value ratio (TLTV) on a new home equity line. They would figure that 85% of $250,000 is $212,500, less the $174,000 currently owed. That would allow for a HELOC to be opened in the amount of $38,500. Then they will determine if your income is sufficient to support your current debt obligations along with the new estimated payment if you were to use all the availability on the new credit line. Home equity lines typically carry a 30-year loan term.
Most home equity lines of credit start off with a 10-year interest only payment period. During this time you are able to draw funds off the line of credit and pay them back with flexibility. Most lenders will require interest only monthly payments during this 10 year term. This means the bill you get each month to pay will only be the accumulated interest on the loan. It is your preference as to if you pay additional amounts to the principal (amount to owe). At the end of the 10-year term, the remaining balance will convert into a 20-year fixed loan at current rates to ensure the debt is fully paid at the end of 30 years with no “balloon” payment. As with most loans, you typically are able to pay off and close or refinance the debt at any time. The interest rate typically is a variable rate, which fluctuates with market shifts and changes to the prime rate.
Can one home’s equity help me buy another?
Is it a good idea to use the equity in one home to purchase another?
Every situation is a little different. It might be a good idea for one person and high risk for another. It is important that you review your individual situation with a well-qualified mortgage loan officer, and sometimes it’s even advised to have your CPA or investment advisor involved for additional review and advisement. Example of a good idea: You want to purchase and secure your new home, take your time to get moved in, then list and sell your current home. This is commonly where borrowers will use the equity in their current home to provide the down payment on the new home. This could be a good idea if you can afford both mortgage payments plus all the other financial obligations you already have. But you also must consider the possibility that your current home may take longer to sell than you anticipate. This would not be a good decision for someone already struggling to stay ahead month to month. This individual may need to get their current home sold prior to, or at the same time as, purchasing the new home.
The basics of refinancing
I took out a mortgage in 2014 — an FHA loan. I want to get rid of the private mortgage insurance (PMI), and I’ve been told I can do that now by refinancing. What’s the best type of refinance loan to get with the best interest rate, and which companies offer the best refinancing?
If you are looking to get out of PMI completely, then you definitely want to refinance to a conventional mortgage loan. If your home appraises well and your new loan will be at 80% or less of the appraised amount, then you should be able to obtain the new mortgage with no PMI. Most all mortgage companies offer this type of loan.
Get in touch with Tori Calhoun
Phone: 704-292-4084 NMLS: 475611