Category: Mortgage (Page 47 of 60)

What is a Home Appraisal and Why is it Important?

July 24, 2017 / Tom Bonetto

If you’re buying a home and your offer has been accepted, one of the next steps is verifying the value of the home. As part of that process, your lender orders a home appraisal.

It gives you a trained professional’s point of view on the fair market value of the home to make sure it’s in line with the purchase price.

What Is a Home Appraisal?

A home appraisal is an unbiased report on the worth of a house in the fair market, performed by a trained and licensed individual.

Appraisals are needed to ensure the homebuyer, the home seller and the mortgage lender receive the accurate and true value of the real estate in question.

In most residential property transactions you are able to choose your real estate agent and your lender. However, in today’s regulatory world, you don’t get to pick your appraiser. Instead the appraiser must be chosen by the lender to provide a level of independence from the buyer and seller.

In order to ensure that appraisals are impartial, the Appraisal Independence Requirements, or AIR, prohibits a lender’s loan production staff from having direct contact with—or influence upon—any appraisers.

To reduce the risk of violating AIR, lenders now hire appraisers via appraisal management companies. These companies work with many residential appraisers in order to cover a more diverse housing market and to reduce the risk of improper influence.

Who orders and pays for the appraisal?

Your lender orders the appraisal to be performed by a licensed appraiser through an appraisal management company. However, you, the borrower, are typically required to pay for it – outside of escrow. Usually with a credit card.

The cost appears on the Closing Disclosure as part of your closing costs.

What determines a home’s value?

When estimating a property’s value, appraisers consider:

Comparable properties that have sold recently, especially those that are similar in size and location to the home you are buying. Their sale prices are usually the most important factor.
General condition and age of the home
Location of the home, including views or other remarkable features
Size and features of the home and property, including the number of bedrooms and baths
Major structural improvements such as additions and remodeled rooms
Features and amenities such as swimming pools and wood flooring

What’s the difference between an appraisal and an inspection?

An appraiser does not necessarily look for potential defects in the home. That’s the responsibility of the home inspector. You hire an inspector directly if you are purchasing a home and want an itemized report of potential repairs or problems with the property.

The appraiser instead focuses on whether the home’s agreed-upon purchase price is in line with what it is worth.

How Can You Improve Your Home Appraisal Process?

As a buyer, you can make sure that the home appraisal process protects you by taking a careful look at the Final Report of Value. If there are portions of it that you don’t agree with, such as findings that differ from your inspection report, or inaccurate comps, be sure to speak up.

If there is a significant difference between the agreed selling price and the appraised value of the home, your bank may choose not to fund the mortgage and the deal could fall through. Buyers can typically solve this problem by bringing additional “cash to close,” which is essentially increasing your down payment by the difference between the sales price and the appraisal value, or negotiating the sales price.

As a home seller, you will also want to be ready for the appraisal process. Itemize any recent improvements that you have made to the home and complete any planned do-it-yourself projects before the appraisal. Don’t be afraid to highlight the upgrades and positive features of your home to the appraiser.

In Closing

Appraisals are a very important part of obtaining a mortgage loan. I’d be more than happy to help you learn more about the other steps involved in buying a home so you can navigate them with confidence. Please contact me to find out more about this important step in the home buying process.

Improve Your FICO Score by 100 Points Quickly

July 18, 2017 / Tom Bonetto

How To Increase Your Credit Score Fast

You can raise your FICO and reduce what you pay for a mortgage, automobiles, and credit cards. And it’s not that hard to do.

Gina Pogol at The Mortgage Reports has put together a step-by-step guide to get your credit score up and start paying less for everything you finance. Below is a sampling from her article that you might find very useful….

How Much Can You Save?

Per Pogol and MyFICO.com, improving your score by 100 points can save you thousands per year – although that’s not enough to make you rich overnight, it certainly is enough to improve your life.

The average home purchase mortgage, according to the Mortgage Bankers Association (MBA), was $324,844 in May 2017.

MyFICO says that you’d pay 5.15 percent with a 620 credit score, and 3.78 percent with a 720 credit score.

The difference in payment for an average loan amount and a 30-year fixed mortgage is $264 a month. And that’s really just the start.

The First Step – Assessment

Your first task, when raising your FICO, is to see what you’re up against.

You can get a copy of your credit report from all three major bureaus for free at the government’s site, annualcreditreport.com. Pay the small charge to obtain your FICO scores as well.

Your “representative” score is the middle score of the three. So if your scores are 598, 602 and 623, your representative score is 602. Note that there are many variations on the FICO score, and not every lender uses the same one.

What’s The Reason For Your Low Scores?

Your plan of action depends on the reasons for your low FICO score.

If the cause is inaccurate information, you can clean up your report yourself by contacting all three credit bureaus, Trans Union, Experian, and Equifax, and the company reporting inaccurately, providing proof that you paid on time.

This can take weeks to fix. If you have a mortgage in process, your lender can bring in a rapid re-scoring company to expedite the process at a reasonable cost.

There is no guarantee that correcting information will raise your score by any specific amount.

Know The Codes

If your report is accurate, your scores have “reason codes” you can use to determine the biggest factors bringing your score down. The most common, according to Equifax, include:

Serious delinquency.
Public record or collection filed.
Time since delinquency is too recent or unknown.
Level of delinquency on accounts is too high.
Amount owed on accounts is too high.
Ratio of balances to credit limits on revolving accounts is too high.
Length of time accounts have been established is too short.
Too many accounts with balances.

Note that the most often-used word in those codes is “delinquency.” If your credit history looks like a rap sheet, littered with late payments, charge-offs and judgments, you’ll need to put some time between your mistakes and your next loan application.

You might even want to reach out to an expert for credit repair.

You won’t be able to start the process until you bring your accounts current. However, your creditors may be able to help you out.

Make Sure You Pay On Time

Next, get a system to ensure on-time payment. It takes about six months of on-time repayment to make a meaningful difference in your credit score, so start as soon as possible.

Set your accounts up on autopay from a checking account. Choose a payment date that follow your paydays and make sure money is there to cover your debts.

If you can’t afford your payments, enlist the help of a non-profit credit counseling service. They can possibly lower your monthly payments, bring accounts current, get penalties waived and help you toward debt-free status.

This may be called a debt-management plan, or DMP. A DMP is not a debt settlement plan, which you should probably avoid.

Some experts recommend that you consider bankruptcy if a DMP won’t pay off your unsecured debts within five years.

High Balances on Existing Debt

The other main category of reason codes concerns the amount of debt you’re carrying. FICO looks at the amount of credit you have with the amount used (utilization ratio), the balances and number of accounts with balances.

Credit bureaus look for spending patterns that are unsustainable. For instance, if every month you spend more than you earn, your payments increase each month, leaving even less disposable income.

Eventually, you have no more available credit and you can’t make your payments.

Fortunately, fixing this changes your score almost immediately. If you have savings to pay off your accounts, consider using it. It’s a safe bet that the interest you’re getting is a lot less than what your creditors are charging.

If you don’t have savings to cover this, you may be able to improve your score by paying off your credit card balances with a personal loan or home equity loan. Lowering your revolving (credit card) account balances drops the utilization ratio.

Don’t do this unless you are 100 percent confident that you will not use your credit cards until the new loan is repaid.

If you have more questions regarding your FICO score and getting into a home loan, please contact me, as it would be my privilege to help!

How Much Do Extra Mortgage Payments Save You?

July 8, 2017 / Tom Bonetto

Paying extra on your home loan can make good financial sense.

It really means a guaranteed return on investment, which isn’t the case for other investments like stocks or mutual funds.

If your current mortgage interest rate is, say, at five percent, you are guaranteed to “earn” five percent — by saving interest — on any amount of principal you pay off.

Borrower Options

Most conventional, FHA, and VA loans allow the borrower to make extra payments (known in the industry as prepayments), without any penalty or fee.

To be clear, making extra mortgage payments might not be the right strategy for everyone, however.

Homeowners often refinance instead, into a 15- or even ten-year mortgage. This drastically cuts their interest rate and slices years off their mortgage.

For shorter-term loans, sometime is the 3% range, make refinancing a very attractive proposition.

Deciding to refinance or make additional payments takes some examination, but the right choice could help you save thousands in interest and get you closer to a mortgage-free life.

Find out more here, from The Mortgage Reports

Big Savings

By making extra principal only payments, the savings could be huge.

For example, a 30-year fixed-rate mortgage at 4% and $200,000 borrowed would require about $140,000 in interest over the life of the loan.

But if you were to prepay just an additional $100 a month toward principal, you would save about $30,000 in interest, and pay off that loan five years quicker.

Here’s another prepayment benefit: unlike the capital gains and dividends earned on other types of investments like stocks and bonds, the savings earned from prepayments are not taxable.

In many cases, taking a longer-term loan at 30-years might be a great option – especially if you pay off the principal faster. You get the flexibility of a smaller monthly payment, but can pay the mortgage down quicker, if you choose.

I’d be more than happy to sit down and talk with you about mortgage term related options. Contact me here for more!

True Communication in the Real Estate World

June 19, 2017 / Tom Bonetto

Whether you are the buyer’s agent or the seller’s agent, the communication with a loan officer can occasionally get tense.

As the seller’s agent you want to ensure that your client gets the best deal possible and you want the loan to close on time. As the buyer’s agent you want to ensure your client gets into the home of their dreams without a hitch.

At the same time, the single biggest issue I hear from agents regarding their lenders has to do with communication….or lack thereof.

“My biggest complaint has always been communication with the consumer and me through the entire process” – Mike K, Realtor

The most important thing to always keep in mind is that whether you are the buyer’s agent or the seller’s agent, I believe it’s best consider the loan officer a part of the team. Remember, we want this loan to close as badly as you and your client.

Key Questions to Consider

Are you receiving weekly and timely Loan Status Updates from your lender?

Are you the first to hear both good news and bad regarding the progress of your client’s loan?

Do you find out about the need for escrow extension only a day or two before the expected close?

If you can’t answer these in the affirmative, you might need to find a new “go-to” lender!

“If the client can’t qualifyy, then don’t waste my client’s time and MINE by trying to fix a square peg in a round hole. However, if they client can be brought along, developed, consulted into becoming a viable buyer then you are a hero to me! I want you calling me and not ME chasing you down.” Kyle C, Realtor

The Importance of The On-Time Close

As a loan officer, my worst nightmare is a loan that doesn’t close. We are paid strictly on commission, so we don’t get paid unless the loan closes (just like you), so there’s extra motivation to come up with any possible solutions to a problem. We don’t want to spend weeks and weeks on a file and then not have it close – and we are no different than the agents in this regard.

The Lending Coach as Your Teammate

So, think of me as your teammate throughout this process.

The referral agents I work with have my word that they will hear the good, bad, and the ugly immediately from me.

They know that we will work together to solve those problems and issues that inevitably arise quickly and professionally.

Please do contact me for more information and how we might be able to work together!

Fannie Mae Eases Qualification Requirements

June 12, 2017 / Tom Bonetto

The country’s largest source of mortgage money, Fannie Mae, soon plans to ease its debt-to-income (DTI) requirements, opening the door to home-purchase mortgages for large numbers of new buyers.

This move by the mortgage giant will dramatically increase the number of people who will now be able to qualify for a home loan.

Per The Washington Post, “Studies by the Federal Reserve and FICO, the credit scoring company, have documented that high DTIs doom more mortgage applications — and are viewed more critically by lenders — than any other factor.”

Using data over the last 15 years, Fannie Mae’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have good credit and are not prone to default.

Simple Definition : Debt-To-Income (DTI)

Debt-to-Income (DTI) is a lending term which describes a person’s monthly debt load as compared to their monthly gross income.

Mortgage lenders use debt-to-Income to determine whether a mortgage applicant can maintain payments a given property.

DTI is used for all purchase mortgages and for most refinance transactions.

It can be used to answer the question “How Much Home Can I Afford?”

Debt-to-Income does not indicate the willingness of a person to make their monthly mortgage payment. It only measures a mortgage payment’s economic burden on a household.

Most mortgage guidelines enforce a maximum debt-to-Income limit – and Fannie Mae has essentially “upped” that ratio to help more borrowers qualify!

Housing Ratio or “Front-End Ratio”

Lenders add up your anticipated monthly mortgage payment plus other monthly costs of homeownership. These other costs of homeownership could include homeowner association (HOA) fees, property taxes, mortgage insurance, and homeowner’s insurance.

Normally, some of these expenses are included in your monthly mortgage payment. To calculate your housing ratio or front-end ratio, your lender will divide your anticipated mortgage payment and homeownership expenses by the amount of gross monthly income.

Total Debt Ratio or “Back-End Ratio”

In addition to calculating your housing ratio, lenders will also analyze your total debt ratio. At this time your other installment and revolving debts will be analyzed and added together. Installment and revolving debts will appear on your credit report.

These payments are expenses like minimum monthly credit card payments, student loan payments, alimony, child support, car payments, etc.

Your monthly installment and revolving debts are then added in addition to your estimated monthly mortgage payment and housing expenses and divide that number by your monthly gross income.

Because of these changes by Fannie Mae, many individuals that did not qualify for a home loan might now be eligible under these new regulations.

Please contact me to find out more!