FAQ

1. HOW DO I QUALIFY FOR A LOAN?
   1. To answer this FAQ I would like to take the example of imagining a chair with four legs. Your typical chair needs four legs to stand and the same runs true for most mortgages. Each leg on a chair represents what the average borrower will need to submit to a lender to qualify on a loan.
      1. Leg #1 -Credit-A credit score represents your payment history and patterns for paying bills to all the creditors you have encountered for your adult life. If you pay your bills on time and have low balances you should have a good credit score. If you are challenged with paying bills on time and have a lower credit score expect a higher interest rate.
      2. Leg #2-Income-The bank needs to document you have the ability to make the payments for your new loan. If you are you salaried expect to show current paystubs and a W-2. If you are self employed expect to show your federal tax return (1040) and any other business returns connected to your income such as a 1065 or 1120 with any applicable K-1’s.

• Leg #3-Assets-When purchasing a home, the bank has to review and confirm you have enough money to buy the house plus having sufficient cash to close.

1. Leg #4-Appraisal-The bank needs to verify the value of the property you want to buy to determine the loan to value. Loan to value is the amount of money you are borrowing divided by the appraised value. Just because you are willing to buy a house from the seller doesn’t mean the house is worth that amount until a licensed appraiser scours that neighborhood for other recently sold properties that are similar in size, build and age.

2. HOW MUCH MONEY CAN I BORROW?
   1. The short answer is the bank has to figure out your recurring monthly expenses and divide that by your gross monthly income to calculate your debt-to-income ratio (DTI). How do you figure out the DTI? Great question! If you add your new principle and interest mortgage payment plus the real estate taxes, property insurance, (if applicable flood insurance, HOA, private mortgage insurance) you now have your full monthly mortgage payment. Then you add the minimum payment for all your credit cards, all monthly installment payments (e.g., car lease) or student loans that would represent your recurring monthly debt reported on your credit report. Take all those payments and divide it by your gross monthly income and voila you have figured out your debt-to-income ratio. If you are scratching your head here is a practical example: if John Doe’s new mortgage payment is $1500 and he has a car lease for $300 and a minimum credit card payment of $150 his monthly debt is $1950 ($1500+$300+$150=$1950). John earns $50,000 annually which is $4333 monthly ($50,000 /12=$4333). John’s DTI would be 45% ($1950/$4333=45%). Most loan products allow a borrower to go up a 50% DTI.
3. HOW MUCH MONEY DO I NEED FOR A DOWN PAYMENT?
   3. Simply put the more money you put down for a down payment will result in a lower monthly mortgage payment. Okay, I got that part but your question is how much do I need for a down payment. Well, there are lots of loan programs out there that allow a person to put down as little as 3% of the purchase price! Wow! You mean I can put down 3% and buy a house? Yes, potentially but realize the lower the down payment you put down on the house will result in a higher mortgage payment. If you are a veteran and served in the armed forces you can potentially have a zero-down payment on a home. FHA allows for a 3.5% down payment on a new home. Everyone has their own story and path to home ownership. You still have to calculate the debt-to-income ratio and make sure you qualify before finalizing how little you need to put down on a house.
4. WHAT DOCUMENTS WILL THE LENDER ASK ME FOR?
   1. ID-drivers license, passport or a government issued identification
   2. Income docs
      1. Salaried borrower
         1. 1 month of pay stubs
         2. Most recent 2 years of W-2’s
         3. 2 months of bank statements (with all pages)
         4. Fully executed (signed by buyer and seller) contract of sale
      2. Self-employed borrower
         1. Most recent 2 years of federal tax return (1040’s)
         2. Most recent 2 years of business tax returns (1065, 1120s)
         3. All business K-1’s
         4. 2 months of bank statements (with all pages)
         5. Fully executed (signed by buyer and seller) contract of sale

• If you receive social security income send 2 months of bank statements showing receipt and the most recent SSA-1099

1. If you receive alimony include your divorce decree and proof of deposit

1. Hazard/Property Insurance
   1. You will need to obtain an insurance policy
2. Assets-
   1. 2 months of all personal bank statements
   2. Gift money-if you are receiving gift money from a relative you will need to document the deposit of the gift into your bank account or with the closing agent plus a fully executed gift letter.

 

 

5. HOW DO I PAY OFF MY MORTGAGE FASTER?
   1. The American dream of owning your own home! It is surely a daunting task to make all those mortgage payments but if you are regimented and have extra cash you can pay off your mortgage faster. The loan you owe to the lender is comprised of principle and interest. Every month you pay extra to the mortgage payment will result in paying down the principle. There are calculators online to figure out how much faster you can pay down the mortgage by adding extra principle.
6. WHAT DOES MY MORTGAGE PAYMENT INCLUDE?
   1. Principle
   2. Interest
   3. Real estate taxes
   4. Property insurance
   5. (if applicable mortgage insurance)
7. WHAT IS AN ESCROW ACCOUNT
   1. An escrow account is money the lender collects monthly from you to pay the real estate taxes and the renewal of the annual property insurance premium.
8. HOW LONG SHOULD IT TAKE TO CLOSE ON MY HOUSE?
   1. On average 30-45 days
9. WHAT HAPPENS AT CLOSING AND WHO ATTENDS THE CLOSING ?
   1. Once you are clear to close (fancy terminology is CTC) you will be accompanying several other parties to an office somewhere to sign lots of papers. Who else will be at the closing:
      1. Closing agent/Title company
      2. Buyers

• Sellers

1. Realtors
2. Buying and selling Attorneys