Mortgage Loan Facts You Need

Welcome to  Mortgage Loan Facts You Need…

I hope you can go away from this reading and the upcoming posts with some added knowledge of what sound lending practices really are.  I can’t say this too many times, “What you don’t know can hurt you.”  post updated 08-21-23

When Applying For A Mortgage- Know Before You Go… See What Is a Mortgage

Applying for a mortgage loan can sometimes be complex, confusing, and actually annoying for some. Especially for those who are new to the process and have a few issues to get ironed out.

Let me explain; if you already own a home, you understand the process, but there are a lot of people out there who do not like the fact that a Mortgage Lending Institution must evaluate your entire financial history, prior to approval for your loan.

You may be saying if you have not previously had this experience, why do they need to know so much about me? This part of mortgage lending has not changed much with, “THE MORTGAGE MELTDOWN.” This has always been in existence but less paperwork existed during the period that got our Nation into trouble.

The Mortgage Lender Must Know The Following

• The mortgage lender wants to find out your length of employment, your employment stability, and your income must be expected to continue for at least 24 + months. Two years of verification is normally mandatory.
• They want to know if you are heavily in debt, have very little debt, and if you pay those debts prudently and within 30 days.
• The lender wants to know your saving ability, how you spend your money, and your bank accounts for proof.
• If you are self-employed- they will want to see 2 years of tax returns (most recent years).

This may sound very intrusive, but remember they are trusting you with the largest purchase of your life, and they must try to ensure you will make the payments in a timely manner.

*NOTE: If your entire loan file is considered exceptional with all of the dots checked…less documentation may be needed. Also, most lenders use the Agencies’ Automated Underwriting Systems.  If you have excellent credit, job stability, and assets for closing, your required documentation may be less.

When Credit Is Excellent, Income Stable, and Funds Are Readily Available…less documentation may be required as stated…

Depend upon the following:

• employment stability-length
• assets to meet the minimum requirements of the purchase
• credit scores are good 680-850 without delinquency
• debt to income ratios of 36% to possibly 40-45% *depending on other factors of the loan

Explained further below…

Mortgage Lending Rules & Regulatory Guidelines Change Often

Mortgage Lending has changed in many aspects forever. It was stated in Congress prior to the Sub Prime Mortgage Market (which allowed those individuals with less than perfect credit and no money in the transaction)…

“Everyone” deserves a home!”

Well, yes they/you/we do deserve a home! But, the big question is this. Are you sure you can afford a home loan and what comes with it?  This is why I am writing about the Mortgage Loan Facts You Need.

When considering what you know about the process, and before you even get into applying for a mortgage loan, read on. Even before you know what the mortgage company will need to know about you, let me give you some more information.

I feel this can help you decide if buying is right for you, whether you are an oldie or a newbie considering that new home. Since I have worked within mortgage for so many years and have seen the good, the bad, and yes, the ugly, I believe I can help you see the inside of making a mortgage loan.

What’s Important To Think About First

• Are you sure you are ready for that payment which may be over and above what you are paying for rent now?

• Is your employment stable, are you happy with your job, and do you see your position as permanent at this time?

• How long have you been employed, has it been at least two years, or at least you have been in the same line of work for the past two years?

• Is your current financial status good?

• Have you been saving money to buy a home for a while and have at least a 3 to 5% downpayment plus the closing cost of 3 to 5% +-?

• What is your accumulated debt add up to?

• Do you pay homeowner’s insurance now?

• Have you thought about having to make payments for the next 30 years? You may not have to and you may be perfectly in line to pay your home off in 10 years. That is great, these are just some thoughts you may need to think about.

• Are you a spender or a saver? Are you married, or single, and what are the prospects for the future regarding expenditures?

Credit

Credit is an important mortgage loan fact u need to first consider, before applying for a mortgage loan. Even before you even visit a Mortgage Lender, you should know if your credit meets the standard required to apply for a loan.

You can check that by applying for your “free annual credit report”.

The Credit Report Is Pulled And Evaluated

First things first, credit scores are important. These scores are derived from:

• how many accounts do you have on your report,
• the high balance,
• the current balance with regard to the high balance,
• the type of account, (revolving, installment, or open),
• the duration of the accounts and
• how you have paid your accounts.

**Please note that the lower middle score for the applicant(s) will be used as the qualifying credit score

The latter is very important. If you have been 30/60/90 days past due on any account, your score will be affected. The longer past due, the more you are penalized, and your score drops.

It is very important that all of your accounts are paid within the month they are due.

If you have excellent, good, or minor issues, then you will probably not have a credit issue to deal with. BUT, there are times when something is on your report you do not know about, therefore it is a good idea to check your report at least annually.

Current housing expense:

If your credit meets the standard, then how much mortgage loan payment can you afford, over and above your current rent or housing expense?

Remember this, you not only have to pay the house payment, but you will also have to get homeowners insurance, (Hazard Insurance) (fire, windstorm, flood, etc.), and pay the taxes on your property.  *This is referred to as escrow added to the principal and interest monthly.

All of this is called your PITI (principal, interest, taxes, and insurance, MI-if applicable). With a loan to value greater than 80%, (loan balance divided by the lower of the sales price or appraised value on a purchase), you will also have Mortgage Insurance. The latter ensures the lender that if your loan defaults and the premium is added to your payment.

Down Payment:

How much money/savings do you have for the purchase of your new home?

Very important! Even if you are selling your current residence and will have equity, the more money you have in your mortgage loan transaction, the better off you are.

Why? If you can put a 20% down payment into the transaction, you will not have to carry mortgage insurance (default insurance). You can also pay your taxes and hazard insurance outside of your mortgage loan if the company does not have a guideline stating you can’t. They normally comply with the agency guidelines.

Summing up…

All mortgage companies, whether they are banking institutions or just mortgage loan companies outside of a bank, may have a variance in their own guidelines. However,  with most conforming loans, the standard rules are what the GSEs require. (Fannie Mae, Freddie Mac.)

If you don’t have 20% down, the loan is definitely not dead. That just means you will have MI in your payment. The rate of mortgage insurance is calculated by the loan to value.

If your loan to value is 90% or higher, your premium will be a higher rate than 85% loan to value, etc. Down payments are considered at 3%, 5%, 10%, and 15%, etc. with 3% being the lowest.

First Time Homebuyer Loans (HomeReady Loans) are to help those with less credit, fewer downpayment funds, and less job history and have different features and rules. These loans have different and sometimes stricter guidelines in some aspects due to the higher risk involved with a less down payment.

If you have considered the above mortgage loan facts, and you are thinking about getting a mortgage loan, you are probably ready to choose your Mortgage Lender.

Please note that these are some of the major Mortgage Loan Facts You Need- however, the entire list cannot be disclosed in this one post. Come back and we will try to update and add to our findings.

Let us know if you have any questions.