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All The Vital Information Needed For A Mortgage

You want to buy a house, in the worst way, but you are not sure if you will qualify for a mortgage.

Here’s all the vital information you need to know to get started:

First, forget about everything everyone else told you and just pay attention to the facts.  Much has changed in the mortgage world since the crash of 2008, but the basics have not.  Mortgages are all about Income, Credit, and Assets. It is vital you’re “strong” on all three of those, and if you are, you will be fine. You’ll have busy work to do, but you will be fine.

A most common misconception is that if you are strong or exceptional on at least two of the three, that’s good enough. That was never really the case, exclusively, and it’s less the case today. I’ve seen borrowers with three or four times the value of the house in Liquid Assets get turned down due to low income or even sub-standard credit.

Second, up until 2007 or so, the industry was requiring less and less documentation every year.  That’s flipped completely now. Lenders take nothing for granted, and you have to be prepared to provide extensive documentation and explanations about everything related to the three vital components.

Debt-to-Income (DTI) ratio is more important to lenders than ever before. Let’s talk income first- if you are self-employed, you have to use after-deduction earnings, but if you are a W-2 wage-earner, the gross income is basically used “as is” from pay stubs/w2’s and/or tax returns. If you have a W-2 position with even a month’s worth of job history, you should be able to qualify. Conversely, self-employed people must have two years of tax returns to somehow demonstrated to lenders that the income is likely to continue and can be used in a DTI calculation.

Debt information is primarily gathered directly from credit reports. For credit cards, a “minimum” monthly payment is used as a monthly debit entry (does not matter if you pay the balance in full or not). Car leases and other reported mortgages being carried, not including a mortgage on a property that will be sold prior to settlement, are all added into the monthly debt metric.

Add your monthly debt and divide by the monthly income and you need to have a ratio of close to 30 percent to have a debt/income that will be acceptable to just about any lender and any mortgage program. As the ratio climbs above 40 towards 50, you should not give up, but you will probably qualify for far fewer premium (“best rate”) mortgage programs if any at all.

Finally, the likelihood of approval will also be impacted by the ever-dreaded credit score. The higher the debt ratio, the better the score must be (700 plus). With a strong ratio, and a significant down payment (over 10 or 20 percent), it still may be possible to get by with a score in the 600-650 range. Another misconception as it relates to Credit is that “score” is the be all and end all measurement. It’s not. If your score is over 700 but you have been late recently on a single mortgage payment, you could be denied.

On home purchases, it is true that the more someone puts down, the better the chances to qualify. However, anything over 25% down is probably not going to improve rate or qualifications – aside from the fact that the more down results in a lower monthly payment. You can get a mortgage with as little as 3% down.  However, you could be subject to mortgage insurance and won’t qualify for the best programs if you put down less than 20 percent.

In closing, don’t fight the Big Banks and Government Regulations. It does not matter how ridiculous some of the requirements may seem. The most likely applicants to qualify are strong-balanced Income, Credit, Asset profiles combined with a highly responsive, dutiful positive energy put forth until the process comes to a long-awaited close.

Remember, as frustrating as it can be at times, it is “their money” you are asking for, and you have to play by the Lender’s rules and the Government’s oversight.

Story by Michael Lubell

 

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Mortgages Loan

Which loan is right for you?  We can help you decide . . .

We can help you determine which mortgage loan is right for you based on your time horizon, risk tolerance and overall financial situation.  Then work with lenders offering the following loans:

FHA Loans and Mortgages

An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA).  Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.

FHA 203k Loans:

The idea of buying a fixer-upper and turning it into your dream abode can seem so perfect — every nook and cranny just to your specifications!  The reality, however, can be harsh when you realize how much it will cost to remodel.

FHA Streamline Refinance Program

The FHA Streamline Refinance program is a special refinance program for people who have a Federal Housing Administration (FHA) loan.  It is the simplest and easiest way to refinance an FHA loan. Unlike a traditional refinance an FHA Streamline Refinance allows a borrower to refinance without having to verify their income and assets.

VA Loans

VA loans are home loans for the purchase of a primary residence available to consumers who have served or are presently serving in the U.S. military.  While the Department of Veterans Affairs (VA) does not lend money for VA loans, it backs loans made by private lenders to veterans who qualify.

ARM Loans – 3, 5, 7 & 10 Year

An adjustable-rate mortgage, or ARM, has an introductory interest rate that lasts a set period of time and adjusts thereafter for the remaining time period up to a total of 30 years.  After the set time period your interest rate will change and so will your monthly payment.

40- , 30-, 20-, 15- and 10-Year Fixed Mortgage

A fixed loan has a specific, fixed rate of interest that does not change during the course of the loan period.  The borrower will be required to repay the principal and interest on the loan throughout the loan period.

Second Mortgages

A second mortgage — also referred to as a home equity loan or home equity line of credit — is just what it sounds like: another (second) mortgage on your home.  Like with your original mortgage, your second mortgage is secured by your home, meaning that if you don’t pay the loan, the bank can take your home.

Zero Down Payment Loans

Buying a home and putting no money down to do it sounds appealing to many, but in reality it’s hard to get a zero down payment mortgage in this climate, as banks no longer offer them to most consumers.  Hard, however, doesn’t mean impossible.

Interest-Only Loans

With a traditional mortgage, buyers pay some part of the principal and interest with every monthly payment.  An interest-only mortgage loan works differently:  Borrowers are allowed to pay only the interest on the loan for a fixed period of time — usually five to seven years — and then must begin paying off the principal.

Home Equity Loans

With a home equity loan — also known as a second mortgage, term loan or equity loan — a mortgage lender lets a homeowner borrow money against the equity in his home.

No-Closing Cost Refinance

The lure of refinancing right now is powerful with interest rates hovering near historic lows. But there is a potential downside to refinancing:  The cost, as closing costs on a refinance typically run about $4,000.

What Is a Cash-Out Refinance?

A cash-out refinance is a refinancing of an existing mortgage loan, where the new mortgage loan is for a larger amount than the existing mortgage loan, and you (the borrower) get the difference between the two loans in cash.

VA IRRRL Refinance Loans

The U.S. Department of Veterans Affairs’ Interest Rate Reduction Refinance Loan (IRRRL) helps homeowners refinance their existing VA loans to a lower interest rate loan or to a fixed-rate loan (from an adjustable-rate loan). The goal of the program is to help lower homeowners’ monthly payments or make payments more predictable by fixing the interest rate. Here’s what you need to know about VA IRRRL refinance loans.

Land Loans

Land loans come in all shapes and sizes and are unique compared to existing home loans. The purpose and current use of the land can dictate the terms of the loan.

Construction Loans

Construction loans are short-term loans that enable the construction of a project to completion. Upon completion, the permanent loan or “end financing” will be used to pay off the interim construction loan. The term on a construction loan is short duration of 6 months to a year.

FHA Loans vs. Conventional Loans

It may not always seem clear whether to apply for a FHA loan or conventional loan. FHA loans have typically been known as loans for first-time homebuyers, filled with extra paperwork and complexity since it’s a government-insured program.  But borrowers can use multiple FHA loans for purchasing or refinancing a home loan.  However, FHA loans may not be used for second homes or investment properties.

Home Improvement Loans

Homeowners can apply for home improvement loans for a variety of reasons, including remodeling, updating or making repairs to their home.  Loans can be issued for anything as simple as a roof repair, an update to an energy-efficient furnace or a new addition.

Physician Loans

Physician loans, also referred to as doctor loans, present a unique set of circumstances for lenders because new doctors do not have any work history and usually have a significant amount of student loan debt. This situation will typically prevent physicians from getting approved on any conforming conventional products, so many banks have developed special portfolio products to originate and service these types of loans. Along with taking a risk to accommodate these borrowers, there also comes reward. Below are a few reasons why banks have developed physician loans.