Purchase:
The Process
The Loan Application Process
We will want to verify certain information about you and the property. The information will include income and employment, assets, and your credit history. Credit history, will be obtained directly from the credit bureaus. We will order an appraisal in most cases and a legal description of the property, such as a title report.
The Loan Approval Process
During the "processing" and/or "underwriting" period, your credit, assets, income and other determinants are checked and compiled. Your loan is either approved with conditions, or approved without conditions or declined. Conditions are further documentation or checks we will need to finalize your loan before funds can be dispersed. Some borrowers become frustrated by conditions that surface at the end of a loan transaction and can't understand why they are being raised so late. Final conditions are sometimes added for final approval. We do our best to help you through the process - remember, we are simply trying to meet conditions imposed by other sources.
IMPORTANT NOTE: Do not make any adverse changes to your financial "picture" during the loan process. Things as simple as applying for a new department store credit card to purchase a new appliance will at least force an explanation to be given and at worst may cause your loan not to fund and the approval to be withdrawn. Many times a final credit report update and additional calls to your employer may be required before funding the loan. Be patient and your loan will flow smoothly.
1st Time Home Buyer
For most people, buying is more expensive than renting. However, the tax deductibility of your mortgage expense makes owning a home a bit more practical.
Taxes you pay make about a third of your mortgage payment through tax deductibility.
Once you have made the decision that you are going to buy a home, it's time to find out what you can afford. This is where we can help you.
When you decide to buy you should discuss it with one of our a qualified loan agent .
The purchase price that you will be able to afford depends on 3 main factors:
- Your income and how much other debt you have. This will determine how large a payment you can afford.
- How much you have for a down payment and for closing costs.
- Your credit history.
The following three terms will help you better understand the rest of this scenario:
- Loan-to-Value (or LTV)
This is the loan amount as a percentage of the purchase price or appraised value (whichever is less). If you are buying a $150,000 home with $15,000 down payment you have a 90% LTV. Loans over 80% LTV require either PMI (Private Mortgage Insurance) or a combination of a 1st and 2nd mortgage which avoids the PMI.
- Housing Ratio
This is your total monthly housing expense (principal, interest, tax, insurance, and PMI and homeowners dues (condos if applicable) divided by your gross monthly income. Note "gross" income is "before" deductions. If you have a "W2" job your income is easy to determine. If you are self employed, please note your gross income is what you bring from your Schedule C onto line 12 of your 1040. Also, a 2 year history of consistent self-employment income is generally necessary.
- Debt Ratio
This is your total monthly housing expense plus your monthly payments of your installment and revolving debt. Some details here: this would include child support, alimony or separation maintenance. Any debt with fewer than 10 months to go does not count. A debt such as a "buy furniture now, make no payments until more than a year from now" does not count as long as there are 12 months to go without payments. The same applies for student loans.
PURCHASE STRATEGIES
Loan product developments in recent years have greatly expanded the options available for all home buyers. Today's loan programs offer borrowers opportunities to maximize buying power, save cash for repairs or improvements, get a loan with little or no income verification, or even buy a home with little or no down payment. Now we will discuss some of the ways buyers can take advantage of the expanding loan market to secure the best financing available today.
Purchase pre-qualifications
We can pre-qualify you as a borrower without specific property information. Your loan information is used for full underwriting and includes your employment information, asset information, and credit history. We can then pre-qualify you as a borrower, subject to a maximum loan amount, down payment, and interest rate.
Getting pre-qualified for a loan is critical in today's real estate environment. Many Realtors® do not want to accept offers from buyers unless they are pre-qualified for a home loan. By going through the loan process prior to signing a purchase contract on a home, you can eliminate all of the obstacles to borrowing without jeopardizing an actual purchase transaction. Once your loan is approved, your real loan closing will be quick and subject only to a satisfactory appraisal and title report on the home.
The pre-qualification of your loan will ensure that your real purchase will go smoothly once you have located the perfect home.
No income verification loans
Often grouped together despite their subtle differences, "light documentation," and "no-income verification" loans are a solution for many buyers who have income from sources that are hard to verify. Generally these loans are used by self-employed borrowers who have difficulty verifying all of their income, or by borrowers with very complex income structures. With a no-income documentation loan, a borrower can simply state income on the application, and the lender will use this stated income to qualify the loan. Why do lenders do this? Because they recognize that by charging a slightly higher rate of interest they can rely on this stated income of the borrower and cover the additional risk. Lenders do, in fact, rely on verifying that the borrower has assets which logically match the stated income, along with excellent credit.
You can avoid mortgage insurance with 80/10/10 financing
One way to avoid having to pay mortgage insurance is to purchase a home with a combination first and second mortgage. The first mortgage would be limited to 80% of the home's appraised value. The second mortgage, which would close in conjunction with the first, would then provide for the difference between the home's purchase price, less the 80% first mortgage, less the down payment available. In other words, if you have a 10% down payment available, your first loan would provide for the 80% mortgage with a second mortgage of 10%. This is commonly referred to as an "80-10-10" transaction.
Another way to avoid incurring mortgage insurance payments is to find a lender that offers self-insured programs. This type of loan would typically have a higher interest rate in place of the private mortgage insurance premium. The decision of whether to obtain a loan with mortgage insurance versus the above two options should take into account the combined monthly payments of the various options, adjusted for the tax benefits of interest deductions.
