Mortgage Application Tips #5: Required Information

We briefly mentioned some of the things that you may need to bring with you before you start your application, but here is a more detailed list of the information mortgage lenders will use to consider your loan application.

For all loans:

• Social Security Number, for borrower and co-borrower if any
• Employment History for the last two years, employment dates, addresses, salary.
• Current pay stubs or W-2 forms.
• Check and Savings Accounts and Certificates of Deposit. Location of bank accounts, account numbers and balances, address of bank if out of town, last 3 months' statements.
• Stocks, Bonds, and Investment Accounts.  Broker's name and address, description of stocks, bonds, etc.  Last 3 months' statements or copies of stock certificates.
• Life Insurance Policies. Insurance company, policy number, face amount, cash value, if any.
• Retirement Plan. Approximate vested interest value. Copy of latest statement.
• Automobiles.  Make and model of automobiles, their resale value.
• Other Assets.  Market value of personal and household property
• Liabilities and Other Non-Mortgage Debt. Creditors names, addresses, account numbers, monthly payments and balances, other income information you may need.

If you're self-employed you'll need two years tax returns, profit and loss statements, both company and personal if separate. Current balance sheet and profit and loss statement if more than two months into the new fiscal year, signed by CPA.

If you have income from any of the following, you'll need two years' personal federal tax returns:

• Commission
• Overtime
• Bonus
• Partnership
• Rental Property
• Trust
• Notes Receivable
• Interest/Dividends

If employed in family business, you'll need personal federal income tax returns and all schedules for the past two years.

If divorced or separated:

• Complete executed divorce decree and settlement agreement
• Payment history of alimony/child support over the past 12 months, if it is a financial obligation.
• If you choose to have this be considered as part of your income (you don't have to), be prepared to provide 12 months canceled checks or bank statements reflecting income deposits.

If you own real estate you'll need the name and address of all mortgage lenders for the past 24 months, account numbers, monthly payments and balances

If you've sold your home but not closed you'll need a copy of the sales contract.

If you've sold your home, closed, and you will use the proceeds for your new down payment you'll need a copy of the HUD-1 Uniform Settlement Statement.

If you rent you'll need the name, address and phone number of landlords for the past 24 months.

If you're buying a home you'll need purchase sales contract or offer to purchase and all addenda. Furnish contract with original signatures of buyer and seller.

If a source of your down payment is a gift, you'll need  the name, address and relationship of donor. Gift funds will be verified in both the donor and recipient's accounts. Note: Not all loan programs allow gifts to be part of your down payment.

For FHA Financing, you'll need evidence of Social Security Number and photo identification.

For VA Financing, you'll need your DD214 and Certificate of Eligibility.

For Construction/Perm Loan, you'll need signed construction with cost breakdown, builder plan and specifications.

If you have any questions at all about the above information, we would love to help you! Call us at 877-828-8851 and we can get you on that path to homeownership! Remember, this is what we do everyday. While this process may seem a bit daunting to a first time buyer, we want you to know that we have your back. We will get you through this as quickly and easily as possible!

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Mortgage Application Tips #4 - Credit Scores

Before they decide on the terms of your loan, lenders want to know two things about you: your ability to repay the loan, and if you will pay it back. To assess whether you can pay back the loan, they look at your income to debt ratio which we talked about last week. In order to assess your willingness to pay back the loan, they look at your credit score.

To learn how to improve your credit score, view this article.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk).

Your credit score comes from your history of repayment. They never take into account your income, savings, amount of down payment, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to consider solely what was relevant to a borrower's likelihood to repay the lender.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score results from both positive and negative items in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your credit to assign an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish your credit history before you apply for a mortgage.

For assistance on applying for your mortgage, give us a call. 887-828-8851.

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Mortgage Application Tips #3 - Debt to Income Ratio

The debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after you meet your other monthly debt payments. This is an important aspect of the mortgage application process. Without a good number, you won't be able to qualify for your new home.

About your qualifying ratio:

Typically, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, and the like.

For example: 


28/36 (Conventional):
Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio :
Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

Remember these are only guidelines. We will be happy to pre-qualify you to help you determine how much you can afford. Give us a call at 877-828-8851.

Be sure to view last week's article about proving your employment and income for a home loan.

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Mortgage Application Tips #2 - Proving your Employment and Income

Last week we discussed the basic information that you would need to bring with you in order to begin filling out your mortgage application.  Among those things is proof of your employment and income. These are very important things to lenders. Your ability to make the monthly payments on the mortgage and to afford the costs associated with owning a home are vital to the approval process.

Things to prove:

• At least two years employment history. We will want to know all about your job including your employer's name and address, your job title or position, length of time of the job, salary, bonuses, commissions, and average overtime pay.
• Recent one full month's paycheck stubs and Federal W-2 forms for the past two years. Keep in mind that you might also need to show full Federal tax returns if you own rental property, are self-employed or are commission based.
• Records of dividends and interest received from investment.
• If you are self employed, we will need full tax returns and financial statements for two years. Also, you will need to have your profit-and-loss statement for the current year to date.
• A written explanation for any possible gaps in your employment record. This may be due to illness or layoff or other circumstances.
• If you are relying on income from other sources, proof of this will be needed. This may include rental property, Social Security, disability payments, child support, etc.

Once we have all that information, we will have you sign a general credit authorization, which will be sent to your employer to verify that everything you told us is true. We may also do this over the phone. Remember to bring all of those things and we will take care of the rest!

If you have any questions or would like our help in getting this process going, we can be reached at 877-828-8851.

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Mortgage Application Tips #1 -The Basics

Are you planning on purchasing a home soon?  When applying for a loan or a mortgage, there is a lot of information that you will need to fill out the forms. You can't get the loan until you are approved and that can be a very intense process for some. We are here to make it more simple for you.

Here are the basics of what you need to know prior to starting the loan application process:

Be sure to gather all of your information together in one place so you have it easily accessible. This includes your personal finances, your bank account numbers and their balances, your current loan amounts and payments, and your credit card account numbers. Also bring your employment and financial history, and forms of identification such as your driver's license and your SSN card.

You will need all the information possible about the property that you are wanting to purchase as well. This includes a complete copy of the sales contract for the property, a set of plans if the house is to be built, the mailing address, age and legal description of the property, and contact info for your real estate agent who will assist in the appraising process.

You may be asked to bring more information than this, but these are the most important to get your application started.

More information is to come in our next blog post. Please check back again soon to learn more!  If you have an immediate question, feel free to call us at 877-828-8851.

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To Refinance or Not To Refinance?

Have you ever heard the pearl of wisdom that states you should only consider refinancing if the new interest rate is at least 2 points lower than your current one? Maybe that was good advice several years ago, but since refinance costs have been falling recently, it could be a good time to take a serious look. A refinanced loan is often worth its cost many times over, considering the advantages that it brings, in addition to a reduced interest rate.

Advantages

When you refinance, you may be able to lower your interest rate and mortgage payment , perhaps significantly. You might also have the option to "cash out" a portion of your equity, which you will be able use to take care of higher interest debt, make home improvements, or plan a vacation. You could be able to refinance to a shorter-term mortgage loan, enabling you to add to your home equity faster.

Fees and Expenses

All of these advantages do cost something, though. You will pay the same kinds of expenses and fees as you did with your current mortgage loan. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Do the Math

You might consider paying points to reduce your interest rate. Your savings on the life of the loan might be significant if you've paid up front about three percent of the new loan total. You might be told that points may be tax deductible, but because tax regulations can be ever-changing, we urge you to consult with your tax professional before making decisions based on this.
Another thing about taxes is that when your interest rate is reduced, naturally you'll also be lowering the interest amount that you can deduct on your taxes. This is another expense that some borrowers take into account. We can help you do the math.

In the end, for most borrowers the total of initial costs to refinance are paid back very quickly in savings each month. We'll work with you to figure out what mortgage loan program is ideal for you, considering your cash on hand, how likely you are to sell your house in the next few years, and how refinancing might effect your taxes. We would love to get you started.

For even more information about why you should consider refinancing, view this article here.

If you'd like to know more about refinancing your home,  call us at 877-828-8851.

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Tax Tip #7: Home Equity Loans

This is the last tax tip in this series of posts. Thank you for reading. If you have more questions, we urge you to seek the counsel of an experienced tax professional.

#7:  Home Equity Loans

Unfortunately in this economy, people sometimes need to take out a home equity loan to pay for things other than their home that they couldn't normally afford, such as tuition. Can you get a tax break for that? Perhaps. It depends on the situation. Part or all of the interest that you pay on the loan could be deductible for up to $100,000 ($50,000 if you are married filing separately).

The amount that you can deduct interest on is the difference between what your home is worth and what you owe on your mortgage. (Example: if your home is worth $250,000, and your mortgage is worth $200,000, you are able to deduct interest on $50,000. If you take out a loan larger than that, such as $80,000, you cannot deduct interest on the extra $30,000.)

If you are faced with the alternative minimum tax (AMT), you won't be able to deduct any of the interest on a home equity loan. This applies if you use the money for tuition or something else not related to your property.

If you did use the money to renovate and improve your property, you will be able to deduct all of the interest whether you are faced with the AMT or not. (But still only the $50,000, not the full $80,000, as per the example above.)

Click here to view Tax Tip #6.

Once again, if you have any questions about your own specific mortgage situation, call us at 877-828-8851. We can help!

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