First Home Buyer Checklist

For Millennials, buying your First Home is an exciting adventure. Owning a home is the American dream. It’s also the largest investment most of us will ever make (aside from perhaps the cost of a college education), Knowing what you’ll need before starting the trek is just as important as knowing what isn’t required. Here are some tips.

 Here’s what you’ll need:
♦   Get Mortgage Pre-Approval. A Mortgage Pre-Approval is a commitmenapp approvedt by your lender that they will lend you a specific amount of money when you find your new home.  By getting Pre-Approved for a mortgage before you start house hunting, not only can you shop with confidence, but you’ll be show sellers you are qualified and serious about buying their home.
♦   Enough income to pay monthly mortgage payments. Keep in mind that FHA MIyour monthly mortgage obligation will include not only the mortgage payment, it will also include an escrow payment for your home owners insurance (HOI), taxes, and your monthly mortgage insurance premium (commonly called PMI or MIP).
♦   The ability to maintain the property. You must keep a home in good repair or it will lose value and you’ll lose money. One of the “joys” of homeownership is keeping up with the chores around the house.  You’ll need a lawnmower to maintain curb appeal and you can’t ignore peeling paint or unexpected repairs that eventually come along. If you’re handy you can DIY or you can hire someone to do it for you. Either way, it will cost money. And you ‘d better be prepared.
♦   A decent credit record. Your credit score is the major determining factor in your ability to get a mortgage at the best terms. Low scores are caused by late payments, bankruptcy or collection accounts
There is only one Website authorized by law to provide the Free Annual Credit Report you are entitled to under the Free Credit Reporting Act – annualcreditreport.com. Check it out! And if you see any problems, take action.

Here’s What You Won’t Need:
♦   A big down payment. Sure, it would be nice to be able to make a 20% down payment on your new home. With equity in your home, you canInterest Rates avoid paying PMI, you might get a better rate and you’ll lower your monthly payments.
But it is possible to buy a home with a small down payment. There are several loan programs available to qualified home buyers that allow for down payents as low as 3 to 3.5%; there’s even one that allows for up to 100% financing of eligible properties. Talk to a professional mortgage loan officer about the best option for your family.
♦  Experience. There is a lot of information on the internet about the whole home financing/home purchase adventure. It all tends to result in a giant house puzzlejigsaw puzzle. Look to the experts for help putting those pieces together. A professional mortgage loan officer has the experience to guide you through the complicated mortgage application process. A trusted Realtor can help find the right house, assist with your negotiations and address other issues with the home purchase.

Resource:  http://www.hgtv.com/design/real-estate/a-checklist-for-first-time-homebuyers

 

Mortgage Underwriting: Understanding How It Works

Mortgage Underwriting is the process of verifying information about your employment, income, assets, debts, and credit history to determine if you can afford to pay back the mortgage loan you are applying for.
Mortgage Underwriters also verify that the size of the mortgage you’re applying for is reasonable compared to the value of the property you’re buying or refinancing.
Low Monthly PaymentsSound underwriting helps ensure that you qualify for a mortgage loan that you can afford to repay and it gives lenders the confidence to make mortgage money available to people who want to buy or refinance a home.

The Mortgage Underwriting process is basically divided into three parts:

1:  Gathering and Verifying Your Information
Your lender, or your lender’s loan officer, collects and verifies your personal information, from your employment history to your outstanding debts.
You’ll be asked to give your lender permission to independently verify your information and obtain copies of your credit history.
Here’s a short list of the information you will need to begin underwriting your mortgage.
♦   Employment: You’ll be asked to document your current employment status and provide your job history, including the length and terms of employment.
♦   Income and Assets: Income is used to calculate the size of the mortgage you can responsibly afford and the size of the down payment you’ll need. Expect to provide proof of your primary income, such as copies of your W-2. You’ll also be asked to document other income sources and assets the underwriter may be able to use to evaluate your mortgage eligibility. Assets can include anything from bank accounts, retirement funds, investments and rental property, to your car.
♦   Debts: A list of your current debts – such as credit cards, auto loans, student loans – is needed to calculate your debt-to-income ratio. Underwriters use this ratio to determine if your available income will enable you to continue paying your outstanding debts and a new mortgage payment.
♦   Credit Report: Your credit report from  independent credit bureauswhat-is-good-credit-score(Experian, Equifax,  and TransUnion) includes a record of your previous credit transactions … aka your credit history: plus a credit score based on proprietary formulas developed by the respective bureaus This information is used to help determine your creditworthiness and the likelihood that you’ll repay your mortgage. 

2:  Verifying Property Information
The appraised value of the property is another critical factor for determining how much you can borrow. Your lender will have the property you hope to buy professionally appraised to assess its physical condition, the condition of the surrounding site and neighborhood, and its value. 

3: Putting It All AltogetherApproved
Finally, the Mortgage Underwriter reviews all of your information, either manually or with the help of an automated underwriting system to determine
a.)   your financial capacity to repay the mortgage, and
b.)   whether or not the mortgage you’re applying for, and the house you hope to buy or refinance, meets your lender’s requirements

Follow this blog to learn more about how things work in the mortgage industry or visit My Home by Freddie MacSM  for additional information.

The Mortgage Underwriter and Your Mortgage Application

The Mortgage Underwriter is one of the most important people in the Mortgage Application process. Without the approval of an underwriter, no lender will fund or close on a loan. It is the job of the underwriter to ensure a borrower can repay the loan they are applying for and to determine that the sales price is supported by the appraisal value before granting lending approval.

app approvedApproval of a Mortgage Application is based on several things: income, credit history, debt ratios, and savings.
♦  A borrower must be able to prove a stable income and job history needed to repay the loan.
♦  They also must have a credit history that reflects a stable record of repaying obligations and a balanced debt to income ratio. Additionally, a borrower’s monthly debt must fall within acceptable limits determined by the loan product’s guidelines.
♦  Lastly the borrower must show that they have enough money saved for their down payment and closing costs. It is also smart to have a few months of mortgage payments saved away in case of an emergency.

It is the Mortgage Underwriter’s job to make sure all of these factors meet particular loan guidelines. The underwriter will evaluate all of this information and sometimes ask for more information or explanations from a borrower to clarify and support their decision on the  Mortgage Application.

Mortgage Underwriters also review the Appraisal to make sure it is accurate and thorough, and that the home is truly worth at least the purchase price. A property’s appraised value is also reviewed by the underwriter to ensure the value supports the amount of the loan you are requesting. A good underwriter will also take into consideration the condition of the property, the location of the property and how it may be affected by natural disasters, such as floods.

An Mortgage Underwriter does his or her best to evaluate the potential risk involved when lending to a borrower. In January 2014, the Consumer Financial Protection Bureau enacted stricter requirements on some mortgages, which included tougher background checks into your bank account, spending and employment history.  If an underwriter does not follow all guidelines and makes a poor lending decision and the loan defaults, meaning a borrower stops making payments on their mortgage, it could result in a hefty cost to the lender.

The Mortgage Underwriter has final approval and final responsibility for the Mortgage Loan.  They must make important decisions based on the facts presented in the file, their own judgments and similar application experiences. The Mortgage Underwriter has to take a calculated risk and do his/her best to determine if a file adheres to not just the letter but the intent of the loan program guidelines. It is not an easy job.

Positive and Negative Affects on Your Credit Report in 2015.

While it is important to know what helps to build a good Credit Score, you also have to know what hurts your Credit Score.
Your Credit Score is a very important factor when it comes to your familygood-credit-vs-bad-credit finances.  Lenders use credit scores to determine the risk of lending money to a given borrower. It is important for getting approved for the best terms and interest rates on a Mortgage Loan. Insurance companies, landlords, and potential employers also look at your credit score to see how financially responsible you are.
Why not make a New Year’s resolution to improve your Credit Score in 2015?

Negative Affects on Your Credit
Payment History: There are many factors that can negatively affect your credit score; your payment history is one of them. Have you paid your bills late or missed payments? If you have, how late were you? The later you are with your payments, the worse it is for your credit score. Also, any charge offs, debt settlements, foreclosures, bankruptcies, wage attachments, suits, liens, or judgments against you are some of the worst things to have on your credit report.
 High Credit Card Balance: Using more than 80 percent of your total amount of available credit is another factor that lowers your credit score. Having a high credit card balance or maxing out your credit cards increase your credit utilization (the ratio of your credit card balances to credit limits listed on your credit report) and decreases your credit score.
  Requests for New Lines of Credit: If you have recently opened several new accounts, you could be a greater credit risk. People tend to open new lines of credit when they are experiencing cash flow problems or are planning to take on a lot of new debt.
  Closing Unused Credit Cards: The unused credit accounts are contributing to the amount of credit you have available. You will want to show that you are not using all your available credit. Pay them off, cut up the card, but don’t close the account. Once you close out those credit accounts, you will suddenly have less credit available.
  A Greater Number of Inquiries: The more times you apply for a credit card, shop for for a better deal on a car loan, even switch cell phone providers, the more inquiries will show up on your credit report, raise the question of financial responsibility and decrease your credit score.

Positive Affects on Your Credit
  Paying Bills on Time and in Full: Have you paid your bills on time for each and every account on your credit report? The longer you pay your bills on time, the more your score should increase. money management
  Using Less of Your Available Credit: Keep the balance you owe on your credit card to 25 percent or less of your available credit line. For example, you should carry a balance of no more than $2,500 if your credit limit is $10,000.
  Paying Off Debt: This is a lot easier said than done, but the more you pay your debt back, the more your credit score will increase.
  Steady Employment: People who have steady employment are viewed as being better at paying their bills on time.

Bottom Line: Your Credit Score plays an important role in your finances. As long as you are being responsible with your money, your credit score will reflect it.

Review Your Credit Report Annually
It’s smart to stay on top of your credit report, and to know what potential mortgage lenders will see. You can request a FREE Annual Credit Report from each of the 3 major credit reporting agencies – Equifax, TransUnion & Experian once a year at www.AnnualCreditReport.com

Your Credit Score and Your Mortgage Application

Your Credit Score is the most obvious factor in your ability to getting your Mortgage good-credit-vs-bad-creditApplication approved. The higher your score, typically the less risk you pose to lenders and the lower your mortgage interest rate. So how is your credit score determined? And how can you improve it?

Your Credit Score is based on the following 5 factors:
1. Your Payment History. (35% of your score)
♦ Your payment history shows whether you make your monthly payments on time, how often you might miss making your payments, how many days past due the due date you eventually make your payments, and how recently your payments have been delinquent.
♦ How To Improve It: Make all your monthly payments on time. The more payments you pay     promptly, the higher your score. Each time you miss a payment, you risk losing valuable points on your score.

2. Amount Owed on Loans and Credit Cards.(30% of your score)money management
♦  Your score is also based on the entire amount you owe, the number and types of credit accounts you have, and the proportion of money owed compared to how much credit you have available.
♦  How To Improve It: Smaller balances on your credit cards can raise your score – if you pay on time. High balances and maxed out credit lines will lower your score. Keep your credit card balance to less than 30-50% of your credit line.
New loans with little payment history may drop your score temporarily because your report will show the recent inquiry into your report to obtain the new debt.
Loans that are closer to being paid off can increase your score because you have a longer track record of paying the installments on time.

3. Length of Credit History. (15% of your score)
♦  The longer you can show a history of meeting your obligations in a timely manner, the higher your score will be.
♦  How To Improve It: This simply takes time. No credit or no no recent credit is not necessarily a good thing. It may seem wise to avoid using credit, or to avoid applying for credit, but it can actually hurt your score if mortgage lenders have no credit history to review.

4. Types of Credit Accounts.(10% of your score)
♦  A mix of credit accounts is best.
♦  How To Improve It: If you only have one type of credit account, add another type when it makes financial sense to do so. A mix of car loans, personal loans, retail store accounts and major credit cards will improve your score – if you manage them wisely and make the payments on time.

5. Recent Credit Activity. (10% of your score)
♦  Steady credit activity is best.
♦  How To Improve It: If you’ve opened a lot of accounts recently, or applied to open new accounts, it suggests potential financial trouble and can lower your score. The lender will see the inquiry on your report and require a letter of explanation as to why you opened these accounts and whether there are balances  that haven’t shown up on your report yet.
However, if you’ve had the same accounts for some time and you repay them on time – even after some payment troubles – your score will eventually go up.

Review Your Credit Report Annually
It’s smart to stay on top of your credit report, and to kow what potential mortgage lenders will see. You can request a FREE Annual Credit Report from each of the 3 major credit reporting agencies – Equifax, TransUnion & Experian once a year at www.AnnualCreditReport.com

Review your reports carefully, as each one may contain inconsistent information or inaccuracies. You have the right to dispute any error by contacting the agency with in 30 days of receiving your report.

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First Home Buyers and the Ability to Repay Rule. What It Means To You.

The Consumer Finance Protection Bureau (CFPB) has implemented certain laws decreeing that before banks grant a mortgage they must make a good-faith effort to determine that First Home Buyers, will be able to pay the loan back. The Ability to Repay Rule (ATR) went into effect in January 2014.

Why is the Ability-to-Repay Rule Important?

FHA MIThe Ability-to-Repay rule will make sure that consumers assume mortgage obligations that they can afford and it protects all parties from the negative effects of loan defaults.
Lenders must determine that applicants for mortgage loans will have the ability to repay the loan. All lenders must collect and verify certain consumer financial information including:
1.  Current or reasonably expected income or assets
2.  Current employment status
3.  Credit history
4.  The monthly payment for the proposed new mortgage
5.  Monthly payments on other mortgage loans you get at the same time
6.  Monthly payments for other mortgage-related expenses (such as property taxes, homeowners insurance, mortgage insurance, Condo fees)
7.  Other current debt obligations including child support and alimony payments
8.  Borrower’s current monthly debt payments plus the proposed monthly mortgage obligation compared to the borrower’s monthly income.Your monthly debt payments, including the mortgage, compared to your monthly income is … the all important “debt-to-income ratio”
You must have enough assets or income to pay back the mortgage.
Lenders have to verify income and credit information from a reasonably reliable third-party source. The lender must determine that you can repay the loan. If your income shows on yourMortgage Checklist tax return, you might be able to use it to qualify.
Be prepared to provide copies of bank statements, mutual fund and 401k statements to prove you have the ability to cover the down payment statements and closing costs and any reserves to cover any financial problems down the road.  https://mortgagemarketdigest.wordpress.com/2013/03/14/mortgage-application-checklist/
The allowable Debt-to-Income Ratio is capped at 43 percent.
That is, once the mortgage is issued, the borrower’s fixed debt service costs, including the mortgage, credit cards, car loans, student loan debt, and nearly anything else recorded by the credit bureaus, a Borrower’s DTI cannot be greater than 43 percent of pre-tax income.
This isn’t a radical change. For years now, whenever I meet with a new buyer, I always ask about their comfort level with a mortgage payment. We discuss debt repayment, taxes, insurance and PMI and back into the mortgage amount they can afford. I can’t recall the last time we ever got close to this cap.
What will be the Impact on First Home Buyers?
Mortgage ApprovedBuyers will likely find a more stringent loan approval process that requires a lot more documentation verifying the statements made on the application. Lenders already pull a current credit report and verify employment just before issuing a “Clear-to-Close” on the file. Don’t be surprised if lenders start asking for additional documentation to re-verify income and assets just prior to closing too.
Bottom Line
It’s really back to basics in the mortgage industry. That’s what it should be and should have been. If a buyer has worked hard to deserve a new home and can afford one, then they should be able to buy one. Regretfully, it has taken federal regulation to try and strike a balance between protecting consumers from predatory lending to uneducated, unsophisticated consumers, and shutting off the flow of credit to the housing sector.

Call Me at 860.945.9284 to discuss the right mortgage option for your family and to take Get Pre-Approvedadvantage of my FREE Mortgage Pre-Approval service. Then call your agent to schedule a showing and be ready to make an offer.
With today’s attractive rates, and my direct relationships with trusted lenders who offer a wide range of affordable mortgage programs, you just might be able to move into your new home this spring.
Licensed in all 6 New England states; NY & FL too. I’m here to help.