Alan Morris 919-906-1373 Raleigh Durham Home Loan Pro

Whether you're a First-Time Home Buyer or seasoned investor, the mortgage approval process can be a slightly overwhelming adventure without a proper road map and good team in your corner.

Updated program guidelines, mortgage rate questions and down payment requirements are a few of the components you'll need to be aware of when getting mortgage financing for a Raleigh Home Purchase or Refinance.

Mortgage Approval Components:

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.

The following bullets are the main components of a mortgage approval:

Debt-To-Income (DTI) Ratio -

The borrowers' DTI Ratio is a measurement of their income to monthly credit and housing liabilities.

The lower the DTI ratio a borrower has (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.

Loan-to-Value (LTV) -

Loan-to-Value, or LTV, is a term lenders use when comparing the difference between the outstanding loan amount and a property's value.

Conventional loan programs require a borrower to invest a larger down payment to avoid mortgage insurance, while some government loan programs were created to help buyers secure financing on a home with a 96.5% to 100% LTV.

EX: A Conventional Loan requires the borrower to purchase mortgage insurance when the LTV is greater than 80%. To avoid having to pay mortgage insurance, the borrower would have to put 20% down on the purchase of a new property. On a $200,000 purchase price, 20% down would equal $40,000.

Many borrowers don't have 20% cash for down payment and we offer many MI options to ease the process.

Credit -

Credit scores and history are used by lenders as a tool to determine the estimated risk associated with a borrower.

While lenders like to see multiple open lines of credit with a minimum of 24 months reporting history, some loan programs allow borrowers to use alternative forms of credit to qualify for a loan.

Property Types -

The type of property, and how you plan on occupying the residence, plays a major role in securing mortgage financing.

Due to some HOA restrictions, government lending mortgage insurance requirements and appraisal policies, it is important that your real estate agent understands the exact details and restrictions of your pre-approval letter before placing any offers on properties.

Mortgage Programs -

Whether you're looking for 100% financing, low down payment options or want to roll the costs of upgrades into a rehab loan, each mortgage program has its own qualifying guidelines.

There are government insured loan programs, such as FHA, USDA and VA home loans, as well as conventional and jumbo financing.

A mortgage professional will take into consideration your individual LTV, DTI, Credit and Property Type scenario to determine which loan program best fits your needs and goals.

Pre-Approval Letter Basics:

Getting a Mortgage Pre-Approval letter prior to looking for a new home 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 to budget for, a Pre-Approval Letter gives the seller and agents involved a better sense of security and confidence that the purchase contract will be able to close on time.

There is a big difference between a Pre-Approval Letter and a Mortgage Approval Conditions List.

The Pre-Approval Letter is generally issued by a loan officer after credit has been pulled, income and assets questions have been addressed and some of the other initial borrower documents have been previewed. The Pre-Approval Letter is basically a loan officer's written communication that the borrower fits within a particular loan program's guidelines.

The Mortgage Approval Conditions List is a bit more detailed, especially since it is usually issued by the underwriter after an entire loan package has been submitted.

Even though questions about gaps in employment, discrepancies on tax returns, bank statement red flags, and other qualifying related details should be addressed before a loan officer issues a Pre-Approval Letter, the final Mortgage Approval Conditions List is where all of those conditions will pop up. In addition to borrower related conditions, there are inspection clarifications, purchase contract updates and appraised value debates that may show up on this list. This will also list prior to doc and funding conditions so that all parties involved can have an idea of the timeline of when things are due.

What's Included In A Pre-Approval Letter?

How Much Can I Afford?

Let's start with the most commonly asked question about mortgage loans. Getting a Pre-Approval Letter for a new home purchase is mainly to let everyone involved in the transaction know what type of mortgage money the buyer is approved to borrower from the lender.

The Pre-Approval Letter is based on loan program guidelines pertaining to a borrower's DTI, LTV, Credit, Property Type and Residence Status.

A complete Pre-Approval Letter should let the borrower know the exact terms of the loan amount, down payment requirements and monthly payment, including principal, interest, taxes, insurance and any additional mortgage insurance premiums.

Keep in mind, one of the most important items to remember when looking into financing is that there is sometimes a difference in the amount a borrower can qualify for vs what’s in their budget for a comfortable and responsible monthly payment.

7 Items to Look For On a Pre-Approval Letter

1. Loan Amount - Base loan amount and possibly gross loan amount (FHA, VA, USDA)
2. Status Date and Expiration Date - Most Pre-Approval Letters are good 90 days from when your credit report was run
3. Mortgage Type - FHA, VA, USDA, Conventional, Jumbo
4. 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
5. Occupancy - Owner Occupied, Secondary Residence, Investment
6. Contact Info - Lender's Name and Address
7. Conditions - Document and Funding requirements prior to Approval

DS News service, that delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry, reported today that "Housing Crisis to End in 2012 as Banks Loosen Credit Standards"...

As a Mortgage Professionals, we have to agree with the information presented in this article. Mortgage Insurance companies have eased their guidelines, which allows the home buyer to buy a home on a conventional loan with lower down payments. Most home buyers do not realize, with the higher credit scores, you can buy a home today with 3% down payment. A great alternative to FHA financing for some folks.

For those home buyers with lower credit scores, First Priority Financial offers FHA loans down to 580 credit score, which was unheard of a couple of years ago. Refinancing is available down to 620 middle score. So credit is loosening to some degree. Knowing which professional to contact helps.

We believe more stories like this will begin to emerge as we progress through 2012 and 2013. Be prepared to take advantage of the opportunities in the housing market by hiring a top Mortgage Consultant before the home shopping begins. Learning what options are available before looking may just save you thousands.

Current Mortgage Rate Trends has mortgage rates improving 148bps since January 24th. This continues the recent trend for lower mortgage rates since a 5 day run of declines. This five day event may save as much as .25-.50 off the mortgage rate from previous quotes.

Right now is the best time to buy a home or refinance an existing mortgage since the fall of 2010. A 15 year loan may have the same payment as an older 30 year loan at a higher rate. We do anticipate higher rates during the year so now is the time! Contact us for a rate quote.

Buying a house and obtaining a mortgage for any First-Time Home Buyer can be a little overwhelming with all of the important details, guidelines and potential speed bumps.

Since there are so many different guidelines and steps to follow, here is a basic list of Do's and Don'ts to keep in mind throughout the mortgage approval process:

DO:

• Continue working at your current job
• Stay current on all your accounts
• Keep paying your rent on time
• Keep your insurance payments current
• Continue to maintain your credit as usual
• Call us if you have any questions

DON'T:

• Make any major purchases (Car, Boat, Jet Ski, Home Theater...)
• Apply for new credit
• Open new credit card accounts
• Transfer any balances from one creditor or bank account to another
• Payoff any charge-off accounts or collections prior to discussing with your loan officer
• Take out furniture loans
• Close any credit cards
• Max out your credit cards
• Consolidate credit debt

Basically, while you are processing your new home loan, keep your financial status as stable as possible until the loan is funded and recorded at the local register of deeds.

Any number of changes could easily raise a red flag or cause a negative impact on a credit score that may result in a loan being denied.

Most importantly, check with your loan officer on even the simplest questions to make sure your loan approval is successful.

Have questions? We are here to answer them!

The FHA Mortgage Insurance Premium is an important part of most 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 Hazard Insurance.

Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition. These loans are possible because FHA loans are insured by the U.S. Department of Housing and Urban Development (HUD). Most lenders today require a minimum credit score of 640, which would be near impossible on a conventional loan. First Priority Financial actually offers FHA loans down to 580, provided there is a minimum down payment of 5%.

Calculating FHA Mortgage Insurance Premiums:

Up Front Mortgage Insurance Premium (UFMIP)

UFMIP varies based on the term of the loan and Loan-to-Value.

For most FHA loans, the UFMIP is equal to 1.00% of the Base FHA Loan amount (effective April 18, 2011).

For Example:

>> If someone purchases a home for $100,000 with 3.5% down, their base FHA loan amount would be $96,500

>> The UFMIP of 1% is multiplied by $96,500, equaling $965

>> This amount is added to the base loan, for a total FHA loan of $97,465.

Monthly Mortgage Insurance (MMI):

• Equal to 1.15% of the loan amount divided by 12 - when the Loan-to-Value is greater than 95%, and the term is greater than 15 years

• Equal to 1.10% of the loan amount divided by 12 - when the Loan-to-Value is less than or equal to 95%, and the term is greater than 15 years

• Equal to .50% of the loan amount divided by 12 - when the Loan-to-Value is greater than 90%, and the term is 15 years

• Equal to .25% of the loan amount divided by 12 - when the Loan-to-Value is between 78.01% and 90%, and the term is 15 years

No MMI required below 78% Loan-to-Value on 15 year loans! As you can see, the more down payment the lower the MMI is.

The Monthly Mortgage Insurance Premium is not a permanent part of the loan, and it will drop off over time.

For mortgages with terms greater than 15 years, the MMI will be canceled when the Loan-to-Value reaches 78%, as long as the borrower has been making payments on time for at least 5 years.

For mortgages with terms 15 years or less and a Loan -to-Value loan to value ratio 90% or greater, the MMI will be canceled when the loan to value reaches 78%. *There is not a 5 year requirement like there is for longer term loans.

* Disclaimer – all information in this article is accurate as of the date this article was written - always subject to change by legislative action *

For more information on FHA loans, contact your Raleigh FHA Expert.