- What is
Debt to Income Ratio?
Your debt to income ratio is simply a way of determining how
much money is available for your monthly mortgage payment after
all your other recurring debt obligations are met.
- Debt
limit
There is generally a debt limit associated with each type of
loan, such as a 28/36 qualifying ratio for a conventional loan.
These qualifying ratios are guidelines. An excellent credit
history can help you qualify for a mortgage loan even if your
debt load is over and above the limit.
-
Understanding the qualifying ratio
Typically conventional loans have a qualifying ratio of
28/36. Usually an FHA loan will allow for a higher debt load,
reflected in a higher (29/41) qualifying ratio and some of the
100% financing products will actually allow you to borrow up to
55% of your income.
The first number in a qualifying ratio is the maximum percentage
of your gross monthly income that can be applied to housing
(including loan principal and interest, private mortgage
insurance, hazard insurance, property taxes and homeowner's
association dues).
The second number is the maximum percentage of your gross
monthly income that can be applied to housing expenses and
recurring debt. Recurring debt includes things like car loans,
child support and monthly credit card payments.
For example:
With a 28/36 qualifying ratio:
Gross monthly income of $3,500 x .28 = $980 can be applied to
housing
Gross monthly income of $3,500 x .36 = $1,260 can be applied to
recurring debt plus housing expenses
With a 29/41 qualifying ratio:
Gross monthly income of $3,500 x .29 = $1,015 can be applied to
housing
Gross monthly income of $3,500 x .41 = $1,435 can be applied to
recurring debt plus housing expenses
Remember these are just guidelines. We’d be happy to pre-qualify
you to determine how large a mortgage loan you can afford. We
look forward to helping you buy your dream home.
- What is
PMI ( private mortgage insurance)?
For loans made after July 1999, lenders are required by federal
law to automatically cancel Private Mortgage Insurance (PMI)
when the loan balance falls below 78 percent of your purchase
price — not when you achieve 22 percent equity, which will
happen much more quickly with rising property values. (Certain
"higher risk" loans are excluded.) But you have the right to
cancel PMI (for loans made after July 1999) once your equity
reaches 20 percent, regardless of the original purchase price.
Keep track of your principal payments. Also keep track of what
other homes are selling for in your neighborhood. If your loan
is under five years old, chances are you haven't paid down much
principal — it's been mostly interest. But property values in
many parts of the country have gone through the roof lately. And
that can earn you 20 percent equity even if you haven't paid
down much principal.
When you think you've reached 20 percent equity in your home,
you can begin the process of freeing yourself from PMI payments!
You will need to notify your mortgage lender that you want to
cancel PMI payments and you'll need to submit proof that you
have at least 20 percent equity. A state certified appraisal on
the appropriate form (URAR- 1004 uniform residential appraisal
report for single family homes) is the best proof there is — and
most lenders require one before they'll cancel PMI.
- How do
you "buy" a better rate?
Do you plan on keeping your loan for a while? Then it may
make sense to "buy" a lower interest rate by paying one or more
"points."
Even if you're unsure of how long you plan to keep your mortgage
before you move or refinance, paying points now for a lower rate
may make sense. For example, do you have a high-paying job now
but you think you might change careers in the next few years? We
can help you sort it out. It's part of our finding the right
loan for your means and goals.
A point -- which equals one percent (1%) of the total loan
amount -- is an up-front fee that lowers your monthly interest
rate and total interest due over the life of the loan. So, a one
point loan will have a lower interest rate than a no point loan.
Basically, when you pay points you trade off paying money later
in favor of paying money now. You can pay fractions of points,
meaning there are a lot of points packages that can make a
loan's terms more favorable if that's what's right for you.
There are a variety of rate and point combinations available.
When you look at different loan programs, don't look just at the
rate -- compare the whole package. Federal law requires lenders
to publish their loans' Annual Percentage Rate, or A.P.R. The
A.P.R. is a tool used to compare different terms, offered rates,
and points.
- What are
my options when it comes to refinancing?
There aren't quite as many loan programs as there are
borrowers, but it seems like it sometimes! We'll work with you
to qualify you for the best loan program to fit your needs. But
there are some general considerations you can have in mind in
advance.
Are you refinancing primarily to lower your rate and monthly
payments? Then your best option might be a low fixed-rate loan.
Maybe you have a fixed-rate mortgage now with a higher rate, or
maybe you have an ARM -- adjustable rate mortgage -- where the
interest rate varies. Even if it's low now, unlike your ARM,
when you qualify for a fixed-rate mortgage you lock that low
rate in for the life of your loan.
This is especially a good idea if you don't think you'll be
moving within the next five years or so. On the other hand, if
you do see yourself moving within the next few years, an ARM
with a low initial rate might be the best way to lower your
monthly payment.
Are you refinancing primarily to cash out some home equity?
Maybe you want to pay for home improvements, pay your child's
college tuition bill, take your dream vacation, whatever. Then
you'll want to qualify for a loan for more than the balance
remaining on your current mortgage. If you've had your current
mortgage for a number of years and/or have a mortgage whose
interest rate is higher, you may be able to do this without
increasing your monthly payment.
You want to cash out some equity to consolidate other debt? Good
idea! If you have the equity in your home to make it work,
paying off other debt with higher interest rates than the
interest rate on your mortgage -- for example, credit cards,
home equity loans, car loans, some student loans -- means you
can save possibly hundreds of dollars a month.
Do you want to build up home equity more quickly, and pay off
your mortgage sooner? Consider refinancing with a shorter-term
loan, such as a 15-year mortgage. Your payments will be higher
than with a longer-term loan, but in exchange, you will pay
substantially less interest and will build up equity more
quickly. If you have had your current 30-year mortgage for a
number of years and the loan balance is relatively low, you may
be able to do this without increasing your monthly payment --
you may even be able to save! For example, let's say years ago
you took out a $150,000 30-year mortgage at eight percent. Your
payment is about $1,100, exclusive of taxes, insurance and so
on. If your balance today is down to $130,000, you might take
out a 15-year mortgage at six percent and have an almost
identical monthly payment. This is a great option for people
whose main goal is not to save money on their monthly payment
but rather want to build up equity and pay off their home more
quickly.
- What
information will be needed for the Application? Is this
information Private?
Anything you submit over our website is 100 percent, fully
secure. And we never, ever share it with anyone except by
permission -- that is, if you're giving us information you want
us to use to get you the best loan, we use that information to
tell mortgage lenders about you and convince them to loan you
money. In turn, those mortgage lenders are bound by federal law
to keep your information secure.
Here is a list of the information mortgage lenders will use to
consider your loan application:
- For all loans Social Security Number, for borrower and
co-borrower if any
- Employment History
- For the last two years, employment dates, addresses, salary.
- Current pay stubs or W-2 forms.
- Check and Savings Accounts and Certificates of Deposit
- Location of bank accounts, account numbers and balances;
- Address of bank if out of town
- Last 3 months' statements
- Stocks, Bonds, and Investment Accounts
- Broker's name and address, description of stocks, bonds, etc.
- Last 3 months' statements or copies of stock certificates
- Life Insurance Policies
- Insurance company, policy number, face amount, cash value, if
any
- Retirement Plan
- Approximate vested interest value
- Copy of latest statement
- Automobiles
- Make and model of automobiles, their resale value
- Other Assets
- Market value of personal and household property
- Liabilities and Other Non-Mortgage Debt
- Creditors names, addresses, account numbers
- Monthly payments and balances
- Other income information you may need
- If you're self-employed
- Two years tax returns, profit and loss statements, both
company and personal if separate.
- Current balance sheet and profit and loss statement if more
than two months into the new fiscal year, signed by CPA.
- If you have income from: Commission, Overtime, Bonus,
Partnership, Rental Property, Trust, Notes Receivable,
Interest/Dividends, You'll need two years' personal federal tax
returns
- If employed in family business, Personal federal income tax
returns and all schedules for the past two years
- If divorced or separated, Complete executed divorce decree and
settlement agreement, Payment history of alimony/child support
over the past 12 months, if it is a financial obligation.
- If you choose to have this be considered as part of your
income (you don't have to), be prepared to provide 12 months
canceled checks or bank statements reflecting income deposits.
- If you own real estate
Name and address of all mortgage lenders for the past 24 months,
account numbers, monthly payments and balances
If you've sold your home but not closed:
A copy of the sales contract
If you've sold your home, closed, and you will use the proceeds
for your new down payment:
A copy of the HUD-1 Uniform Settlement Statement
If you rent
Name, address and phone number of landlords for the past 24
months
If you're buying a home
Purchase sales contract or offer to purchase and all addenda
Furnish contract with original signatures of buyer and seller
If a source of your down payment is a gift:
Name, address and relationship of donor.
Gift funds will be verified in both the donor and recipient's
accounts.
Note: Not all loan programs allow gifts to be part of your down
payment.
For FHA Financing
Evidence of Social Security Number and photo identification
For VA Financing
DD214 and Certificate of Eligibility
For Construction/Perm Loan
Signed construction with cost breakdown, builder plan and
specifications
- How does
the loan process work?
Make no mistake, there's a lot involved in getting a mortgage
loan. You wouldn't be here on our website if you could fill out
a one-page application and get the best loan for you funded the
same day. What we do is do most of the heavy lifting for you, so
you can concentrate on what's important -- preparing to move
into your new home, saving money, or making plans for your home
equity check.
There are four main steps involved in getting a loan. You'll see
that we've made your part in them as easy as possible, and we do
all the work! That's what we're here for.
Step one: determine how much you can borrow
This is a function of a couple things. How much of a monthly
payment can you afford? And given your unique credit and
employment history, income and debt, and goals, how much will a
lender loan you? The first part you can get a rough idea of by
using the calculators on our website. We'll also help you
through different scenarios by asking a few simple questions.
Based on standard lender guidelines, we'll get you a good idea
of what kind of terms and loan program you can expect to benefit
most from.
Step two: pre-qualify for your loan
This is where the rubber meets the road and you save the most
money. You supply information about your employment, your
assets, your residence history, and so on. We get your
permission to run your credit score. When we review all this
information we give you a Pre-Qualification Letter. Handle it
with care -- to a home seller, it's like a suitcase full of
cash! Your realty agent will use your Pre-Qual (as they may call
it) to make the best offer on the home you choose, and the
seller knows you're pre-qualified. It gives you buying clout!
And while you're picking out the home that's right for you,
we're busy finding the loan that's right for you.
Step three: apply now! We make it easy
Once you've made an offer and it's been accepted, it's time to
complete the loan application. It couldn't be easier, and you
can do it online, right here at our website. When the time is
right, we'll order an appraisal of your new home.
Step four: your loan is funded
Your realty agent and the seller's will work together to
designate an escrow/title company to handle the funding of your
loan once it's approved. We'll coordinate with the escrow
company to make sure all the papers your lender will need are in
order, and you'll sign everything at the escrow/title company's
office.
You've answered a few questions, given us some detailed
information, applied online, and next thing you know, you're
moving in! We're in the business of mortgage loans, you're not
-- so we do most of the work. Doesn't that make sense?
- When I’m
in the mortgage process what are things I should avoid to do?
Things to avoid before buying a home
Many new homebuyers make the mistake of rushing out to buy
things to fill their home with as soon as the seller accepts
their purchase offer and the lender pre-approves their loan. But
there are still a few major hurdles to overcome before the keys
are handed out. Here are some things to avoid during the home
buying process to assure your transaction goes as smoothly as
possible:
• Don't make an expensive purchase. It may be tempting to order
that new sofa for your soon-to-be living room, but its best to
avoid making major purchases like furniture, cars, appliances,
electronic equipment, jewelry, or vacations until after the
closing. Financing that furniture with a store credit card or
even one of your own credit cards could jeopardize your credit
worthiness during the time it means the most. Using cash to
purchase big items can also create a problem because many banks
take into consideration your cash reserve when approving your
mortgage.
• Don't get a new job. Lenders like to see a consistent job
history. Generally, changing jobs will not affect your ability
to qualify for a mortgage loan - especially if you are going to
be making more money. But for some people, getting a new job
during the loan approval process could raise some concern and
affect your application.
• Don't switch banks or move money around. As your lender
reviews your loan package, you will likely be asked to provide
bank statements for the last two or three months on your
checking accounts, savings accounts, money market funds and
other liquid assets. To eliminate potential fraud, most loans
require a thorough paper trail to document the source of all
funds. Changing banks or transferring money to another account -
even if its just to consolidate funds - could make it difficult
for the lender to document your funds.
• Don't give a good faith deposit directly to the seller in a
FSBO purchase. As a rule, your good faith deposit belongs to
you, not to the seller, until the deal closes. Your FSBO seller
may not know that your good faith funds should be applied to
your expenses at closing. Get an attorney or other neutral party
who can hold the deposit or put it in a trust account until you
close on the home. Your purchase contract should dictate to whom
the funds go should the transaction fall through.
• Don't disregard your lenders requirements. You may have been
pre-approved for the loan but your work with the lender is far
from over. In order to process your loan, you need to meet
certain requirements. Your lender will need copies of your bank
statements, W2s and other paperwork. It is up to you to get it
to him or her as soon as possible. Failure to submit certain
qualifying documents could cause you to lose your loan and the
financing you need to buy your home
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