~ A mortgage lender will review your income, debts, and available cash for your purchase. They will then calculate the amount of additional mortgage debt you can qualify for, and they will provide a letter certifying you have been Pre-Qualified for a mortgage of up to a certain amount.
~ This encompasses the steps discussed above, however, the lender will collect all of your income documentation (such as pay stubs, W-2’s, tax returns, etc); bank statements (to verify your available cash for the transaction), and any other documentation pertinent to the loan (divorce papers, alimony or child support payments paid or received, other sources of income, etc). Once the information is collected and analyzed, the lender may be able to provide you with a letter of Pre-Approval, which carries more weight than a letter of Pre-Qualification.Still, there will be other requirements to be satisfied before your loan can be completed. An appraisal of the property would need to be performed, a title search done, other various background checks, Letters of Explanation, and more, would need to be provided.TIP: Obtain a Letter of Pre-Approval from your Lender before you start shopping for your home. This will let you know what you can afford and save you much time, frustration and disappointment.
As discussed in #1 above, your income, your assets, and credit history will be reviewed.What is a DTI (Debt-To-Income) ratio?Answer: Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed.To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.For example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6000, then your debt-to-income ratio is 33 percent. ($2000 is 33% of $6000.)Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments.
~ Although each borrower’s situation is different and unique, an applicant would be expected to provide:1) two most recent paystubs.2) Personal tax returns & W-2’s for the previous 2 years.3) Business tax returns for the previous 2 years (if you are self-employed).4) The lender will also contact your employer to verify your income, either by telephone or, in writing.
A “conventional” mortgage simply refers to any mortgage loan that is not insured or guaranteed by the federal government. The word conventional simply means standard, regular, or normal, which is basically saying that conventional loans are typical and common. And that makes a lot of sense because conventional loans make up the largest share of mortgages issued in the country.Their counterpart, government loans, account for the rest, although a smaller slice of the pie.Government loans (FHA & VA) will be covered in a different section.Types of Conventional MortgagesConventional mortgage loans can be CONFORMING or NON-CONFORMING.1) CONFORMING loans are the most common. These are originated by lenders using guidelines set forth by Fannie Mae and Freddie Mac, which are two separate Government Sponsored Enterprises (GSE’s). CONFORMING loan limits are currently at $453,100, and typically changeannually. CONFORMING loans have a minimum FICO credit score requirement of 620, and a minimum down payment requirement of 5%. However, in some instances, such as with Fannie Mae’s “HomeReady” or Freddie Mac’s “HomePossible” programs, only 3% down is required.You may recall that 20-30 years ago, conventional loans always required at least 20% down, because low down payment loans are higher risk loans. Now, lower down payment loans are possible because Fannie & Freddie require Private Mortgage Insurance (PMI) on loans with less than 20% down. PMI can add anywhere from $100/mo to $350/mo or more to the mortgage payment depending on several factors.2) NON-CONFORMING loans are loan amounts ABOVE $453,100 and typically up to $3 million.(These are also referred to as JUMBO loans.) NON-CONFORMING loans often have higher interest rates and stricter qualifying guidelines, since lenders are providing loans of much higher dollar amounts.These loans usually had minimum FICO requirements of about 720, but lately we’ve seen some JUMBO loans with lower FICO requirements of 700, or even 680. Down payment minimum requirements have often been at 20%, but again we are seeing them being lowered from 20%down to 15% and even 10%.NON-CONFORMING loans generally do not require PMI on loans with less than 20% down. Instead, the risk is offset by charging a higher interest rate.Again, both types of loans, CONFORMING & NON-CONFORMING are considered conventional because they aren’t government loans.Lastly, conventional loans may be Fixed Rate Mortgages (FRM’s), Adjustable Rate Mortgages (ARM’s), or a combination of the two (loan is fixed for 5 or so years, then becomes adjustable for the remainder of the term.) These have become quite popular, and are referred to as “Hybrid” ARM’s or “Fixed ARM’s”.Example of a Conventional Loan Calculation:Sales Price $200,000 Principal & Interest Payment (@ 4.875%) $1006Down Payment (5.00%) - 10,000 Property Tax Est (1.30% of SP) 217Loan Amount (95.00%) 190,000 Fire Insurance Estimate (Est $720/yr) 60Monthly Private Mortgage Insurance(percentage varies on FICO score, etc) 63Total Monthly Payment 1346
An FHA insured loan is a US Federal Housing Administration loan which is provided by an FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford.To obtain mortgage insurance from the Federal Housing Administration, an upfront mortgage insurance premium (UFMIP) equal to 1.75 percent of the base loan amount at closing is required, and is normally financed (added) into the total loan amount by the lender and paid to FHA on the borrower's behalf. There is also a monthly mortgage insurance premium (MIP) which is typically .85% of the base loan, then divided by 12 (months) and added to the payment. MIP stays on the loan for the life of the loan, ie, it cannot be removed.The FHA does not make loans. Rather, it insures loans made by private lenders. Contact your preferred lender and verify whether they are FHA-Approved by the U.S. Department of Housing and Urban Development to originate FHA loans.FHA allows first time homebuyers to put down as little as 3.5%. If little or no credit exists for the applicants, the FHA will allow a qualified non-occupant co-borrower to co-sign for the loan without requiring that person to reside in the home with the first time homebuyer. The co-signer does not have to be a blood relative. This is called a Non-Occupying Co-Borrower.FHA loans are typically more forgiving with applicants who may have had some previous credit issues in the past. For example, conventional loans require a minimum FICO (credit) score of 620, while FHA allows for FICO’s as low as 580. FHA also allows for slightly higher Debt-To-Income ratios than conventional loans allow.FHA is the best First Time Homebuyer program available, although applicants who have owned a home in the past may still obtain FHA financing, as long as the previous loan(s) have been paid off and closed.Example of FHA loan calculation:Sales Price $200,000Minimum Down Pmt (3.50%) - 7,000Base Loan Amount (96.50%) $193,000Up Front Mortgage InsurancePremium (UFMIP) (1.75%) + 3,377Total Loan Amount $196,377Principal & Interest payment(assuming 4.50%) 996Propert Tax Est (1.30% of SP) 217Fire Insurance Est ($720/yr) 60Monthly Mortgage InsurancePremium (MIP) + 137 (.85% of base loan amt, / 12)Total Monthly Payment 1410
~ A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs. The program is for American veterans, military members currently serving in the U.S. military, reservists and select surviving spouses and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction. The VA does not originate loans, but sets the rules for who may qualify, issues minimum guidelines and requirements under which mortgages may be offered and financially guarantees loans that qualify under the program.The main benefit of a VA loan is that there is no down payment required. A “Funding Fee” of 1.25% to 3.3% is charged to the veteran and added to the loan amount. If the veteran is disabled, the Funding Fee is waived. VA loans, like FHA loans, allow for slightly higher Debt to Income ratios, and may be more forgiving with a borrower’s credit issues. Minimum FICO score is 580.
PLEASE NOTE: All interest rates, limits and other numbers supplied above are subject to change. Please check with your Loan Officer for current Rates, Limits, etc.CalVet Versus VA Mortgages: The biggest difference between CalVet and VA mortgages is that CalVet mortgages are procured using contracts of sale. Basically, CalVet purchases a qualified military veteran's desired property and then sells it to him using a contract of sale, sometimes known as a land contract. The CalVet program actually holds legal title to the home bought with a CalVet mortgage, while the military veteran holds equitable title — the right to obtain full ownership of the home. Military veterans using VA mortgages always receive immediate full legal title to and ownership of their properties.