Public perception regarding mortgages and the home loan process is that it is stressful, crazy, and anxiety-ridden. In my own life, I find that the more knowledge you have about a particular issue the more the stress, craziness and anxiety seem to melt away. Let’s get better acquainted with the home loan process by understanding its five basic components: 1) Credit, 2) Income, 3) Assets, 4) Valuation, and 5) Specific loan guidelines.
Let’s take a closer look at each of these items:
Creditworthiness: In a nutshell this is your credit history and in today’s market it is summed up with “credit scores”. There are 3 major credit agencies ( TransUnion, Equifax and Experian ) and they report positive and negative consumer credit. Some home loans are very credit score specific: meaning the better the score the better the loan terms. Other loans may offer a much wider variation regarding the applicant’s credit score.
Income appropriateness: Most homes loans are based on debt-to-income ratios, which take into account your monthly and annual income compared to your debt reported on your credit report and occasionally some other items (i.e. if you pay spousal or child support is an easy example of other items). The general guidelines for the “front-end” ratio is 32% of your income can be applied to your potential “house” payment (PITI – principal, interest, taxes, insurance and HOA if any). Your debt load from your credit report and any other items plus the house payment is known as the “backend ratio”. This ratio usually cannot exceed 43% of your gross monthly income. There are exceptions based on the type of loan, whether the loan has an automated computer approval and other factors. It is best to consult with a licensed mortgage loan originator (MLO) to have a better understanding of your particular situation.
Asset appropriateness: Assets in this case reflect the money you will need for your down payment and closing costs. Some loans require that all the money only comes from the borrower’s own funds; meaning the money for down payment and closing costs must come from the borrower’s own bank account and they must provide evidence the money has been in the account for a minimum of 60 days. This is “seasoned money”. The type of account varies. Examples of accounts would be checking, saving, money market, CDs, stocks, etc. There are a few loans for which the assets required to close can be a “gift”. Again, there are rules regarding the gift funds and I would speak with a licensed mortgage loan originator (MLO) regarding these types of loans. A typical down payment can vary from 0 ( for a Veteran Administration home loan) to 25% or more. Most down payments fall in a range from 3% to 10%.
Valuation: The valuation is applied to the home you are buying, or refinancing if you already own your home. A valuation of the property is required since all loans are going to be based on a set of loan-to-value (LTV) guidelines. This valuation is an actual appraisal of the property and will be performed by a properly licensed appraiser. The LTV is the percentage of the loan amount based against the value. A $100,000.00 loan based on a $200,000.00 value equals a 50% LTV. The lower the LTV, the greater the EQUITY there is in the home.
Apply specific guidelines: Home loan guidelines are an important factor in obtaining your home loan approval and funding. You may be able to meet all the guidelines for one type of loan but on another loan program you might not. Only meeting 95% of the guidelines does not allow your loan to fund. This will not only cause headaches for you but for everyone else who is involved on your loan. Your loan must meet 100% of the guidelines to be approved and available for funding. An easy example is asset appropriateness. A borrower who wants to purchase a home, and is getting a gift of 3% for the down payment from their parents is a great example. This is an acceptable guideline for one type of loan but not for others. Working with a knowledgeable and experienced mortgage loan originator will help you navigate these guideline issues.
There may be other documents requested for your specific situation. Working with a knowledgeable and experienced mortgage loan originator will help you determine what other documents you will be required to submit for your loan approval.
If you are ready to apply for a home loan please click on the link below. It will take you to a secure loan application web site for your borrower registration. Please follow instructions completely.
Are you a prospective buyer and just want a general idea of what your individual circumstance can “purchase”?
Send me the answers to these four questions through the “Contact Us” and I will send you a “perspective idea” of how much you can purchase.
Monthly Gross Income?
Total minimum monthly payments required for the debt(s) on your credit report?
Considering your monthly budget, how much are you willing to “apply” towards a house payment?
How much down payment can you provide? Either your own assets or as a gift?
Submit your answers in the “Comments, Questions, Special Requests?” section along with appropriate contact information requested.
If you are thinking of refinancing your current home please contact us today. Whether you are in some crazy loan that you need to get out of, or you want to take advantage of the current equity in your home and get some cash out, or if you may need help with one of those Jumbo Loans; PLEASE contact us today. We would love to help! Just go to our “Contact Us” page, complete the requested information and please tell us what your current refinance needs are in the “Comments, Questions, Special Requests?” section. We will follow up as expeditiously as possible.