Coldwell Banker Countryside, Realtors

• Over 10 years of real estate marketing experience, and over 18 years property management experience.

• Virtual Tours, Complete Internet Marketing of all property listings which is the best way to market your property to not only local cliental, but potential buyers all over the world.

• Going the extra mile to find you the perfect property, or buyer for your property, No listing or client is too big or too small that they do not get our complete attention!

Introduction
Getting pre-qualified or better yet pre-approved by a mortgage lender is the first step once you've decided to purchase a home. You’ll know how much you can borrow, what price home you can afford, how much cash you’ll need to close, and what your monthly payments will be. Once you have this step out of the way you can begin your search and focus on homes that fit your needs and your budget. This saves a lot of time looking at homes that are priced below or above your budget. Most importantly being pre-approved puts you in a better negotiating position when putting in an offer on your dream home. Your offer will take precedence over buyers that are not approved and your offer will carry more weight since there is no doubt you can close on the transaction. Timing is also in your favor since you will be more flexible on the closing date and can, if needed, close on much shorter notice than other potential buyers.

My site contains all the tools you'll need to pre-qualify yourself before even going to a mortgage lender. You can even get a copy of your own credit report to see your standing and if there are any problems you can start cleaning up your credit.

Most people think that for some reason or other they will not be able to find mortgage financing.  They think that either their credit and/or income history is inadequate.   There are specialized lenders ready willing and able to provide the financing you may need.  For instance consider the foreign national borrower.  In most cases they have no credit history and may have difficulty in documenting their income and assets.  Self-employed borrowers may also have difficulty documenting income. However, even these borrowers can obtain mortgage financing with a down payment of 20-30% or even less under certain conditions.   

Choosing a Lender
One good way to find a lender is to ask friends, family members or co-workers for a referral. Asking your real estate agent is another good alternative. Agents frequently work with mortgage lenders and will know who can get the job done. Agents will refer you to lenders with a good track record since they want the deal to go through as much if not more than you do! Check out a few lenders and pick one that you feel confident will get the job done in an efficient manner and one that you feel comfortable working with. Don’t base your decision on the interest rate quoted by each lender. Interest rate quotes are a not a good way to choose a lender. Many lenders will quote low rates to entice you. Once you've made application and your loan is in process, the rate manages to go up. Interest rates change daily and sometimes they change inter-day as well. Your interest rate is based on many factors: your credit score, the amount of the loan, the amount of your down payment, and other factors. Unless your loan officer will agree to lock in the low rate they quote you don’t believe them. Remember, that for practical purposes your interest rate can be locked up to 45 days. Anything above this will entail higher rates and lock fees. Locking in your loan at the time of pre-approval is also not practical since you’ll have no idea how long it may take to find the right home.

Required Information and Documentation
Applying for a mortgage loan requires that you document your employment, assets, income, etc. Click here for a checklist of what information and documentation you’ll need to gather up. Click here for information and documentation required from a foreign national. Start now, if you don’t have some of the items available you’ll need to call your bank, employer and accountant/tax preparer to get copies of the required paperwork.

Loan Pre-Qualification
Pre-qualification is a necessary first step. It helps both you and your Realtor know the price of the home you can afford, and it also points out any potential qualifying problems early, so that you may have them resolved early in the process rather than delaying a closing or even losing a home you want. Pre-qualification helps you in the negotiating stage because sellers will want assurance that you can purchase the home. A pre-qualification can be done rather quickly. Some lenders may ask you to fill out a full loan application others may just verbally obtain the basic data from you. Your loan officer will run and in file credit report. Most lenders will do this free of charge but some may try to charge you the cost of a full factual credit report which is required later in the process. The cost of an in file credit report is around $7. The cost of a full factual credit report is usually about $60-$70. They need to find your credit score, also known as your "FICO" score. Your credit report will also list all of the consumer debt you have--car loans, student loans, personal loans, credit card payments etc. Based on your credit report, down payment and income your loan officer can tell you the maximum loan amount you qualify for, assuming the information you provided is correct and can be verified. A pre-qualification only means that the lender should be able to grant the loan, provided all information given was correct. At your request your loan officer will provide a pre-qualification letter stating that based on the information you provided, verbal and/or documented, that you qualify for a loan in the amount of $XXX. You can also get a rough estimate of the interest rate, loan points you will need to pay, and your total monthly payment. You may also request a Good Faith Estimate that details the total closing costs associated with your loan. However, unlike a pre-approval, your loan package has not been underwritten and there is no formal approval. Once you find a home, and get an accepted offer, your lender still has to submit the loan package for actual approval by the bank's underwriters. For a free Excel Worksheet to pre-qualify yourself please E-mail me.

Loan Pre-Approval
A pre-approval is similar to pre-qualification, however everything must be fully documented and you must complete and sign a loan application and all relevant disclosures. You will probably be asked to pay a fee for the credit report and appraisal. A full loan package is then submitted to an underwriter for approval. A pre-approval is actually an approval of your loan, subject only to the house qualifying, i.e. Subject to its appraisal and inspections. You should determine how long this approval is good for, and whether it locks in an interest rate, or how it would vary if the rate changes. In most cases it is not a good idea to lock in your interest rate until you actually have a contract on a home. Not all lenders offer full pre-approvals. However, many do and if you want to take this extra step, you will be considered a much more qualified buyer and your offer will command serious consideration since the seller will not have to wonder if you will get the loan.

Good Faith Estimate (GFE), Closing Costs and Impound (Escrow) Accounts
A lender is required by law to provide you with a GFE within 3 days after you make formal application for a mortgage loan. Click here to see a detailed list and discussion of closing costs and impound accounts. The GFE is an estimate of all the fees associated with a mortgage loan. Most of these fees are paid at the closing. The lender will also quote you an interest rate, whether that rate is fixed or adjustable, and an estimated payment. Remember this is only an estimate, however be sure to question any significant deviation from this estimate at the closing. For a free Excel Worksheet to calculate your closing costs and monthly payments please E-mail me.

Your Credit Report and Your FICO Score
FICO scoring is what lenders use to judge your creditworthiness. The best interest rates and terms are provided to those borrowers with scores of 620 and above. For a more detailed discussion of FICO scoring and what effects your FICO score click here.

Cleaning up Your Credit Report
It is not uncommon for your credit report to contain derogatory items that you took care of long ago, or items that just are not yours. There may be past judgments or liens that have been paid off but not reflected in your credit report. Many times a divorce can lead to problems on your credit report. There may also be derogatory items that are correct such as outstanding debts still owed or disputed debts. Most problems can be corrected with some work on your part. You may be able to reach a settlement on past debts. Your loan officer may be able to help you or point you in the right direction. If you have legitimate derogatory information such as auto or credit card late payments, your lender will ask you to write a letter of explanation as to why you were late. Usually all late payments on your report will need to be explained. Ask your loan rep to help you write these letters. This is a very common scenario and your loan rep will know just what you need to say on the explanation letter. For a more detailed discussion of how to go about cleaning up your credit click here.

Down Payment Discussion
The greater your down payment the easier it is to get approved for a loan. If you put down 20% and have good credit the underwriter will be more flexible and usually your loan will get approved quicker. The underwriter won’t be as stringent when analyzing debt to income ratios. Another advantage of putting down 20% is that you will not have to pay for mortgage insurance (MI). Lenders are very strict about where your down payment came from. They will want explanations and documentation on any unusually large deposits in your banks accounts. Money that is borrowed and deposited into your accounts are not acceptable as a down payment. Some loan programs allow borrowers to receive a portion of the down payment from a parent or family member as long the money can be traced. However this money must be considered a gift, not a loan, and your family member will have to sign a letter stating that it is a gift and it's not to be repaid. Usually a down payment of at least 3% of the sales price must be from your own funds.

Mortgage Insurance (MI).
Mortgage insurance or MI is a type of insurance provided by a private mortgage insurance company to protect a lender in the event of default on a loan. It is required when the loan to value (LTV) exceeds 80% of the appraised value or sales price which ever is less. For example, if you put down only 10% then the LTV will be 90% and you will need to pay for MI. The MI premium is based on the LTV and increases as the LTV increase. The annual premium is divided by 12 to arrive at your monthly premium. For a 90% (10% down) loan take the loan amount and multiply it by 0.60%. The number you get is the annual premium. Divide that number by 12 and you get the monthly premium. For instance if your loan amount is $100,000 the monthly premium would be $50. Note: The PMI factor quoted above is an estimate and subject to change. Rates vary slightly among MI companies, lenders, and loan programs. Please check with your loan officer for the latest information. There are several ways around paying MI even when your LTV is greater than 80%. One is to do what is called an 80-10-10 loan. Take out an 80% first mortgage and then a 10% second mortgage. The second mortgage is usually a Home Equity Line of Credit that carries a higher interest rate however affords the flexibility of paying down and also borrowing again under this line of credit. The second way is to find a lender that offers self-insured programs. This type of loan would have a higher interest rate in place of the private mortgage insurance premium. While mortgage insurance premium payments are not tax deductible, the interest associated with a self-insured mortgage would be fully tax deductible. MI can be removed but this may be difficult to accomplish. Lenders are supposed to allow you to remove the MI requirement when the LTV falls below 80%. Usually the lender will require an appraisal. Contact your current mortgage holder to determine their policy on removing MI. If your property value increases enough and interest rates are favorable you can refinance with an 80% loan and avoid MI. The fact that lenders sometimes make it difficult for borrowers to remove MI has prompted Congress to action. There is a proposed bill that makes removing MI automatic once the equity in a property reaches 22%. Sounds good right? Unfortunately, the bill only addresses the elimination of MI through principal reduction, not appreciation. This means that a consumer will have to pay MI for 10 or 15 years before MI is dropped (unless the property is refinanced with an 80% loan). Sounds like good old politics to me!

Loan Programs
There is an assorted menu of available loan programs that will fit almost any situation. Most of the discussion up to this point has been focused on what is referred to as a full doc loan that requires that the borrower be able to document and verify all pertinent information. The borrower must have good credit, verifiable income and be able to make at least a minimal down payment, to name but a few of the requirements. Additionally, the borrower’s total debt, including the proposed mortgage payment, must not exceed a specified percentage of their income. Not every borrower fits this profile, some borrowers may have poor credit, others may have undocumented income or their debt to income ratio falls outside of the prescribed limits or standards. There are loan programs available to fit any and all of these scenarios. There are no ratio loans, no doc loans, no income loans, stated income loans, no money down loans (100% financing). You get the picture. Whatever your situation there is a loan program available, the only down side is that these specialty loans usually come with higher interest rates and may require a higher down payment. A detailed discussion of all the available loan programs is beyond the scope of this website. Being a licensed mortgage broker I have the experience and the knowledge to answer any of your questions.

Fixed Rate vs. Adjustable Rate Mortgages
Most borrowers opt for fixed rate loans without giving it much thought because they think it is the safest and best option. When interest rates are low this may be the best option, but even in a low interest rate period it may still not be the best loan product. Adjustable Rate Mortgages (ARM’s) offer many advantages over a fixed rate loan. Rates on ARM’s are usually if not always lower than a fixed rate loan. There is a wide variety of ARM products. Some ARM’s are adjustable monthly, others semi-annually, others annually. Some ARM loans offer a fixed interest rate for 3, 5, 7 or 10 years before they become adjustable. Some ARM loans offer incredibly low interest rates at the outset, called teaser rates. Depending on the difference between the interest rates and how long you plan to stay in your new home and adjustable rate loan may be much more sensible. Most people live in the same home for an average of 5 years, but pay interest rates based on a 30 year time horizon. Another point to consider is that when interest rates are high why not take the lower interest rate offered by an ARM and wait until interest rates head back down which they inevitably will. Once rates reach a point that it makes sense you can refinance your home at the then lower fixed rate. One last point to keep in mind with an ARM loan is to inquire about the interest rate index used to calculate the actual interest rate. ARM’s are priced based on an index plus a fixed margin. This index is most commonly based one of the following indexes: the Treasury Bill Rate, the LIBOR Rate (London Inter Bank Offer Rate) or the COFI Rate (Cost of Funds Index). Once again I suggest discussing the advantages and disadvantages of Fixed Rate and Adjustable Rate Mortgages with your loan officer. To view the ARM Handbook, a government publication,  Click here . To view more information about COFI Loans Click here.

Locking In Your Interest Rate
At some point you will have to lock in your interest rate. This means regardless of whether rates go up or down, you're locked in to that rate. You can lock in at the time of application, after contracting on a home, or any time prior to the closing. You should work closely with your loan officer and ask for advice. Many times loan officers will have insights as to where rates are going based on economic conditions. They may advise you to lock immediately because they believe rates may rise or to just float because rates may fall. Usually lenders do not charge to lock in a loan, however on locks greater than 45 days they may charge a premium to lock your rate. They may charge an extra quarter point or so for this privilege. Remember that no one knows which way rates are headed, they can only base their estimate on experience and common sense. Sometimes lenders miss the market and the rate you hoped for isn't available. The bottom line is that the decision of whether to lock or float is yours. You should coordinate closely with your loan officer and your real estate agent to determine when to lock the loan based on your projected closing date and market conditions. For example, if the rate lock is only good for 30 days and you have a 45 day window to closing, locking your rate at the time of contract may not be a good idea.

Should You Pay a Loan Origination Fee (Points)
Generally, you should only pay points if you plan on keeping the loan for at least two to four years. Because points are prepaid interest, you need to be sure you will keep the loan long enough to recoup these costs through lower monthly mortgage payments. If there is a chance you may move within a four year period or if the general interest rate market is declining (increasing the likelihood of refinancing), you might consider a zero point loan. Please consult with your loan officer.

Cash Reserve Requirements
Most lenders require you to have 3 to 6 months of your monthly payment in the bank as cash reserves. The bank wants to be sure that you will be able to make payments on time and that you have a cash cushion for unforeseen circumstances. Be sure to budget this in to the total cash you’ll need to close. The total cash required to close is the sum of the down payment, closing costs, impounds/prepaids and cash reserves.

What is Your Actual Total Monthly Payment (PITI)?
Your total monthly payment always consists of 4 items. They are referred to as the "PITI" which is the mortgage principal plus interest (PI) payment, your taxes (T), and your homeowners insurance (I). In addition to your PITI there is also your Homeowners Association (HOA) dues if you are buying a single family home in a Planned Unit Development (PUD), a condominium or a townhouse and mortgage insurance (MI) if you are putting down less than 20%. Click here to see a table of Principal and Interest Payments for various loan amounts and interest rates.

Minimizing Closing Costs
A technique to reduce the cash out of pocket to purchase your new home is to ask the seller to pay some or all of your closing costs. Basically what you’re doing is financing your closing costs. What happens is that once you’ve agreed upon a price for the home you then add your closing costs on top of the sales price and the seller agrees to pay for your closing costs. This is written into your purchase contract. The increase in your monthly payment is minimal and you save thousands in out of pocket expenses. Be aware that the home must appraise for the sales price including the closing costs. Keep in mind a few simple rules. On conventional loans you can only ask the seller to pay non-recurring costs, not pre-paids or items to be paid in advance. If you are putting ten percent down or more, the most the seller can contribute is six percent of the purchase price. If you are putting less down, the most the seller can contribute is three percent. On VA loans, you can ask the seller to pay everything. VA loans do not require the buyer to make a down payment or to pay any closing costs. On FHA loans, it is backwards. You can ask the seller to pay your pre-paids and impounds, but it doesn't normally make sense to ask the seller to pay your non-recurring costs. The exception is that there are some fees a seller has to pay on a FHA loan, so you won't be paying those anyway. Also, if the seller wants to pay discount points (not your loan origination fee) or pay for a buy down, that is allowed. The reason it does not make sense for the seller to pay your normal buyer's costs on an FHA loan has to do with how the FHA loan amount is calculated. Instead of just using a percentage of the purchase price like everyone else, FHA calculates your loan amount based on the purchase price plus your closing costs (most people think the down payment on an FHA loan is 3%, which is not true). If the seller pays your closing costs, your loan amount is calculated from a smaller number, resulting in a smaller loan amount and a larger down payment. So the seller pays your closing costs, but your down payment is larger. The end result is that your out-of-pocket expenses to close are about the same.

Why Finance Your New Home ?
Even if you do not need to finance your new home it may be a good idea to do so.  You should consult a financial advisor first, however in most cases mortgage financing is the lowest cost money one can borrow, especially if you consider the tax advantages.  By taking out a mortgage loan you can invest your free cash in other more profitable investments or use the money to pay off higher cost debt.  In most cases a home is not an investment that has high returns.  When you factor in the closing costs and commissions paid when you sell your property it usually takes at least 3-5 years to recoup your initial investment.  On average a home only appreciates in value between 2-3% per year, however in recent years in this area this rate has been much higher.   So, before you pay cash for your new home make sure you consult with a financial advisor and investigate the possible advantages of financing your new home and investing your cash elsewhere. Over the long run investing in the U.S. equity markets may yield a higher return in the long run. Remember to consult a financial advisor.