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.
Sound 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 bureaus(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 Altogether
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 Home Inspection should cover the structural and mechanical condition of the house, including the roof, heating, plumbing, air conditioning and wiring.
A Home Inspection protects you from buying a dwelling with serious, previously unknown problems. Your purchase offer should be contingent on the results of the home inspection, so that if you find major issues, you can walk away from the house with no penalty. And if minor problems are found, you may require the seller to fix them or adjust the price.
A Home Inspection typically costs between $250 and $500.
First Home Buyers are rightfully nervous about buying a new home. It’s a big decision, a big change and a big investment. But with rising rents, low mortgage rates, new loan programs targeted to First Home Buyers and an increase in the supply of quality homes, many wanna-be home buyers feel they can’t pass up the opportunity to take the big step in 2015.
Here are 3 Tips for Nervous First Home Buyers to quell your nightmares and help make your dream a reality.
1. Get Mortgage Pre-Approval – Talk to a professional mortgage officer. The time you spend documenting your financial fitness to buy a home is well spent if the lender gives you a “Pre-Approval” letter, an important tool as you negotiate for a property.
2. Be Objective – Instead of thinking with your heart, think with your head when mulling over the decision to buy, Don’t be afraid to ask thoseyourself tough, practical questions that will help you make the best choice about buying your first home.
3. Take a Cautious Approach to Home Selection – Hire your own Real Estate Agent. Inventories are expected to rise this spring as snow-bound home sellers begin to put their homes on the market. Choose a Realtor who is working for you, not the seller. Get one that’s honest; one who understands your concerns and has the patience to guide you through the whole home buying process.
If your dream is to own your own home … you might kick yourself later if you let your fears get the better of you. Now is The Time to Buy!
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 family 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.
♦ 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
FREE MLS Training. Wednesday, January 7, 2015. Noon to 2:00 PM
Please join us for FREE MLS (Multiple Listing Service) Training with Michele Benson of CT Real.
Michele will discuss recent software changes to MLS. MLS has changed their operating system which effects how Realtors add, edit, search and pull comparable market analyses.
The training will be held in the Norcom Mortgage Training Room, 38 Security Drive, Avon, CT on Wednesday, January 7 from Noon to 2:00 pm.
It’s FREE and all Realtors are invited to attend. Lunch will be served.
RSVP to firstname.lastname@example.org by Friday, January 2, 2015
Your Credit Score is the most obvious factor in your ability to getting your Mortgage Application 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)
♦ 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.