What Clients Ask The Most

How does a mortgage work?

A mortgage is a type of loan used to purchase or maintain a home, land, or other types of real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments that are divided into principal and interest. The property then serves as collateral to secure the loan. The very first step to obtain a home loan is to determine out how much money you can borrow. In the case of buying a home, you should determine how much home you can afford even before you begin looking. By answering a few simple questions, I will calculate your buying power, based on standard lender guidelines.

Why is a Pre-Approval necessary?

It is highly recommended to get pre-approved before you start looking for your new home so you can:

Know what properties are within your budget so you can begin looking for homes with your realtor.
Be in a better position when negotiating with the seller (seller knows your loan is already approved).
Close your loan quicker.

A pre-approval requires verification of your income, credit, assets, and liabilities. This will strengthen your offer and will greatly increase your chances of getting an offer accepted. I help you with the pre-approval process and contact the listing agent on your behalf to help secure the purchase of your home.

What documents do I need when applying for a mortgage?

Below is a list of documents that are required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. Please contact me to discuss your specific goals and situation. All scenarios are different, so there may be additional guidelines that need to be met in order to get approved for specific loan programs. When working with a mortgage professional, please provide the information requested as soon as possible to help speed up the application process.

Your Income Documents:

Copies of your pay-stubs from the most recent 30-day period that includes the year-to-date
Copies of your W-2 forms from the past two years
Names and addresses of all employers from the last two years
Letter explaining any gaps in employment in the past two years
Work visa or green card (copy front & back)

If self-employed or receive commission or bonus, interest/dividends, or rental income:

Provide full tax returns from the last two years PLUS year-to-date Profit and Loss statement (please provide complete tax returns including attached schedules and statements. If you have filed an extension, please supply a copy of the extension.) I can supply you with a profit and loss template to help with this.
K-1's for all partnerships and S-Corporations from the last two years (please double-check your return. Most K-1's are not attached to the 1040).
Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules, statements, and addenda from the last two years. (Required only if your ownership position is 25% or greater).

If you will use Alimony or Child Support to qualify:

Provide divorce decree/court order stating amount, as well as, proof of receipt of funds from the last three consecutive months.

If you receive Social Security income, Disability or VA benefits:

Provide an award letter from the agency or organization. Military personnel will need to provide their DD-214 as well.

Source of Funds and Down Payment:

Sale of your existing home - Provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement).
Savings, checking, or money market funds - Provide copies of bank statements from the last two months and/or last quarterly statement if using funds from a money market fund such as a retirement account.
Stocks and bonds - Provide copies of your statement from your broker or copies of certificates.
Gifts - If part of your cash to close, provide Gift Affidavit and proof of receipt of funds (Affidavits will be supplied).
Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation. Please be prepared to do this.

Your Property Purchase Documents:

Copy of signed sales contract including all addendums.
Verification of the deposit you placed on the home - Will need copy of earnest money check and updated bank statements reflecting earnest money being deducted from account (CASH MONEY DEPOSITS are not an acceptable source of income. All money used towards a transaction has to be sourced from bank/money market accounts. Any cash deposit more than 0.05% of purchase price on a conventional loan and more than 1% of purchase price on an FHA loan will not be acceptable to use towards a transaction, unless it can be sourced from other qualifying accounts.
Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys involved.
Copy of Listing Sheet and legal description if available (if the property is a condominium, please provide condominium declaration, by-laws, and most recent budget).

How is my monthly payment calculated and what are Debt-To-Income Ratios?

When qualifying for a home loan, there are certain factors that determine a borrower's eligibility when purchasing or refinancing. Some key factors, but not all, include determining the Loan-To-Value, the Debt-To-Income ratios, and the borrowers credit profile. When a borrower gets pre-approved, they are approved based on a max monthly mortgage payment rather than solely on purchase price. The reason is because there are other variables included that can affect Debt-To-Income ratio thresholds.

Debt-To-Income ratio is a calculation between a borrowers monthly qualifying income and the required minimum payments from all creditors specified on credit report with all court ordered obligations, while also including the proposed mortgage payment. These thresholds determine a borrowers purchasing power and cannot exceed certain parameters. Other factors may inhibit max ratios such as credit being in lower tier brackets, the amount of money being used for down payment, the amount of monthly reserves required that is sourced from asset accounts, or a combination of all these factors can impact qualified loan amounts. You can think of it as an equation with variables that can be interchanged to determine what a borrower can afford. Typically any variable can change but as long as the borrower does not exceed a max monthly payment specified by a mortgage professional, the borrower will qualify based on these parameters.

What Are Discount Points?

A discount point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.

Should I Pay Points To Lower My Interest Rate?

Yes, if you plan to stay in the property for a least a few years. Paying discount points to lower the loan's interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. The good news is that you have the ability to claim discount points when you prepare for your taxes the following tax year. Consult with your tax accountant on this subject before preparing your tax returns. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front. As a your mortgage professional, I can provide those calculations for you.

What Can I Do To Improve My Credit Score?

Credit scoring models are complex often varying among creditors and for different types of credit. If one-factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application. Nevertheless, scoring models generally evaluate the following types of information in your credit report:

Have you paid your bills on time? Payment history typically is a significant factor. Your score will likely be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy if that history is reflected on your credit report.
What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to hurt your score. It is generally recommended to keep your credit balance for each trade line under 50% of your total credit limit, and even better to keep the current balance under 30% of total allocated credit limits utilizing credit consistently month after month.
How long is your credit history? Generally, models consider the length of your credit track record. Insufficient credit history may affect your score, but that can be offset by other factors, such as timely payments and low balances.
Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may hurt your score. Also, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.

When Should I Refinance?

It's generally a good time to refinance when mortgage rates are 2% lower than the current rate on your loan. My clients contact me from time to time to discuss refinancing options. It may be a viable option even if the interest rate difference is only 1% or less. Any reduction can trim your monthly mortgage payments. As your trusted mortgage professional, I can guide you in calculating the best option.

What Happens At Closing?

Closing your loan is the last step of financing a home and when the property is officially transferred from the seller to you. This is exciting! This marks a milestone or accomplishment in your life. At closing you and all the other parties involved sign the necessary documents. Your closing may include some or all of these entities: real estate agents, your attorney, the seller’s attorney, lender's representative, title and escrow firm representatives, clerks, secretaries, and other staff. Closing can take an hour to several depending on contingency clauses in the purchase offer, or any escrow instructions needing to be executed.

Most paperwork in closing or settlement is done by attorneys, real estate professionals, and title closers.

Prior to closing, you should have a final inspection, or "walk-through" to ensure requested repairs were performed, and items agreed to repair with the house are completed such as structural repairs, lighting fixtures, etc. In most states the settlement is completed by a title or escrow firm in which you forward all materials and information plus the appropriate cashier's checks or bank wire so the firm can make the necessary disbursement. The title representative will deliver the check to the seller, and then give the keys to you.