Welcome to your Financial Fitness Minute. Getting ready for a mortgage.

When it’s time for you to look seriously at a home purchase, you’ll need a guarantee of financing, known as a preapproval letter. This lets you know how much you can borrow, which will help narrow down what you can buy. When you start making offers, having your preapproval in place lets the seller know you’re serious. In order to qualify to get the preapproval letter from your lender, you’ll need to qualify for the mortgage, which requires three major things.

First is a good credit score. In the eyes of a lender, this is above seven hundred. Check all three of your credit reports, including your scores. If your score is low, you may have some work to do to pay off some debt and take care of problem accounts.

Second is the down-payment. This helps offset the risk that a lender takes in order to extend a loan to you. Basically, they want you to have a skin in the game, too. Plus, it means you can borrow a little less. Generally, this will be at least three point five percent of the purchase price. Typically, the higher the down-payment you can make, the less of a risk you represent, and the lower the interest rate that you might qualify for.

Third is your debt-to-income ratio. It should not exceed forty two percent. It’s calculated by taking all of the monthly minimum payment obligations that show up on your credit report, and adding those to the total proposed mortgage payment, including principal, interest, taxes, and insurance. That sum, in total, should not exceed 42 percent of the monthly gross income for the household.

Once you have that preapproval letter, you’ll be in a good position to start working with a real estate agent and find your dream home.

Thanks for joining us for this Financial Fitness Minute.

Welcome to your Financial Fitness Minute. Your credit score.

There are a lot of misconceptions about credit scores and how they’re calculated. While the actual algorithms are highly complicated, the factors that go into determining your score aren’t. There are five basic parts of the FICO score. That’s the score most lenders use. Your FICO score is somewhere between three hundred and eight fifty. A higher score indicates that you are considered a less risky borrower than someone with a lower score. The first and most important component is your payment history. Thirty-five percent of your score is based on how you’ve paid your bills.

As you may imagine, on-time payments will result in a higher score, while late payments and collection accounts will damage your score. The fact that you missed one payment three years ago doesn’t mean your score is ruined, however. Recent, frequent or severe lateness will lower your score more than the occasional mild payment mishap. The second element of your score is your total balances relative to the limits on your revolving accounts, like credit cards. Simply put, the less you owe on your revolving accounts, the higher your score. Many people are surprised that this makes up a full thirty percent of the FICO score.

Not using any credit at all, though, can result in no score at all. The third factor is the length of your credit history. It’s fifteen percent of your score. The older your accounts become and the longer you have used credit, the better. Fourth is new credit. This makes up ten percent of your score. Basically, this is the number and proportion of recently opened accounts and the number of inquiries, which are the times you’ve applied for credit. Many people are concerned about applying for credit and it lowering the score.

This is a small part of the entire picture, however, and, in cases in which many people shop for credit, like for auto or mortgage loans, generally multiple applications within a short timeframe, will only count as one inquiry. The final ten percent is types of credit. There are two different types of credit, revolving, like credit cards, and installment, like loans. Having a variety of accounts will show that you can handle different types of credit and generally boost your score.

Thank you for joining us for this Financial Fitness Minute.

Transcript: Tips for first-time home buyers

Tips for first time home buyers. Buying a home can be exciting and a little overwhelming all at the same time especially if you’re a first-time home buyer.

So DCU has some tips to help guide you through the process.

Number One: get prequalified for your mortgage.

Then you’ll know exactly how much you can afford before you start looking.

And the seller will have more confidence in accepting your offer.

To get prequalified, have your most recent tax returns, W twos, pay stubs, and bank statements handy. While you don’t need these documents to apply for a mortgage, you will need them for verification during the loan process.

Number Two: Choose the right mortgage.

Today, you have a lot of options with different rates, terms, and benefits. So be sure to talk to a DCU loan officer who can review the options to help you decide which mortgage makes the most sense for you.

Number Three: plan for your down payment, closing costs, and pre-paid items.

To get a home mortgage, you’ll be required to make a cash down payment, usually three to twenty percent of the home’s full purchase price.

It’s also important to plan for closing costs and other pre-paid items because these could add up to a few thousand dollars. Closing costs include such item as application fees, attorney fees, title insurance, appraisal fee, and recording fees. Pre-paid items are costs like property tax escrow, homeowner’s insurance, and pre-paid interest.

Number Four: make a list of your must haves, maybe it’s the number of bedrooms a two car garage or a master bath.

Decide what’s most important to you as this will help you find the home that’s perfect for you.

Number Five: start looking early.

House hunting takes time. So, try to start looking up to six months in advance of when you’d like to move in to your new home.

And finally, set aside some move in money for new furniture, painting, or maybe a new appliance. It’s part of the excitement of moving into a new home.

So, to sum up, get prequalified. Choose the right mortgage. Plan for your down payment, closing costs, and pre-paid items. Make a list of must haves. Start looking early. And set aside some move in money.

Remember, DCU loan officers are always here to help you choose the home mortgage that’s right for your needs. For more information, call one eight hundred three two eight eight seven nine seven go to DCU dot org backslash mortgage, or a DCU branch.

A note about third-party links – By selecting certain links on this page, you will leave DCU's web site and enter a web site hosted by an organization separate from DCU. We encourage you to read and evaluate the privacy policy of any site you visit when you enter the site. While we strive to only link you to companies and organizations that we feel offer useful information, DCU does not directly support nor guarantee claims made by these sites.

Transcript: How much home can you afford?

How much home can you comfortably afford? Now that’s an important question to answer. Because in addition to a home’s price, you also need to factor in other monthly expenses, and your lifestyle. DCU has some tips to help you figure it out.

Number one: calculate your debt to income ratio or D T I, that’s the percentage of your monthly gross income that goes to pay your monthly debts, like housing expenses, a car loan, credit cards, and other recurring obligations.

Your lender will review your D T I to help determine how large a mortgage you can afford.

You can learn more in our video: How To Calculate Debt to Income Ratio.

Number two: compare your mortgage options.

The mortgage you choose, fixed, or adjustable, as well as your term and down payment, will determine your interest rate and monthly mortgage payment.

A DCU loan officer can help you choose the right mortgage for your specific needs.

Number three: factor in Private Mortgage Insurance or P M I.

If your down payment is less than twenty percent of your property value or purchase price, whichever is lower, this cost will be added to your monthly mortgage payment. Some lenders may offer lender paid mortgage insurance options.

Number four: determine the property taxes on your home. You can ask your realtor about the estimated taxes, check online listings or town websites.

It’s a significant cost, but the good news is property taxes may be tax deductible. Consult your tax professional.

Number five: estimate the costs of your electricity, gas, oil, and water and factor these into your monthly budget.

Number six: if you’re moving into a condominium, or neighborhood with a Homeowners Association, be sure to include those fees in your monthly housing expenses.

Number seven: you’ll also need to factor in closing costs and other pre-paid items like mortgage application fees, attorney fees, inspection fees, interest, and property tax escrow.

Number eight: and finally, be sure to plan for the estimated cost of any immediate repairs or renovations you’re planning. Be realistic about the improvements you need to make now versus those you can make later.

So, how much home can you afford?

Calculate your debt to income ratio. Compare mortgage options. Factor in Private Mortgage Insurance if required. Determine your property taxes. Estimate monthly utilities. Include Homeowners Association Fees, if necessary.

Add immediate needed repairs and renovations. And, factor in closing costs and other pre-paid items.

DCU loan officers are always here to help you choose the home mortgage that’s right for your needs. For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage, or a DCU branch

A note about third-party links – By selecting certain links on this page, you will leave DCU's web site and enter a web site hosted by an organization separate from DCU. We encourage you to read and evaluate the privacy policy of any site you visit when you enter the site. While we strive to only link you to companies and organizations that we feel offer useful information, DCU does not directly support nor guarantee claims made by these sites.

Transcript: How to calculate debt-to-income ratio

How to calculate debt to income ratio. Your debt to income ratio, or D T I is important because your lender uses it to see if you have enough cash flow to afford the mortgage you’re applying for.

Your debt to income ratio is the percentage of your gross monthly income that would go toward your total monthly obligations.

A good rule of thumb is that this amount shouldn’t exceed forty three percent of your gross monthly income. You can determine your total debt to income ratio by first calculating your monthly housing expenses, including mortgage principal and interest, property taxes, private mortgage insurance, homeowners insurance, and homeowners’ association fees, if you’re buying a condo.

And then calculate all your other monthly obligations, including car loans, credit card bills, student loans, child support, and alimony.

The total of these two calculations divided by your total gross monthly income equals your total debt to income ratio.

For example, let’s say you pay fourteen hundred dollars a month for your mortgage, including taxes and insurance. And you pay another two hundred and fifty dollars a month for an auto loan, and one hundred dollars a month for your credit cards, then your total monthly debt is seventeen hundred and fifty dollars.

Take your total monthly debt of seventeen hundred and fifty dollars and divide this by your gross monthly income of four thousand three hundred dollars. Your debt to income ratio, or D T I equals forty one percent.

Remember, debt to income ratio is just one of the factors reviewed by DCU. DCU loan officers are always available to discuss your specific situation.

For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage or a DCU branch.

A note about third-party links – By selecting certain links on this page, you will leave DCU's web site and enter a web site hosted by an organization separate from DCU. We encourage you to read and evaluate the privacy policy of any site you visit when you enter the site. While we strive to only link you to companies and organizations that we feel offer useful information, DCU does not directly support nor guarantee claims made by these sites.

Transcript: Mortgage terms to know

When you’re buying a home, the mortgage process has its own vocabulary. In this video, we’ll share some of these important terms with you.

Knowing them before you get started will help you better understand the information that’s being discussed throughout your own mortgage process.

The first step in the home buying process is typically the prequalification, which is an initial review of your mortgage application to determine how much you can afford to borrow. Most realtors prefer that you get prequalified before you start shopping so they know you can afford the homes you’re considering and have financing options in place.

Another term is P I T I, an acronym for principal, interest, taxes, and insurance the four components of a typical monthly mortgage payment.

The first component is Principal. This is the amount of money you’re borrowing.

Interest is the cost of borrowing that money, which is charged by the lender.

Taxes. This is the monthly amount required for your property taxes.

Insurance. This is the monthly payment for your home owners’ insurance premium.

PMI stands for Private Mortgage Insurance. It’s required if your down payment is less than twenty percent of the home’s value. The monthly premium amount would be added to your monthly loan payment. Some lenders may offer lender paid mortgage insurance options.

Escrow. This is a separate account set up by the lender to hold the money to pay your property taxes, required if you put less than twenty percent down.

The Debt to Income ratio, or D T I is the percentage of your gross income needed to pay your debts like housing payments, car payments, credit card payments and other recurring expenses. It helps your lender evaluate your ability to afford the monthly mortgage payment.

L T V stands for Loan to Value. The ratio of the amount of money borrowed over the value of the home expressed as a percentage. The difference between these two numbers is the amount of your down payment or equity in the home. To calculate your L T V, divide your loan amount by the home’s appraised value or purchase price, whichever is less.

The Loan Estimate, or L E, is a disclosure you get after applying for a mortgage. It explains the terms of the mortgage and includes information like the estimated interest rate, monthly payment, and total closing costs for the loan.

And finally, there is the Closing Disclosure, or C D.

This disclosure gives you the final details about your mortgage terms, projected monthly payments, and final fees and other costs.

Familiarizing yourself with the mortgage terms is a smart first step to the mortgage process. Check out the other DCU mortgage videos for additional information. And remember, DCU loan officers are always here to help you with any questions you may have along the way. For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage, or a DCU branch.

A note about third-party links – By selecting certain links on this page, you will leave DCU's web site and enter a web site hosted by an organization separate from DCU. We encourage you to read and evaluate the privacy policy of any site you visit when you enter the site. While we strive to only link you to companies and organizations that we feel offer useful information, DCU does not directly support nor guarantee claims made by these sites.

Transcript: Should You Buy a Home or Rent?

For some people, buying a home makes the most sense. But for others, renting a home is a better option.

This is an important question to answer and there are advantages to both. So DCU would like to share some information that could help you decide.

Let’s start with reasons to consider renting.

Number one: renting is usually less expensive overall and requires less money up front than buying a comparable home in the same area.

Second, consider how long you plan to live in the house.

Because of the upfront costs and the down payment funds your mortgage will require, if you don’t think you’ll live in your home for at least five years, then renting might be a smarter way to go.

Third, there’s more flexibility with renting because it’s easier to pick up and move.

Keep that in mind if you’re uncertain about job security, think you might be transferred or just want to change neighborhoods.

And finally, you’ll avoid maintenance and repair costs, and real estate taxes.

Because when you rent, your landlord is responsible for those things.

So, what are the reasons to consider buying a home?

First of all, every dollar you put towards your mortgage loan’s principle increases your equity: the amount of the home’s value you actually own.

Your equity is the difference between the current market value of the home, less any mortgage loans. Your equity builds over time as you pay down the principal balance of your loans and if the value of your home increases, your equity will too.

Buying a home can lead to tax benefits because in most cases your mortgage interest and real estate taxes are tax deductible. Consult your tax professional.

When you buy a home at present market prices, you’re protected if home prices increase in the future. And if you have a fixed rate mortgage, your monthly payments will be constant. A landlord, on the other hand, can always raise your rent.

When you have a feeling of ownership, you’re more likely to invest in your home to make it the perfect place to live, raise a family, or spend time together.

Finally, when you’re in a neighborhood with other homeowners, you’re likely to become more involved with the people and the programs in your community.

So, to sum up:

Renting a home requires less financial commitment, gives you more flexibility and can be less expensive overall. Buying a home can build equity, has tax benefits, offers cost protection, and gives you a sense of community and permanence.

Whatever you decide, remember: DCU is always here with the expertise to help you make the most informed decision possible as well as prepare for future plans.

For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage, or a DCU branch.

A note about third-party links – By selecting certain links on this page, you will leave DCU's web site and enter a web site hosted by an organization separate from DCU. We encourage you to read and evaluate the privacy policy of any site you visit when you enter the site. While we strive to only link you to companies and organizations that we feel offer useful information, DCU does not directly support nor guarantee claims made by these sites.

Transcript: The Mortgage Downpayment

When purchasing a home, you’ll be required to make a cash down payment usually between 3 and 20 percent of the home’s full purchase price. How much money to put down on your new home is an important decision. And there are several factors and benefits to consider, so DCU wants to help you better understand your options.

While a down payment can represent a significant amount of money, there are advantages to making a larger one:

Number one: If you can make a down payment of 20% or more, you can avoid the cost of private mortgage insurance, or P-M-I.

PMI stands for “Private Mortgage Insurance and is required if the down payment is less than 20% of the home’s value. This insurance coverage protects the lender if you default on the loan. The monthly premium amount is added to your monthly loan payment. Some lenders may offer lender paid mortgage insurance options.

Number two: when you can make a larger down payment, it reduces the amount you’re borrowing, which lowers your monthly payment.

And three, you’ll pay less interest over the life of your loan because you’ll be borrowing less money. While a larger down payment has advantages, options are available for down payments as little as 3 to 5%. And making a smaller down payment can have its advantages as well.

First, it means that you’ll need less money out of pocket when you purchase the home, this will allow you to allocate other funds you have for closing costs, an emergency fund, or maybe some updates you plan to make to your new home.

Second, monthly PMI premiums vary depending on your loan scenario. The closer your loan value is to 80%, the lower the monthly PMI amount. And some loan programs may have lender paid PMI options.

Review your options using our personalized quote tool online, or speak with a loan officer for more information.

And finally, putting down less money may allow you to purchase as a home sooner. Saving funds for your home purchase takes time and a loan with a lower down payment can give you flexibility for the time of your home purchase.

Next, it’s important to understand you have options for the source of your down payment.

The money can come from your own savings, but it can also come from other sources like a gift from a relative or a grant from your city or state.

Of course, there are other costs to consider when deciding on the down payment amount that’s best for you.

First, you’ll want to factor in closing costs, which could be a few thousand dollars, and be sure to keep some “move–in” money for things like painting, new furniture or maybe a new appliance.

So, to sum up, a larger down payment can help you avoid the costs of private mortgage insurance, reduce the amount you need to borrow, and save you interest costs over the life of the loan.

While a smaller down payment can mean less money out of pocket, give you more options with PMI and allow you to purchase a home sooner. Determining how much home you can afford to buy is another important factor when deciding how much money you should have for a down payment.

Check out our DCU video: “How Much Home Can You Afford?” to help you determine what price range of homes you should include in your home search. DCU’s personalized quote tool can provide you with the rate, payment option and cost details for multiple scenarios.

Remember: DCU is always here for you to discuss options, answer questions and provide a choice of great mortgages. For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage, or a DCU branch.

A note about third-party links – By selecting certain links on this page, you will leave DCU's web site and enter a web site hosted by an organization separate from DCU. We encourage you to read and evaluate the privacy policy of any site you visit when you enter the site. While we strive to only link you to companies and organizations that we feel offer useful information, DCU does not directly support nor guarantee claims made by these sites.

Transcript: What’s the Best Mortgage for You?

Mortgages these days come in a variety of forms, and what’s most important when it comes to choosing one can be different for everyone. For you it may be the monthly payment, for others it may be the interest rate or term of the loan, or perhaps it’s a combination of all these things. That’s why it’s important to understand the differences and then choose the mortgage that’s best for you. So, we’ll take a look at several different mortgage options.

A Fixed-Rate Mortgage provides a constant interest rate and fixed monthly principal and interest payments for the life of the loan with terms ranging from 10 to 30 years.

For those reasons, fixed-rate loans make budgeting easier, and protect you if interest rates rise in the future.

By comparison, an Adjustable Rate Mortgage, or “ARM”, has an interest rate that can fluctuate up or down. Many ARMs start at a lower interest rate than a fixed-rate mortgage for a number of years.

For example, a 5/1 ARM has a fixed interest rate for five years. After that, the rate can go up or down once each year within established limits. So, in a period of continuously low interest rates, an adjustable rate mortgage can save you significant money compared to a fixed-rate mortgage.

It can also be a good mortgage choice if you plan to live in your home for only a few years.

DCU also offers two specialty mortgages:

One is called a Jumbo Mortgage, which is a program offering large loan amounts, most common in areas where the average home prices are more expensive.

A Jumbo Mortgage offers loan amounts higher than the conforming loan limits set by the Federal Housing Finance Agency, or FHHA. While this threshold varies across the country, DCU offers jumbo loans at competitive rates that are often very close to those of conforming loans.

Another specialty mortgage DCU offers is a VA Mortgage, which is a loan guaranteed by the U.S. Department of Veteran Affairs, and available to veterans or active military members.

A VA mortgage typically requires no down payment, so the mortgage can finance 100% of the home’s purchase price and this loan has no private mortgage insurance.

So, to review:

A Fixed-Rate Mortgage has a constant interest rate and constant monthly payment.

An Adjustable Rate Mortgage starts at a lower interest rate, but can go up or down after the introductory period.

A Jumbo Mortgage offers higher loan amounts at competitive rates.

And, a VA Mortgage has benefits for active duty military and veterans.

Remember: DCU is always here for you to discuss options, answer questions, and provide you with a choice of great mortgages. For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage, or a DCU branch.

A note about third-party links – By selecting certain links on this page, you will leave DCU's web site and enter a web site hosted by an organization separate from DCU. We encourage you to read and evaluate the privacy policy of any site you visit when you enter the site. While we strive to only link you to companies and organizations that we feel offer useful information, DCU does not directly support nor guarantee claims made by these sites.