What are the various loan program options I have?

The various loan options are- Conventional, Jumbo, FHA, Read More

Is it possible to buy a home with a low down payment?

Yes, FHA loans allow you to buy a home for as low as 3.5% down. Read More…

What are the various components of a mortgage?

A mortgage has various components. Namely:

1. Mortgage Approval:

Qualifying for a mortgage requires meeting a pre-determined set of guidelines established by a lender, which may include credit history, income, employment and assets. In addition to personal qualifying factors, a property must also meet certain standards set by lenders before a borrower can obtain a mortgage loan secured by real estate.

2. Mortgage Payments

On a traditional 30 or 15 years fixed rate mortgage program that involves principal and interest, each payment made is divided into two parts (we’re not including taxes or homeowners insurance as part of this discussion):...Read More

What is the Mortgage Approval Process?

Mortgage lenders approve borrowers for a loan, which is secured by real estate, based on a standard set of guidelines that are generally determined by the type of loan program.

Following are the main parts of a mortgage approval:

Debt-To-Income (DTI) Ratio –

A borrower’s DTI Ratio is a measurement of their income to monthly credit and housing liabilities. The lower the DTI ratio for a borrower (more income in relation to monthly credit payments), the more confident the lender is about getting paid on time in the future based on the loan terms. Read More…

What is the credit score based and what factors impact the score?

Credit is one of the most important components in the mortgage approval process.

Lenders look at a borrower’s credit score, number of open accounts, payment history, type of credit borrowed and a series of other factors when determining what level of risk to assess to each lending scenario. Down payment requirements, loan programs, flexibility on income and even interest rates can be impacted by a slight bump in a credit score. Read More…

Are there are credit do’s and dont’s I need to keep in mind?

These tips don’t encompass everything a borrower can do prior to and after the Pre-Approval process, however they’re a good representation of the things most likely to help and hurt an approval.

Ten Credit Do’s and Don’ts: Read More

What elements make up the mortgage payment?

When you receive your first mortgage bill, there will be a few numbers that will add up to your total payment:

Principal –

This is the portion that goes towards paying down your balance. An Amortization Schedule will break down the exact amount of each payment that is being applied to the principal and interest.

Interest –

The interest payment is the amount you’re paying the bank over time to borrow the principal balance. Read More…

How do I know I am getting the best Mortgage Rate?

Interest rates are impacted by a borrower’s credit score, loan term, mortgage program and a series of market factors that are outside of the Lender’s control.

Understanding how interest rates work will certainly help relieve a lot of anxiety about the home financing process.

While loan programs, credit scores and outside economic factors tend to control mortgage rates, borrowers do have the option of paying more up-front at the time of closing as a discount point or loan origination fee in order to get a lower interest rate. Read More...

How do I know how much mortgage I can qualify for?

If we’re simply considering the financial math, lenders will calculate your Debt-to-Income Ratio and generally allow for 28-31% of your gross income to be used for the new house payment with up to 43% of your gross income to be used for all consumer related debts combined. Read More…

What’s Debt-to-Income (DTI) ratio?

DTI is a component of the mortgage approval process that measures a borrower’s Gross Monthly Income compared to their credit payments and other monthly liabilities. Debt-to-Income Ratios are designed to give guidance on acceptable levels of debt allowed by particular lenders or programs. Read More…

Is there a way to calculate my mortgage payment without a calculator?

Calculating an exact mortgage payment without a calculator on a loan is no small task, but there are some simple rules-of-thumb you can use to get a close estimate.

When coming up with a rough estimate, it is important to understand the individual components that factor into the overall monthly mortgage payment for your home. Read More…

What is an amortization schedule?

By committing to a mortgage loan , the borrower is entering into a financial agreement with a lender to pay back the mortgage money, with interest, over a set period of time.

The borrower’s monthly mortgage payment may change over time depending on the type of loan program, however, we’re going to address the typical 30 year fixed Principal and Interest loan program for the sake of breaking down the individual payment components for this particular article about an amortization schedule. Read More...

What is Loan-to-Value (LTV) ratio?

Understanding the definition of Loan-to-Value (LTV), and how it impacts a mortgage approval, will help you determine what type of loan amount and program you may qualify for.

Since the LTV Ratio is a major component of getting approved for a new mortgage, it’s a good idea to learn the simple math of calculating the amount of equity you may need, or down payment to budget for in order to qualify for a particular loan program. Read More…

What is a pre-approval?

Getting a mortgage qualification letter prior to looking for a new home in the Bay Area with an agent is an essential first step in the home buying process.

Besides providing the home buyer with an idea of their monthly payments, down payment requirements and loan program terms, a Pre-Approval Letter gives the seller and agents involved a better sense of security and confidence that the purchase contract will close on time. Read More...

What is included in a Pre-approval letter?

A pre-approval letter includes:

  • Loan Amount – Base loan amount and possibly gross loan amount (FHA, VA, USDA)
  • Status Date and Expiration Date – Most Pre-Approval Letters are good 90 days from when credit report is run
  • Mortgage Type – FHA, VA, USDA, Conventional, Jumbo
  • Term – 40, 30, 20 or 15 year fixed, ARM (Adjustable Rate Mortgage); if ARM, 1, 3, 5, 7 or 10 year initial fixed period; Interest Only
  • Occupancy – Owner Occupied, Secondary Residence, Investment
  • Contact Info – Lender’s Name and Address
  • Conditions – Document and Funding requirements prior to Approval

What documents are needed for a Pre-approval?

Income / Assets for Wage Earner:

  • Last 2 year W2s and Tax Returns
  • 2 most recent Pay Stubs
  • 2 most recent Bank Statements, 401(K), Liquid Assets, Investment Accounts

Income / Assets for Self-Employed:

  • Last 2 year Tax Returns – Business and Personal
  • Last Quarter P&L Statement
  • Letter of Explanation For: Employment Gap or New Line of Work and/or Late Payments / Judgments / Bankruptcy on Credit Report

Other:

  • Bankruptcy Discharge
  • Child Support Documentation
  • Lease Agreements (If own other Rental Properties)
  • Mortgage Payment Coupons (If own other Real Estate)

Why do I need Mortgage Insurance?

Mortgage Insurance, sometimes referred to as Private Mortgage Insurance, is required by lenders on conventional home loans if the borrower is financing more than 80% Loan-To-Value for his home. Read More…

What is Mortgage Insurance Premium (MIP)?

The FHA Mortgage Insurance Premium is an important part of every FHA loan. There are actually two types of Mortgage Insurance Premiums associated with FHA loans:

1. Up Front Mortgage Insurance Premium (UFMIP) – financed into the total loan amount at the initial time of funding

2. Monthly Mortgage Insurance Premium – paid monthly along with Principal, Interest, Taxes and Insurance. Read More…

What is hazard insurance?

When shopping for a hazard insurance policy, something called “bundling” can actually save you quite a bit of money that most people aren’t aware of. Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their hazard insurance policies to attract homeowners who need to insure not only their homes with hazard insurance, but also their cars with car insurance and lives with life insurance. Read More…

What is appraisal and why is it done?

One of the most critical parts of getting a mortgage is the Appraisal. The purpose of an appraisal is to confirm the home value for the lender. An appraisal is a professional estimate of the value of the property that you are planning to purchase. Read More…

What is home inspection?

Home inspection “is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. This is usually conducted by a home inspector who has the training and certifications to perform such inspections. Read More…

What is closing cost?

Besides, the basic mortgage underwriting, processing and origination fees that are charged by a lender, there are several other costs associated with purchasing a new property.

Since every player on your real estate home buying team has a stake in the transaction, it’s good to know how to budget for their services. Read More…

What cash sources can be used to get down payment?

Providing proper asset documentation and the actual source of the funds is a critical element of the loan closing process. Seasoning of the down payment money is just as important as the source, which is why underwriters typically require at least two months bank / asset statements in the initial mortgage approval process. Read More…

What is the closing process?

Many borrowers go through the closing process in a haze, nodding, smiling, and signing through a bunch of noise that sounds like Greek.

Even though you may have put your trust in your real estate and mortgage team, it helps to understand some of the terminology so that you can pay attention to specific details that may impact the decisions you need to make. Here are some common terms used at closing. Read More...

Is there anything I need to aware of that may potentially delay my closing?

Six Prior-To-Closing Conditions That Can Delay Your Escrow:

Even though your lender may have provided a Pre-Approval and/or Mortgage Commitment Letter, there may still be several conditions that could delay a closing.
Sometimes buyers and agents let their guard down with the relief of getting closing documents to title, and they forget that there may still be a bunch of work to be done.
Prior-to-Closing conditions are items that an underwriter would require after reviewing your file, which could simply be an updated pay-stub, a letter of explanation of recent credit inquiries or more clarification on information found in a tax return.
Here is a list of a few Prior-to-Closing conditions you should be aware of: Read More ..

What documents do I need to bring at closing?

Your real estate agent and/or mortgage loan officer should provide you with a final list of documents that need signatures or updated verifications, so the general list of items needed at closing is quite basic:

1. Funds To Close –

If you are required to bring in a down payment and/or pay for closing costs to finalize the transaction, you’ll need to bring a certified check from a bank. The escrow company, your agent and Bay Area loan officer should provide you with a full breakdown of all fees / costs involved in the transaction. Read More…

Does it matter which day of the month I close?

The date of your closing is all about how you view the money being applied. Pay now or pay later, but it will always be collected.

Let’s first look at how mortgage payments are broken down:
When you pay your rent for the month, you are actually paying for the right to live in the house for the upcoming month.
However, your mortgage payment is broken into four separate components; principle, interest, taxes and insurance (PITI).
The principle is paid towards the upcoming month, interest is paid towards the previous month and the taxes and insurance are deposited into an impound account.
As far as closing on a particular day of the month to save money on interest payments, it depends on the type of loan program you are using.
If you’re more concerned about successfully closing with the least amount of stress, then early to mid month is usually the best time to close.

Who are the various parties involved in the home buying process?

Buying a new home is literally a team sport since there are so many tasks, important timelines,documents and responsibilities that all need special care and attention.Besides working with a professional team that you trust, it’s important that the individual players have the ability to effectively communicate and execute on important decisions together as well. So who are the various players? Read More…

Do I need to be aware of any HOA hurdles when looking for a property?

A Home Owner Association (HOA) can have a huge impact on your life when you buy a home in a PUD (Planned Unit Development) or Condominium Project. So what are the Pros and Cons of HOA. Read More…

What if I am buying a bank-owned or a foreclosed property?

Short sales, foreclosures and new construction homes all have caveats that need to be considered when pursuing financing.If the guidelines and potential pitfalls are not properly understood, you could face delays in closing or potentially even a denied loan. Read More…

What is title insurance and what does it protect me from?

By including title insurance when purchasing property, your title insurer takes on accountability for legal expenses to defend your property title, should it ever be challenged. Many different occurrences can come into play to warrant the need for title insurance.

The title company responsible will then take on the legal expenses to defend the property for as long as you are in possession of an interest in the property under the title. If the defense is not successful, you will be reimbursed for any loss of value of the property. Read More…

Do I have to sell my current home before I qualify for a new mortgage payment?

Although every situation is unique, it is not uncommon for homebuyers to qualify for a mortgage on a new home while still living in their primary residence. Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer? Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind. Read More…

Who owns my home if I have a mortgage?

Many borrowers believe that when they purchase a property by obtaining mortgage financing, they also own their home.Technically speaking, full ownership on a property only happens once the mortgage loan amount has been paid in full. Read More…

Do I need to continue to make payment if my lender goes bankrupt?

The short answer is YES, you still have to continue making mortgage payments if your current lender files for bankruptcy or disappears over the weekend.

Here’s why- A mortgage is considered a secured asset, where the collateral is real estate. And, the mortgage note has a separate value to investors and servicers based on the interest and servicing fees they have wrapped up in the monthly payments.

This is why many mortgage notes get sold to other servicers who pay for the rights to service your loan. So basically, even if a mortgage company is bankrupt, someone else is willing to take on the job of collecting payments.

Also, by signing a mortgage note, the borrower is committing to continue making the required payments, regardless of what happens to the mortgage company servicing your loan.

Why do I have to obtain another Pre-Approval Letter from a different lender when I make an offer on a particular home?
Cross-qualification is imminent in certain markets, especially with bank-owned or short sale properties. Some of the large banks that own homes require any potential home buyer to be qualified with their preferred lender – who is typically a representative of the bank that owns the home. This is one way for the bank to recoup a small portion of their loss on the home from the previous foreclosure or short sale.
In other scenarios, the listing agent/seller prefers to feel safe in knowing the home buyer they’ve selected has a back up plan should their current one fall apart.

I was pre-approved, but after I found a home and signed a contract, my lender denied my loan. Why is this a common trend that I hear about?
There are literally hundreds of moving parts with a real estate purchase transaction that can impact a final approval up until the last minute, and then after the fact in some unfortunate instances.
With the borrower – credit scores, income, employment and residence status can change.
With the property – appraised value, poor inspection report, title transfer / property lien issues, seller cooperation, HOA disclosures.
With the mortgage program – Interest rates can change affecting the DTI ratio, mortgage insurance companies change guidelines or go out of business, new FICO score requirements…. the list can go on.
It’s important to make sure your initial paperwork is reviewed and approved by an underwriter as soon as possible. Stay in close contact with your mortgage approval team throughout the entire process so that they’re aware of any delays or changes in your status that could impact the final approval.

What happens if I can’t find a home before my pre-approval letter expires?
Depending on your mortgage program and final underwritten conditions, you may have to re-submit the most recent 30 days of income and asset documents, as well as have a new credit report pulled.
Worst case scenario, the lender may even require a new appraisal that reflects comparables within a 90 day period.
It’s important to know critical approval / condition expiration dates if your real estate agent is showing you available short sales, foreclosures or other distressed property purchase types that have a potential of dragging a transaction out several months.

Do I have to sell my current home before I can qualify for a new mortgage payment?
Yes, No and Maybe…
If you are in a financial position where you are qualified to afford both your current residence and the proposed payment on your new house, then the simple answer is No!
Qualifying based on your Debt-to-Income ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgages payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.

What Is an Impound or Escrow Account?
You’ve heard of the acronym PITI (Principal, Interest, Taxes and Insurance). The escrow account covers the T&I, and is included in the monthly payment.

Are Impound Accounts Required?
Government loans, FHA and VA require an escrow to be established when a new purchase or refinance transaction is finalized.
If the LTV is low enough on certain other loan programs, an escrow waiver is allowed. However, there is typically a higher interest rate associated with a mortgage payment that doesn’t have an escrow account due to the lender taking on more risk.

If I refinance my existing loan, what happens to my impound account?
The remaining reserves are generally refunded back to the homeowner.

Can I set up an escrow account later?
Yes, you can request an escrow account at anytime. Keep in mind that you’ll have to deposit at least 12 month’s of hazard insurance, as well as around 6 month’s of tax payments in the escrow account to get it established.

What Is The Difference Between A “Buyer’s” and “Seller’s” Market?
Simple economics is the rule of thumb here.
Everyone wants to “buy low and sell high,” but the truth of the matter is there is no way that can happen for everyone, every time.
Seller’s Market = More buyers than sellers
Buyers Market = More sellers than buyers

Where Does My Earnest Money Go?
The Earnest Money Deposit is credited back towards the buyer’s closing costs and/or down payment.
Any additional funds are given back to the buyer from the escrow company. Read More…

Do I Need A Home Inspection?
Some mortgage programs require a borrower to get a home inspection if it is mentioned in the purchase contract.
Either way, there are several reasons why it is important for a home buyer to have a licensed professional take a closer look at a property before the transaction is finalized.
…….(read more about home inspections)

Does it matter if I buy a home that is part of a Home Owner’s Association?
A Home Owner Association may have the power to determine the color of your home, the number of pets you have and the type of grass you have to plant.
They also may have the power to levy assessments, dues and fines.
Or, they may be as simple as collecting a few dollars per year to make sure the grass is cut in the common areas. Read More about HOA

Do I Have to Pay My Real Estate Agent on a Purchase Transaction?
In most cases, the buyer is not responsible for covering the cost of their real estate agent.
When a home owner hires a real estate agent to list, market and sell their property, they’re also (in most cases) agreeing to compensate the agent representing a buyer.
A common myth is that a buyer will get a better price on a property if the seller doesn’t have to pay the typical 3% to a buyer’s agent. However, it’s more expensive to buy an overpriced property, not negotiating properly for the acceptable seller paid closing costs, overlooking important language in the purchase contract, missing potential commercial zoning updates on a nearby lot, or buying a home that has a lawsuit against the HOA.

What Are Mortgage Points?
Mortgage points are fees charged by the lender for services and/or a lower interest rate.
One Mortgage point is equal to one percent of the loan amount. For example, on a $100,000 mortgage $1,000 would be equal to one point.
Understanding what points are and how they work can save you thousands of dollars on your mortgage. Borrowers can pay mortgage points to reduce the interest rate charged on their mortgage. The Borrower may also choose to raise the interest rate to reduce the closing costs. This is sometimes called buying up your interest rate. This buy-up strategy is used when the intentions of the borrower is to keep the mortgage for a short period of time.
To decide whether or not to buy-up or buy-down your interest rate you must first calculate a breakeven point. The following formula can be used:
Cost of buy down / monthly savings = months to breakeven point. If you plan to keep the mortgage longer than the breakeven point then buying down points may be beneficial to you.
For example: $1,000 cost to buy down rate / $100 savings per month = 10 months to breakeven
In the above example if you plan to keep the mortgage for more than ten months (the breakeven point) you should buy-down the interest rate. In the above example if you kept the home for five years your savings would be $5,000.

Make sure you consider mortgage points in your strategy when getting a loan. It can save you thousands of dollars.

Are Discount Points Tax Deductible?
Yes, they may be tax deductible, but make sure to speak with your tax advisor.

Can I Pay More Than One Point For a Lower Rate?
Mortgage points usually are calculated in 1/8 increments. A good rule of thumb to follow on a 30 year fixed rate is for every .25% drop in interest rate it will cost you one mortgage point.

Is a “No Origination Loan” or “No Cost Loan” a Form of Buying Up a Rate?
Yes, this strategy is usually used when the borrower is planning to keep the mortgage for a shorter period of time.

Why do I have to obtain another Pre-Approval Letter from a different lender when I make an offer on a particular home?

Cross-qualification is imminent in certain markets, especially with bank-owned or short sale properties. Some of the large banks that own homes require any potential home buyer to be qualified with their preferred lender – who is typically a representative of the bank that owns the home. This is one way for the bank to recoup a small portion of their loss on the home from the previous foreclosure or short sale.

In other scenarios, the listing agent/seller prefers to feel safe in knowing the home buyer they’ve selected has a back up plan should their current one fall apart.

I was pre-approved, but after I found a home and signed a contract, my lender denied my loan. Why is this a common trend that I hear about?
There are literally hundreds of moving parts with a real estate purchase transaction that can impact a final approval up until the last minute, and then after the fact in some unfortunate instances.
With the borrower – credit scores, income, employment and residence status can change.
With the property – appraised value, poor inspection report, title transfer / property lien issues, seller cooperation, HOA disclosures.
With the mortgage program – Interest rates can change affecting the DTI ratio, mortgage insurance companies change guidelines or go out of business, new FICO score requirements…. the list can go on.
It’s important to make sure your initial paperwork is reviewed and approved by an underwriter as soon as possible. Stay in close contact with your mortgage approval team throughout the entire process so that they’re aware of any delays or changes in your status that could impact the final approval.

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