Coaching and teaching - many through the mortgage process and others on the field

Tag: mortgage (Page 1 of 2)

It’s Easier to Qualify for a Mortgage Than You Might Think

One of the largest misconceptions that potential borrowers have about buying a home is that it’s too tough to qualify for a mortgage.

Qualification can be a lengthy process, to be sure, but it isn’t impossible by any stretch.

Think about it this way…people buy homes every day, and many borrowers don’t have the perfect situations. 

Erik J. Martin from The Mortgage Reports has put together an interesting piece that I’ve linked to here.  I highly recommend you take a look at it – and I’ve summarized some of it in this article.

Don’t Overthink the Perceived Difficulty

Believe it or not, most potential borrowers with a reliable job, that have regular income, and average credit can most likely qualify for a mortgage.  Of course, there are specific regulations that must be met, but qualification isn’t as tough as many might think.

Interestingly, many potential buyers willing to own a home don’t even try to qualify for a mortgage. Many believe that rigid mortgage requirements will disqualify them.

Per Martin’s article: “new research indicates that consumers think it’s harder to qualify for a mortgage loan than it actually is. And many lack the facts and know-how to properly pursue home financing.”

He continues: “don’t rule out buying a home because you think you’re ineligible for a loan. Chances are that, armed with knowledge and the right guidance, you can buy that home you’ve been thinking about.”

Report: Consumers believe guidelines are tougher than they really are

Martin references the study from Fannie Mae that recently polled 3,000 consumers about their understanding of mortgage requirement rules. Some findings were surprising:

  • Only 11 percent were aware that the minimum FICO credit score needed to obtain a mortgage is 580. Most thought it was 650.
  • Over 40 percent didn’t know their own credit score.
  • Most people think you need to put down at least 10 percent for a down payment. The truth is, the median is 3 percent; some programs don’t even require a down payment.
  • Only 23 percent of respondents were aware that low down payment programs are available.
  • Over three in five didn’t know that the debt-to-income ratio lenders don’t want total debt payments to exceed is 50 percent.
  • Only 12 percent of homeowners and 9 percent of renters were able to identify the correct credit score range needed to qualify for a mortgage.
  • The top five reasons cited for expected difficulty in getting a mortgage were
    • Insufficient income (chosen by 23% of respondents)
    • Too much debt (17%)
    • Insufficient credit score/credit history (15%)
    • Affording the down payment or closing costs (14%)
    • Lack of job security/stability (9%)

One more thing regarding those who would rather rent than buy…the report intimates that these are the people are most unclear about mortgage requirements.

My guess is that this uncertainty is holding them back from learning more details or reaching for a goal that seems to difficult.

Give it a Try!

More often than not, there are two things get in the way of buyers seeking a mortgage: their own fears and lack of info about mortgage requirements.

There are many things potential borrowers can do – one of the first is finding out your FICO credit score.  You can find more on that here….

Most importantly, reach out to a trustworthy lender and go through the mortgage application process.

When talking with your lender, make sure to ask about different loan options – and find out what you qualify for. Learn what your minimum down payment and credit score need to be.

Determine how much you’ll pay monthly and over the course of a given loan. Your lender can also talk with you about the particular requirements for that particular loan.

Please do reach out to me, as it would be my pleasure to help!

Before Making a 20% Mortgage Down Payment, Do Read This

“How much should I put down on a house?”

It’s a question that I hear all the time from would-be home buyers— especially first-timer purchasers.

And, the answer is:  “it depends,” as it really will vary by buyer.

I’d highly recommend that you check out Dan Green’s article at The Mortgage Reports for more.

Per Mr. Green: “If you’re a home buyer with a good deal of cash saved up in the bank, for example, but you have relatively low annual income, making the biggest down payment possible can be sensible. This is because, with a large down payment, your loan size shrinks, reducing the size of your monthly payment.”

Or, perhaps your situation is reversed.

“Maybe you may have a good household income but very little saved in the bank. In this instance, it may be best to use a low- or no-down-payment loan, while planning to cancel your mortgage insurance at some point in the future.”

Dan continues: “One thing is true for everyone, though — you shouldn’t think it’s “conservative” to make a large down payment on a home. Similarly, you shouldn’t think it’s “risky” to make a small down payment. The opposite is actually true.”

“About the riskiest thing you can do when you’re buying a new home is to make the largest down payment you can. It’s conservative to borrow more, and we’ll talk about it below.”

For today’s most widely-used purchase mortgage programs, down payment minimum requirements are:

Remember, though, that these requirements are just the minimum. As a mortgage borrower, it’s your right to put down as much on a home as you like and, in some cases, it can make sense to put down more.

Larger Down Payments Actually Increase Risk

Green continues: “As a homeowner, it’s likely that your home will be the largest balance sheet asset. Your home may be worth more than all of your other investments combined, even.

In this way, your home is both a shelter and an investment and should be treated as such. And, once we view our home as an investment, it can guide the decisions we make about our money.

The riskiest decision we can make when purchasing a new home?

Making too big of a down payment.”

The Higher The Down Payment, The Lower Your Rate of Return

The first reason why conservative investors should monitor their down payment size is that the down payment will limit your home’s return on investment.

Consider a home which appreciates at the national average of near 5 percent.

Today, your home is worth $400,000. In a year, it’s worth $420,000. Regardless of your down payment, the home is worth twenty-thousand dollars more.

That down payment affected your rate of return.

  • With 20% down on the home — $80,000 –your rate of return is 25%
  • With 3% down on the home — $12,000 — your rate of return is 167%

That’s a huge difference. Please do reach out to me for more information so we can figure out the best down payment strategy for you!

FHA and Conventional Mortgage Options – Which is Better?

I’m often asked about the different types of loans available for those with a limited down payment.  The main options are Fannie Mae and Freddie Mac conventional mortgages or FHA loans.  But which one is best?

The FHA versus conventional analysis involves taking a look at your credit score, your available down payment, and your long-term financial goals.

Let’s take a look at all 3 issues:

1. Credit score – buyers with low-to-average credit scores may be better off with an FHA loan. FHA mortgage rates are generally slightly lower than conventional ones for applicants with lower credit, and FHA loans allow credit scores down to 580.

2. Down payment – borrowers can come in with a lower down payment with conventional products, at just 3% down. FHA requires 3.5% percent down.

3. Long-term goals – conventional mortgage insurance can be cancelled when the home achieves 20% equity. FHA mortgage insurance is payable for the life of the loan and can only be canceled with a refinance. Buyers who plan to stay in the home five to ten years may opt for conventional, as the FHA mortgage insurance can add up over time.

For a more, I’d invite you to visit the source at The Mortgage Reports and Dan Green’s post.

FHA Or Conventional – Which is Superior?

There are a multitude of low-down payment options for today’s home buyers but most will choose between the FHA 3.5% down payment program and conventional options such as HomeReady, Home Possible, and Conventional 97.

So, which loan is better? That will depend on your circumstance.

For example, in deciding between an FHA loan and a conventional option, the borrower’s individual credit score matters greatly. This is because the credit score determines whether the borrower is program-eligible; and, it affects the monthly mortgage payment, too.

FHA loans are available with credit scores of 580 or better. The conventional options, by contrast, require a minimum credit score of 620.

Therefore, if your credit score is between 580 and 620, the FHA loan is essentially the only available option.

As your credit score increases, though, the conventional options become more attractive. Your mortgage rate drops due to the lower score and your mortgage insurance costs do, too. This is different from how FHA loans work.

You can find out much more about mortgage insurance here….

With an FHA loan, your mortgage rate and MIP cost the same no matter what your FICO score.

Therefore, over the long-term, borrowers with above-average credit score will typically find conventional loans more economical relative to FHA ones.

In the short-term, though, FHA loans generally win out.

A Second Thought

One main consideration has to be the length of time you would expect to “keep” this mortgage. 

Borrowers should take into consideration that FHA MIP is forever but conventional mortgage insurance goes away at 80% loan-to-value. This means that, over time, your conventional option can become a better value — especially for borrowers with high credit scores.

It’s hard to know for how long you’ll hold a loan, though. Sometimes, we expect to live in a home for the rest of our lives and then our circumstances change. Or, sometimes mortgage rates drop and we’ve given the opportunity to refinance.

As a general rule, though, in rising-value housing market, if you plan to stay in the same home with the same mortgage for longer than six years, the conventional 97 may be your better long-term fit.

One other thing to consider is upfront charges.

The FHA charges a separate mortgage insurance premium at the time of closing known as Upfront MIP. Upfront MIP costs 1.75% of your loan size, is generally added to your balance, and is non-recoverable except via the FHA Streamline Refinance.

Upfront MIP is a cost. The conventional versions do not charge a fee.

FHA vs Conventional Infographic

 

Image Courtesy of  The Mortgage Reports

You can find out much, much more about low-down payment options, as well as the specifics of these loans here.

For today’s low down payment home buyers, there are scenarios in which the FHA loan is what’s best for financing and there are others in which the conventional option is the clear winner. Rates for both products should be reviewed and evaluated.

It would be my pleasure to help you find the version that’s most optimal for your situation, so please do contact me for more details!

VA Loans: Some Specifics and Fee Structures

Veterans Affairs mortgages, better known as VA loans, offer considerable benefits for eligible military veterans, service members and spouses who want to buy a home.

What makes the VA loan so attractive to veterans is that they offer no down-payment loans and more lenient credit and income requirements than conventional and FHA mortgages.

With that said, there is some confusion surrounding what can and can’t be charged to the veteran at closing. The article below will outline some of the benefits of the VA loan as well as the fee structure associated with the loan.

The Specifics

VA loans generally offer more competitive rates compared to conventional financing. In many cases, these loans consistently offer the lowest rates on the market, according to reports by mortgage software firm Ellie Mae.

VA mortgages are made through private lenders and are guaranteed by the Department of Veterans Affairs, so they don’t require private mortgage insurance, known as PMI.

Most members of the regular military, veterans, reservists and National Guard are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability also can apply.

The Details and Fee Structures

The seller is allowed to pay all of the veteran’s closing costs, up to 4% of the home price. So, it is possible to avoid paying anything out of pocket to close your home purchase.

If you have little or no funds available for closing cost, let your real estate agent know that you are purchasing your home with a VA loan. Your agent may be able to request that the seller pay for some or all of your closing costs.

Also, the VA limits the amount of fees the lender can charge. This is a great benefit to the VA loan.

Fees Not Allowed to be Charged to the Veteran

Some fees are not allowed to be charged, per VA loan guidelines. Here are the specifics:

Attorney Fee

An attorney fee cannot be charges unless it is for anything besides title work.

Escrow Fee/Settlement Fee/Closing Fee

The VA does not allow the veteran to pay an escrow fee. The escrow fee varies greatly and can be quite expensive, so this is a great benefit to the VA loan.

Application Fee

This is a fee the lender sometimes charges up front before the borrower takes an application. This is not allowed on VA loans.

Mortgage Broker Fee

Sometimes charged by mortgage brokers when they broker a loan out to the lender.

Closing Protection Letter (CPL)

The CPL fee is often included in the escrow fee but sometimes charged separately. It is a letter that makes the title company responsible if escrow does not appropriate loan proceeds correctly.

Document Preparation Fee

Fee charged by escrow for preparing final loan documents.

Lock-in Fees

Fees charged by the lender to lock the interest rate.

Courier Fee/Postage Fees

Sometimes there are original documents that need to be hand-carried or sent via overnight service, and can’t be emailed or faxed. In this case, the escrow company will often charge a courier fee to ensure these services are paid for. The veteran is not allowed to pay these fees.

Notary Fees

Fees charged by escrow to send a notary to the borrower for a signing appointment outside escrow’s office.

Termite Report

The veteran cannot pay for a termite inspection or report in all but 9 states in the US.

Tax Service Fee

This fee is paid to the mortgage company to ensure they pay the real estate taxes.

The Fine Print

This list of allowable and non-allowable fees above is not all-inclusive and there may be other fees on your purchase transaction that are not mentioned here. In that case, it’s best to contact your lender to find out if the charge is allowable on VA loans.

Fees That Can Be Charged to the Veteran

VA Upfront Funding Fee

This fee goes directly to the Veteran’s Administration to defray the costs of the VA program. This is not a fee that is generally paid for in cash at closing – usually VA homebuyers opt to finance it into their loan amount. If the fee is wrapped into the loan amount, it does not increase the total amount of cash needed to close the loan.

Appraisal Fee

The appraisal is paid by the veteran and is usually paid at closing.  For more regarding appraisals, go here….

Origination Fee

The VA limits the lender’s compensation on VA loans to 1% of the loan amount. This fee is meant to compensate the lender in full. Fees for items such as processing and underwriting may not be charged if this 1% fee is charged to the veteran.

Third Party Fees

Companies involved in the transaction other than the lender are called third parties. Examples are title and escrow companies, credit reporting agencies, and appraisers. Their charges are called third party fees. Common fees are title insurance policies, recording fee, credit fee, and flood certifications.

Prepaid Items

Prepaid items are items the buyer has to pay in advance. Lenders require insurance policies and taxes to be paid in advance. Not paying for taxes and insurance can jeopardize the integrity of the collateral for the loan, which is the house.

More Information Available

For more information regarding VA loans and eligibility, don’t hesitate to contact me – as it would be my pleasure to help!

The Ever-Changing Mortgage Lending Landscape – Alternative Options Included

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Historically, mortgages in the U.S. were traditionally financed by banks. Interestingly, these institutions also operate other lines of business, like offering deposit accounts, safe deposit boxes, and insurance products.

But today, mortgage lending is anything but old-fashioned, and as buyers are looking to lenders other than banks to fill the void. home loan tiles

Fortunately, these newer financial institutions continue to create innovative mortgages that fit the diverse needs of borrowers, rather than forcing consumers to conform to rigid standards. The end result is more people with the financing to afford the home they need, rather than being shut out of homeownership entirely.

The trend away from banks and toward nontraditional lenders is a relatively recent development that is reshaping the financial landscape in the U.S. This can be seen in a report of the top U.S. mortgage lenders by market share in 2011 compared to 2016. Get this, in 2011, 50 percent of all home financing was underwritten by the five biggest banks in the country.

Just five years later, however, six of the top 10 mortgage lenders by volume were considered “non-bank lenders” that focus on home loans almost exclusively.”

Explaining the shift in the mortgage market

Why are more homebuyers choosing non-bank lenders over traditional banks?

Much of the shift has to do with the increasingly strict standards that banks adhere to when vetting mortgage applications. Prospective homebuyers were expected to have stellar credit scores, high income and significant net worth already established before being approved for a traditional loan.

However, this is not the financial reality for millions of Americans. The new lenders can be a better alternative for families that have imperfect credit for one reason or another and just need a second chance.

Secondly, the new mortgage lenders are much more in tune with their customers and provide a far better experience. There is a much greater level of personalization, With the larger banks, on the other hand, customers can just become a number.magnifier-inspection-house

These new lenders have dramatically increased their market share purely on the basis of the superior service and support they provide.

Finally, the speed in which mortgage lenders can close transactions is much quicker than those of traditional banks. There are fewer layers in these organizations decision making can be made at a faster pace.

Traditional banks are not known for their efficiency, and the result for mortgage applicants is a long, drawn-out process of signing paperwork and enduring waiting periods

Many mortgage lenders can close loans in under 25 days, where that is not the case with larger institutions.

Non-Prime Lending Options

The need for non-prime products is growing, as conforming loan rules have tightened.  Working with a lender that can only provide standard, conventional products will limit a legitimate and legal funding resource for many customers.

Approved_pagadesignA bank statement loan or a loan on a non-warrantable condo are examples of “non-prime” products.  A bank statement loan, among other things, can support the private business owner who has significant expense associated with their business and can still satisfy credit and ability to repay. These are individuals who will not qualify under the conventional guidelines of Fannie/Freddie but still have the ability to service a mortgage on time.

For investors, there are products that utilize the rent from the property to qualify for a loan. In this option, the debt coverage ratio measures the ability to pay the property’s monthly mortgage payments from the cash generated from renting the property.

Lenders use this ratio as a guide to help them understand whether the property will generate enough cash to pay the mortgage expense.

The debt coverage ratio is calculated by dividing the property’s month net operating income (NOI) by a property’s monthly debt service. The monthly debt service is the total of the mortgage principal and interest payment, taxes, insurance, and any HOA fees.

Contact The Right Lender

When you are shopping for you lender, make sure that he/she has a wide variety of products available and takes the time to understand your individual needs. That will make all of the difference – and it would be my pleasure to help!

Tom Title Bar

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