Debt-to-Income Ratio (DTI)
DTI shows how much debt you have compared to your monthly income. This debt includes credit card bills, auto loans, alimony or child support, and other regular monthly payments you make. The lower your DTI, the better your chances are for qualifying for a loan.
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That’s me! The most important job I have is to educate you on the different options available to you so you can make a confident and informed choice about your home financing. I review your finances with you and help you determine which home loan option is the best for your financial situation. I also gather lots of documents from you to start your application moving through the process. Along the way, I’ll be in touch to let you know the status of your application, request any additional documentation we need, and provide answers to any questions you or the processing team may have.
Mortgage Insurance (MI) protects the lender if you fall behind on your mortgage payments. If you put down less than 20% when you buy your home, most loan programs require that you pay mortgage insurance* (also referred to as private mortgage insurance [PMI] or a mortgage insurance premium [MIP], depending on the type of loan product you choose). The good news is, you don’t have to pay MI forever. There are a few ways to get rid of it:
Once you have 20% equity invested in your home (loan-to-value [LTV] 80%), you can request to cancel your MI. Certain conditions apply, such as being current on your mortgage payments.
Your MI will automatically terminate once your equity reaches 22% (LTV 78%), as long as you are current on your mortgage payments.
Your MI will fully terminate once you reach the halfway point of your loan term (e.g., 15 years on a 30-year mortgage), even if you haven’t reached 78% LTV.
*Mortgage Insurance requirements vary by loan type. Talk to your lender to learn more about how MI works.
This simply means that you have “locked down” the interest rate on your mortgage and the points you are offered, and that rate cannot change if you close your loan before the lock expires. Locks are usually for 30, 45, or 60 days. When you select the loan program you want, you can guarantee yourself a specific interest rate, no matter how the market fluctuates, for the entire length of the lock. So even if it takes 30 days to close your loan, if your lock is still in effect, you’ll still have the low rate you started with.
Fixed Rate: Interest rate is fixed throughout the life of the loan. A better choice if you want stable payments and plan to live in your home long-term.
Adjustable Rate Mortgage (ARM): The interest rate fluctuates over time, affecting your monthly payment. May be a good option if you only plan to live in your home for a few years.
A home inspection is a thorough examination of the property — from foundation to rooftop — that assesses the home’s general condition and any needed repairs. The inspector will be looking for things like leaky roofs, termite damage, and structural issues. While it is an additional cost, a home inspection is highly recommended. On average, an inspection costs between $300 and $500, although cost varies depending on the location, age, and size of the house. Keep in mind, you may be able to negotiate with the seller to pay for repairs.
When your lender orders an appraisal, a licensed third party will evaluate the property to ensure it’s worth the sales price. The appraiser will look at the home’s condition, age, and size, and will compare the property to sales of similar homes in the neighborhood (also known as “comps”) and consider the replacement cost of the property.
What NOT to Do During the Loan Process
Don’t apply for credit (such as a new credit card, car loan, or financing for furniture or appliances)
Don’t make major purchases
Don’t liquidate funds
Don’t make large deposits
Don’t switch jobs
Part of your monthly mortgage payment is put into an account to pay your property taxes and insurance on your behalf. These are called escrow payments. Your escrow payments include the following:
Real estate taxes: A percentage of your home’s assessed value that gets paid to your local government
Homeowner’s insurance: Protects your home against certain hazards and damages
Mortgage insurance: Required if you put down less than 20% when you buy your home
Real Estate Agent
Your real estate agent is a valuable partner in the homebuying process. He or she will help you find your dream home and present the offer to the seller on your behalf. When looking for an agent, start by asking your lender, a friend, or a family member for a referral. Be sure to talk to a few agents before choosing one. Here are a few things to consider when looking for an agent:
Licensing. All agents and brokers are required to be licensed by the state in which he or she does business. Do a quick internet search to verify your agent’s license is in good standing and that no disciplinary action has been taken against them.
Experience. Has the agent been around for just a few years, or are they a seasoned professional? Do they have experience in your market? Are they unafraid to negotiate to get you the best deal?
Reputation. One of the best ways to identify a good agent is by what past customers say about them, so be sure to read reviews online before choosing your agent. Doing so will give you insight into the opinions and experiences of other homeowners and will help you make a more informed decision.
LTV expresses how much you’re borrowing compared to the appraised value of the home. It’s inversely related to your down payment. For example, a 20% down payment would result in 80% LTV. A lower LTV is more favorable because it represents less risk to the lender. This ratio is calculated as:
Conventional Loans: The lender assumes the risk for lending you money. As a result, these have more stringent credit requirements and higher down payment requirements. Conventional loans are either jumbo or conforming:
Conforming: Loans that adhere to loan limits set by the Federal Housing Finance Agency (FHFA). For 2019, the conforming limit is $484,350 (or $726,525 in high-cost areas).
Jumbo: Loans that exceed the conforming loan limits. Interest rates are usually higher on jumbo loans because they represent greater risk to the lender. There may also be stricter credit standards and underwriting requirements.
Government-Sponsored Loans (GSLs): The government backs the loan, or assumes the risk for lending you money. These typically have lower credit and down payment requirements to make it easier for you to obtain a mortgage, if you qualify. Types of GSLs include:
FHA: Purchase a home with as little as 3.5% down.
VA: Provides 100% financing to eligible veterans, active duty members, reservists, National Guard members, and surviving spouses.
USDA: Requires no money down for eligible homes in rural areas.
Closing costs are a one-time payment due when you close your loan. Everyone’s closing costs vary slightly, but below are a few examples of what might be included:
Appraisal fee: Paid to the appraiser to estimate the fair market value of your home.
Discount points: Paying these can lower your mortgage interest rate.
Origination fee: Charged by the lender for originating or creating the loan.
Recording fees: Paid to make your real estate purchase a part of public record.
Title service fees: These cover the title search, examination, and title insurance.
Transfer taxes: For the transfer of the title from the seller to the buyer.
As your lender, I’m required to provide to you certain informational documents throughout the loan application process so that you are aware of all costs and terms of your loan. These disclosures include:
Loan Estimate: Within three days of receiving your application, I’ll send you a form that will detail your estimated interest rate, monthly payment, closing costs, taxes and insurance, any special features of your loan, and information on how your payments may change down the line. This will help you make an informed decision on whether to move forward with the home loan.
Closing Disclosure: Three days before our scheduled closing, you’ll receive this document with the final terms and costs of your loan listed. You should carefully and in detail compare the Closing Disclosure to your Loan Estimate and ask me any questions you have during the three-day period before closing.
When you own your home, it’s more than just a place to live; it’s also a financial asset. As you pay your mortgage each month, the money you put toward principal acts as a kind of forced savings. In other words, your money is never really “going down the drain,” so to speak. That’s because, as you pay down principal, your equity (the amount of your home you actually own) grows. This equity can eventually become liquid cash that you can access, either by selling your home or borrowing against it.
When you borrow money to purchase a home, you pay interest on that loan according to rates set by the market. Rates change all the time and are influenced by several factors. When rates climb, you may still be able to afford a wonderful home, but your buying power will begin to recede: that is, you will ultimately get less home for your money. Even a one percent rise in mortgage rates will affect your purchasing power. Providing you with an accurate rate quote depends on a number of variables, such as your income and credit score, the type of property and transaction, and the term of the loan and loan size, to name only a few.
This is the initial cash that you put toward the home purchase, not including the amount you borrow. For many years, 20% down was considered typical, but it’s no longer the norm. Today, you may be able to purchase a home with as little as 3% down, or no down payment at all. Down-payment assistance programs are also available to help you come up with the required deposit, if you’re eligible. I can help you investigate the programs you may qualify for.
Makes the final decision to approve or deny your mortgage loan, based on your specific financial situation. The underwriter reviews your employment history, credit history, and the appraisal report, and ensures your mortgage meets current loan product guidelines. You may be asked to provide additional documentation at this stage in the loan proess, which is not unusual.
The 4 Cs of Credit
The factors lenders look at when determining if you qualify for a loan:
Character: your credit history or financial integrity
Capacity: your ability to repay a loan (income and assets versus debts)
Collateral: the asset securing the loan (i.e., the home itself)
Capital: your down payment; shows your commitment and reduces the risk to the lender
Closing is when your contract is finalized and you sign a lot of documents that make you an official homeowner. You will pay your closing costs at this time. The closing date is set during the purchase negotiation and takes into account how long it takes to process the contract and get all required paperwork to the right people. There are several important steps you should take before closing day. They’ll help ensure you have a smooth, stress-free experience.
Get a home inspection.
Get a homeowner’s insurance policy.
Determine who your closing agent will be
Review the Closing Disclosure and make sure any errors are corrected.
Ask your lender for a copy of your other closing documents so you can review them in advance. These include the promissory note and mortgage or deed of trust.
Find out how much money will be needed to close and how to transfer payment.
Do a final walk-through of the home to ensure all repairs have been made.
When it comes time to submit your loan application, your lender will ask for a lot of different documents. Use this checklist to help get your paperwork in order.
W2s and/or 1099s
Recent bank statements
A list of all your debts, such as credit cards, car loans, student loans
A list of all your assets, including investment and retirement accounts
Additional documents may be required. Check with your loan officer for a complete and final list.
This independent firm performs checks to ensure your property is debt- and lien-free, and that transfer of ownership to you is legally performed. They will file and record paperwork related to the sale and sell you title insurance to protect your ownership from certain types of disputes.
To ensure your home financing program is still the right one for you, it’s a good idea to review your current financial situation once a year, or any time your life circumstances change. Topics we can cover in your mortgage review may include:
Lowering your current interest rate
Reducing the term of your loan
An ARM loan resetting
Consolidating your first and second mortgages to lower your overall payment
Buying a primary residence, vacation home, or investment property
Consolidating credit card and other high-interest debt
Eliminating private mortgage insurance (PMI) payments
If you get pre-approved, it means that you will be approved for the loan, subject to certain conditions. You’ll have a letter from me that you can include with your offer on the home. It shows you’re serious and that your bid should be taken seriously. With pre-approval, you’ll need to gather documents, and your income, finances, and credit will be reviewed and verified.