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Tips & Pointers in Obtaining a Loan

Monday, October 21, 2019   /   by Christina Cutolo

Tips & Pointers in Obtaining a Loan

Are you considering buying a home and wondering about your loan options? Are you a first time home buyer? Read below for important information:

Buying vs Renting
  1. Rents are the highest they have been in history. The average rent in Palm Beach county alone is $1500 a month with Boca Raton and Delray even higher! A loan amount of $200,000 equates to about $1000 in principal and interest. If you add taxes, insurance and HOA that can close to $1500 a month for a mortgage
  2. Buying a house can build equity and you can invest in your own future opposed to paying for someone else’s.
  3. You can make it your own and remodel anytime.
  4. No landlord rules to follow.
  5. There are tax benefits when owning your own home. (Talk to a tax professional for specifics.)
  6. Landlords can raise your rent at any time.
  7. When you rent, you often have to move multiple times. Each time you move, there are large costs associated with it. Don’t forget to calculate that into the equation.
  8. Owning a home is a better option for those who are growing a family and want stability.
  9. Rates are low! The lower the rates, the more buyer power you have. As rates increase, the less you will qualify for, which results in less home. 

Different loan options:

  • FHA 3.5% down. Your credit score can be as low as 580. Anything less than 580 will require a 10% down payment. In Palm Beach County, the max loan size for FHA is $356,500.
  • Conventional 3% down payment down. Your credit score can be as low as 620. Max loan amount is $484,000.
  • 100% financing with no money down. Your credit score can be as low as 640 with FHA or 660 with conventional.
  • Veterans can take advantage of 100% financing with VA loans.
  • Low down payment options are also available for condos.
Qualifying for a Loan:
  • Credit - You do not need to have perfect credit. Loans are often approved with less than perfect or low credit scores. Major things that can disqualify you include: recent bankruptcies, IRS tax liens, lack of credit history etc. You want to strive for the highest credit score because it keeps the rate the lowest. (As your lender, I will always review credit and let buyers know how they can improve their credit in short and long term timeframes.)
  • Income – In order to assess your ability to make payments in the future, we will review your paystubs and tax returns for the last 2 years to ensure your income has been stable and consistent. If your income fluctuates because you are self-employed or on commission, that’s ok too!
  • Employment history - Having employment stability and the ability to show a continuous 2 years is good but not required. You do not need to have the same job for 2 years, but we do need to show a history of the past 2 years. If someone was in school and graduated last year, only had a job for 1. That will be ok. When a buyer has a gap for 6 months in employment, we need to review other compensating factors to see if that would be acceptable.
  • Down payment - In most cases First last and security could be equivalent to 3% down. You do not need 20% down to buy a house. When you close on a mortgage you skip your first mortgage payment. That can help with the money that is needed for closing.
  • Gift funds from family members are acceptable.
The Pre-Approval Process:

If you are considering a home purchase, regardless if it is a month from now or a year from now, the first thing to do is get pre-approved.

The pre-approval is extremely important and it is important to do it with a lender that has a strong pre-approval process and understands underwriting guidelines.

It is also important to not confuse pre-approval with pre-qualification.

Q: What is the difference between a pre-approval vs pre qualification?

A: Getting pre-qualified means you speak to a lender and tell them what your overall financial picture looks like. This includes your debt, income and assets. A Lender can give you an idea of the mortgage amount for which you qualify based on the information you provide.

A Pre-qualification can be done over the phone or on the internet. A loan pre-qualification does NOT include an analysis of your credit report or an in depth look at your ability to purchase a home. The initial pre-qual step allows you to discuss any goals or needs to may have regarding your mortgage. This is when the loan officer you are working with can explain different mortgage options and recommend the type that might be best for your situation. Because this process is based on the information you tell your lender your pre-qualification is not a sure thing. It’s just the amount for which you might expect to be approved for.

Getting pre-approved is much more involved. You’ll complete an official mortgage application then provide the lender with the required supporting documents in order for an extensive check of your financial background and current credit rating is done. The lender can tell you the specific monthly mortgage amount and they can provide a better idea of the interest rate that can be charged on the loan. The lender will provide a written letter which explains the terms of the pre-approval, purchase price amount and down payment.
 

***Being pre-qualified borrower doesn’t carry the same weight as being a pre-approved buyer who has been more thoroughly reviewed. In a competitive market, this lets the seller know that your offer is serious and could prevent you from losing the home to another potential buyer.

Here is an outline of how I pre-approve borrowers:

Step 1 – Have initial conversation to understand where they are looking to buy, what type of property they are looking to buy and ideally what they would like their monthly budget to be in. During this conversation I explain to the buyer the pre-approval process, why it is important and then what happens after they go into contract. I try to explain the entire process from that initial conversation all the way to closing.

Step 2 - Complete mortgage application via telephone. Sometimes people would prefer to complete the application themselves so then I direct them to my website, click here to view it.

Step 3 – Collect ALL supporting documentation that underwriting will require.

Step 4 – Assuming I have all requested documents, within 24 – 48 hours I complete the Pre- approval review by running credit, calculate income on the attached income worksheet that is required by for mortgage guidelines

Step 5 – Review underwriting guidelines to make sure everything lines up and that I am not missing anything.

Step 6 – Discuss outcome of the pre-approval with borrower (and realtor) by going over the terms of the mortgage options they have available to them, discuss monthly payments, provide with maximum monthly payment they qualify for. Since pre-approvals are truly based on the monthly payment I write my pre-approvals specific to the property they put an offer on. The reason for doing this is because all HOA and taxes are different depending the house. I do give an idea of a purchase price amount but stress it is important to let me know the specific address when they have one so I can make sure the monthly payment still works for the debt to income ratio guidelines.

Step 7 – Email Pre-approval letter to Buyer and Realtor Benefits of being pre-approved: 1) You’re a more powerful buyer – realtors will take you more seriously and want to work hard for you 2) It saves yourself some time and you wont be spinning your wheels and going in circles wondering what price range you should be looking in, or how much you will need for down payment. 3) Stronger offer which means you will have better bargaining power 4) Shorter closing time frames which also means you will have better bargaining power. Especially when you are up against multiple offers 5) Removes any potential delays which makes the entire process less stressful for all parties involved. Do
cumentation for pre-approval 1) Copy of driver’s license 2) Most recent 30 day pay stubs 3) For any new employment ( Copy of new employment letter ) 4) Last 2 years W2s and tax returns 5) Most recent 2 months bank statements with all pages (Checking, savings, retirement accounts etc

Do’s & Don’t’s

DO:

  • Inform your lender of any changes your have made in income or employment
  • Continue to pay your rent and credit cards on time
  • Keep a paper trail of funds transferring between accounts
  • Notify your lender of any changes in your finances
  • Notify your realtor and lender of any travel plans during the home buying process

 

DON'T:

  • Change or quit your job
  • Co-sign for anyone
  • Transition from your current employer to self-employed
  • Apply for or close out any credit cards
  • Max out any credit cards (maintain a low balance and avoid large purchases)
  • Move funds from account to account (large deposits will require a paper trail)
  • Deposit cash into your bank account (all funds must be acceptable and cash deposits are not acceptable sources of assets.  Talk to your loan officer if you have cash you need to deposit)

If you have questions about anything above or to talk about your qualifications, please contact me directly:


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Christina Cutolo
Loan originator
D: 561-902-3178
M: 561-713-8740
christinac@myccmortgage.com

NMLS3029

 

NMLS1623515

 

NMLS180729


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