Becasue obtaining financing for your home shouldn't be difficult
Question: What to avoid during the mortgage process?
Answer:
Large Purchases on Credit Report: Furniture purchase, vehicle purchase, etc. Anything that requires a credit pull to obtain financing for item.
Changing Jobs or Income: Significant changes in income can raise a "red flag" for the lender. Employment is verified during the mortgage process.
Closing and opening credit card accounts: Closing credit cards decreases your credit score. Opening new credit cards can decrease your credit score before improving it. This can affect your debt-to-income ratio and can affect your eligibility, as well as, interest rate.
Large Deposits into Bank Account: Any deposit over 50% (fifty percent) of your gross monthly income is considered a large deposit.
Not Providing Required Documentation: Be prepared to provide all necessary documentation promptly. Delays in providing the required documentation can slow down the mortgage process.
Question: What do lenders look for when approving a mortgage loan?
Answer:
Credit Score:
Importance: Your credit score is a crucial factor in the mortgage approval process. It reflects you creditworthiness and helps lenders predict the likelihood of timely repayment. Thresholds: While specific requirements vary due to every loan is different, higher credit scores generally result in better loan terms. A FICO score of 680 and above is considered "conforming" and is often considered good, and 620 is a common minimum threshold, however, lenders can go as low as 580 and sometimes 550 with positive deciding factors. One way to improve your credit score is keeping your balance to limit ratios low, e.g. keeping your balances away from the credit card limits as far as possible.
Income and Employment History:
Stability: Lenders prefer borrowers with a stable income and employment history. A two year employment history is generally required. Debt-to-Income Ratio (DTI): Lenders calculate your DTI by comparing your monthly debt minimum monthly payments to your gross monthly income (NOTE: some income may be grossed up for qualification reasons; social security, VA benefits, etc.) A lower DTI is favorable, indicating more financial stability.
Down Payment:
Higher Down Payments: A larger down payment demonstrates financial responsibility and reduces the loan-to-value ratio (LTV), making you a lower-risk borrower. A 20% (twenty percent) down payment is often seen as standard, but some loans (FHA) allow for lower down payments usually 3.5% down. NOTE: Every loan above 80% LTV require (PMI) Principal Mortgage Insurance) charged monthly or (MIP Mortgage Insurance Premium) for FHA).
Loan-to-Value Ratio (LTV): Lower Risk:
Lower Risk: LTV compares the loan amount to the appraised value of the property. A lower LTV indicates a lower risk for the lender. If you have a higher down payment, your LTV ratio is lower, which can be advantageous.
Debt Obligations:
Existing Debt: Lenders consider your existing debts, such as car loans, student loans, and credit card debt, when evaluating your ability to take on a mortgage. This is called the Debt-to-Income Ratio (DTI). A high level of existing debt may affect your loan approval, effecting your debt-to-income ratio.
Employment Type:
Stable Employment: Lenders prefer borrowers with stable employment. Self-employment individuals may need to provide additional documentation (two years personal tax returns, as well as, and or business tax returns) to verify income.
Property Appraisal:
Property Value: The lender will appraise the property to ensure that its value supports the loan amount. The appraisal protects both the borrower and the lender by ensuring that the property is worth the amount being financed.
Loan Type and Term:
Type of Loan: Different loan programs have varying eligibility criteria. FHA, VA, and conventional mortgage loans have different requirements; inters rates, debt-to-income ratio limits, etc., and lenders consider the type of loan you're applying for. Loan Term: The loan term of the loan (e.g., 15 years, 30 years) can impact your eligibility and interest rate. NOTE: You could offset your amortization schedule by adding extra payments to principal resulting in a lower term and payment of your mortgage note faster.
Cash Reserves:
Emergency Fund: Some lenders may consider your cash reserves or emergency fund. Having savings, 401K, etc. beyond the down payment and closing costs will be viewed positively.
Cash Reserves:
Credit History and Financial Behavior:
Credit Report: Lenders review your credit report for information on your credit history, including late payments, bankruptcies, and foreclosures. Responsible financial behavior is important for loan approval.
Loan Purpose:
Intended Use: The purpose of the loan, such as buying a primary residence, a second home, or investment property, can influence the approval process.
Question: Is it better going to your bank instead of a mortgage broker?
Answer: When it comes to getting a home loan, many people assume going directly to their bank is the easiest and most straight-forward option. However, there is a much better alternative by working with a mortgage broker. A mortgage broker is a licensed professional who specializes in helping people secure home loans from a variety of lenders. There are numerous benefits to working with a licensed mortgage broker. Here are ten advantages:
1. Access to a Wide Range of Lenders: Licensed Mortgage brokers work with multiple lenders, which means they have access to a much wider range of home loan products than if you would go directly to your bank. This makes it much easier to find a loan that fits your specific needs and budget.
2. Expert Guidance and Advice: A licensed mortgage broker is a licensed professional who can offer you expert guidance and advice throughout the home loan process. They can help you understand the different home loans available, and can provide best options based on your specific financial situation.
3. Better Chance of Approval: Because licensed mortgage brokers work with multiple lenders, they have access to loan products that will work and get an "Approved Eligible" for clients who may have been turned down by their bank.
4. Save Time: Rather than completing multiple loan applications, having your credit run multiple times with different lenders (will decrease your credit score), or going through your bank: departments; (loan officer, processor, underwriter, and closer,) you have one individual handling your loan from beginning to end resulting in a personal experience and expedited funding.
5. Save Money: A licensed mortgage broker can help you save money by finding the best loan product with the best interest rate available. This can add significant savings over the life of your home loan.
6. Negotiating Power: A licensed mortgage broker can use their experience to negotiate favorable loan terms and interest rates between lenders on your behalf.
7. Transparency: A licensed mortgage broker will provide you with all the information you need to make an informed decision about your home loan. They will explain all the loan terms and conditions so you know exactly what your getting into.
8. Personalized Service: A licensed mortgage broker provides personalized services individually. They take time to understand your unique financial situation, goal, and work with you to find loan products that best meet your needs. They also provide multiple options.
9. Follow-up support: A licensed mortgage broker will continue to provide support and advice throughout the life of the loan. They can help you navigate any changes in your financial situation and ensure that you are always getting the best deal.
10. Peace of Mind: Perhaps the greatest benefit of working with a licensed mortgage broker is knowing that you have and can contact an experienced licensed mortgage professional anytime you need information on your home loan. A personal individual that is working hard for your best interests.
Question: Do mortgage brokers have access to wholesale interest rates?
Answer: Yes:
Licensed Mortgage Brokers: Often have access to wholesale interest rates through their relationships with wholesale lenders. Wholesale lenders are financial institutions that do not deal directly with the public but instead work with licensed mortgage brokers and other intermediaries. These lenders offer wholesale interest rates to licensed mortgage brokers, allowing them to secure loans for their clients at potentially lower rates that those offered by retail banks. Licensed mortgage brokers can leverage their relationships with wholesale lenders to access a variety of loan options and potentially secure more favorable terms for their clients. NOTE: Wholesale rates can be subject to market conditions and the mortgage broker's ability to negotiate with lenders on behalf of their clients.
Question: What is the difference of holding title Tenancy in Common verses Joint Tenancy?
Answer:
Tenancy in Common: Tenants may own different interests in the property, and no requirement for obtaining the property or titling at the same time. Owners may convey the property to anyone upon their death as long as it is written in their will. Any tenant can sell their ownership stake at any time for any reason. If an owner passes with no will in place, the property goes to probate.
Joint Tenancy: Four conditions must be met, including equal interest, equal ownership, simultaneous obtaining of the subject property, and same title document. If one joint tenant dies, their share of the property passes automatically to the surviving tenant or tenants. If one owner wishes to terminate their ownership, they can sell to the other owners, or the joint tenancy may be converted to tenancy in common among the remaining tenants.