Home Mortgages and the 4 C’s of Lending
All you need to do to make sure you have a better success rate in getting your home loan application approved at the terms you want is education and preparation regarding the process the lenders go through to approve your request. When evaluating your request for a mortgage loan, a mortgage lender will assess the application you have filled out with the supporting documents you have submitted. This process is referred to as underwriting the home loan. During this stage, the mortgage lender investigates the integrity of the data and evaluates the risks in order to qualify the applicant.
The home loan application is a summary of your assets, credit and income position at this particular point in time. It does not measure your character nor does it measure potential future changes such as potential employment changes or debts that maybe incurred or satisfied.
In order to evaluate your present position the mortgage lender will review your financial position, take inventory of your assets, income and credit profile. This procedure is accomplished by verifying your employment, verifying the funds you have on deposit with financial institutions, verifying the equity in the home by appraising the property, reviewing your debts outstanding and analyzing your credit history. This process has become highly automated with computer modeling and approvals but the underlying process is basically the same.
These criteria that are evaluated were once referred to as being the four C’s of lending or collateral, capacity, credit, and character.
Collateral – Collateral is a measure of the value, condition and marketability of the property. The mortgage lender will order an appraisal to determine the market value of your home. From here the loan to value or equity position in the property is determined. Loan to value is the ratio of loan amount to the appraised value. If the borrower is agreeing to down payment of $10,000.00 on a $200,000.00 home, the loan to value will 95%. This formula works on the refinance as well. If a borrower wishes to refinance an amount of $100,000.00 on a $200,000.00 home, the loan to value will be 50%. Loan to value (LTV) and the appraisal are the biggest factors in measuring collateral. Lower loan to values leave more equity in the property and is inherently less risky for the mortgage lender since it not only cushions the mortgage lenders risk but leaves more at stake for the borrower.
Capacity – Capacity is short for capacity to pay. In regards to mortgage qualifications the capacity to pay is measured by housing and debt ratios. The mortgage lender will ascertain the borrower’s gross monthly income first. The new housing payment on the mortgage requested is calculated as well as a summary of all contractual debt payments. Capacity is then measure by dividing the monthly mortgage payment by the gross monthly income to obtain the housing ratio and then dividing all contractual debt payments by the gross monthly income to get the total debt ratio. For example, if the total obligations of the borrower were $1,400 ($1,000 for housing expenses and $400 for other credit obligations), the housing ratio would be 25% ($1,000/$4,000 = 25%) and the debt ratio would be 35% ($1,400/$4,000 = 35%). Lower housing and debts imply greater capacity to pay a home loan back and hence lower risk.
Credit – Credit is evaluated by reviewing the credit report and the credit score. With the use of credit scoring, credit evaluation has become one of the simplest attributes of a loan request to measure. The credit is broken into three primary categories. Mortgage lenders will use credit scores, known as FICO scores, to determine the overall credit risk of the home loan borrower. From here a review of the public records such as, tax liens, bankruptcy filings, and judgments will be assessed. Finally, the individual accounts or trade lines in the credit report will be reviewed for delinquency, credit amounts, depth and length of time on accounts. Generally speaking, the higher the credit score the better the credit risk.
Character – Character is a qualitative measure of a borrower’s stability, integrity and honesty. Measuring character was mostly a measure of a borrower’s commitment to their credit and the new debt they intend to take on. Character may be classified as a measure of responsibilities with the loan commitment. Since mortgage lending and underwriting is almost entirely based on quantitative analysis, character is predominantly ignored. Since it is difficult to evaluate the risk and to even measure a borrowers character, in residential mortgage lending this gauge is rarely used.
Qualification for most mortgage loans and the mortgage rate a lender will charge depends on these three main factors. Understanding the basic guidelines and having knowledge of what a mortgage lender looks for in analyzing your loan request will make your mortgage application and homeownership experience and far smoother and less nerve racking experience.
Mortgage Lender East West Bank
East West Bank is one of the largest independent commercial banks headquartered in Los Angeles. The bank provides a wide range of personal and commercial banking services to small and medium-sized businesses, business executives, professionals, and other individuals.
East West Bank has 69 branches in California located in the following counties: Los Angeles, Orange, San Bernardino, San Francisco, San Mateo, Santa Clara and Alameda. In addition, the bank has one bank branch in Houston, Texas.
The bank offers a broad range of products designed to meet the credit needs of its borrowers. The bank’s lending activities include residential single family loans, residential multifamily loans, commercial real estate loans, construction loans, commercial business loans, trade finance loans, and consumer loans.
East West Bank offers a variety of mortgage loans. The bank originates mortgage loans to purchase a new home or refinance an existing home. East West Bank’s mortgage rates and fees are highly competitive.
The bank offers both fixed and adjustable rate (“ARM”) single family residential mortgage loan programs. The bank’s ARM loan programs have six-month, three-year, five-year, or seven year initial fixed periods. We originate single family residential mortgage loans
The bank also offers both fixed and adjustable rate multifamily mortgage loan programs.
The underwriting criteria for the mortgage loans generally include minimum FICO scores, maximum loan-to-value ratios and minimum debt coverage ratios.
Current mortgage rates and mortgage loan terms from East West Bank include the following:
30 year fixed rate mortgage with rate of 5.250% and 0.625 points with an APR of 5.446%
15 year fixed rate mortgage that has a rate of 4.625% and 0.625 points with an APR of 4.946%
For more flexible underwriting to meet special borrowing needs, the bank offers some portfolio home loan programs including:
6 month adjustable rate mortgage with a rate of 7.000% and 1.0 point and an APR of 8.107%
3/1 ARM with a mortgage rate of 6.625%, 1 point and an APR of 6.773%
Mortgage rates subject to change and require loan approval. Standard conditions mortgage loan and mortgage rate conditions include: the property is a single family used as your primary residence, except for the multi-family product which assumes a non-owner occupied residence. The property for the mortgage loan is located in California. The down payment towards the property is 25%. Income and assets are documented and are sufficient to qualify for the mortgage loan. There will be no subordinate financing behind the newly created 1st Mortgage. Mortgage rates and points are based on a 30 day lock period. Borrower’s credit is subject to East West Bank approval.
For current mortgage rates and account details contact a bank representative at 888-895-5650. Mortgage rates and additional mortgage loan information is also posted online at the bank website located at www.eastwestbank.com.
For CD interest rates offered by East West Bank visit, www.selectcdrates.com. For current auto loan rates from East West Bank visit, www.selectautorates.com.
Jumbo Mortgage Loans
Mortgage loans that are considered jumbo loans are those that exceed the limits that have been set by the government sponsored agencies, Fannie Mae and Freddie Mac. The Housing and Economic Recovery Act of 2008 changed Fannie Mae’s charter to expand the definition of a conforming mortgage loan. According to provisions of the Housing and Economic Recovery Act of 2008 (HERA), the national loan limit for mortgage loans to be securitized or purchased by the government agencies of FNMA and FHLMC is set based on changes in average home prices over the previous year, but cannot decline from year to year.
Fannie Mae and Freddie Mac each year set the limit on what constitutes a conforming loan, based on the October-to-October changes in mean home price following the terms set by The Federal Housing Finance Agency (FHFA). The Federal Housing Finance Agency (FHFA) has announced that the conforming loan limit will remain $417,000 for 2009 for most areas in the U.S. but specified higher limits in certain cities and counties. The conforming loan limit is the maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009. The high cost areas are determined by the Federal Housing Finance Agency.
Every year the limit is reset to a new number in the month of January, while the numbers are constantly changing on a yearly basis, one of the most recent updates disclosed that the maximum loan amount is $417,000 for condominiums and single-family homes. Once your loan has exceeded this pre-set limit, you are no longer applying for a standard loan or conforming loan, but rather, you have moved into the jumbo loan category. The 2009 general conforming mortgage loan limits are identical to the 2006, 2007, and 2008 conforming mortgage loan limits.
The reason why some people need a larger home loan does not always mean they are seeking out the biggest and most expensive houses to live in. There are some parts of the country where starter homes can cost more than $500,000. The person who would choose to purchase these more expensive homes may find that a standard, conforming loan will not be sufficient. The mortgage loan often needed to buy these higher priced homes is called a jumbo loan. Jumbo loan applications have risen measurable in recent years due to the rapid increase in housing prices.
Typically there is a slightly higher mortgage rate associated with jumbo loans. Sometimes the definition of higher mortgage rate can be staggering; anywhere from a mortgage rate that is ¼% higher to 1% higher than conforming sized home loans. This is because both Fannie Mae and Freddie Mac only buy mortgage loans that are conforming loan size, to repackage into the secondary market, making the demand for a non-conforming loans or jumbo loans much less. Since these mortgage loans are not securitized by Fannie Mae or Freddie Mac, the less liquid market for jumbo loans leads to a somewhat less uniform set of standards.
Jumbo mortgage loans have many of the same options and attributes that are available on conforming loans. They will however, all have some restrictions. The variety of home loan types is not usually as vast with jumbo mortgage loans but you will certainly find 30 year fixed rate jumbo loans, 15 year fixed rate jumbo loans, adjustable rate jumbo mortgages, and a host of hybrid mortgage loan types. All of these jumbo loan programs will feature slightly higher mortgage rates than if they were compared to national averages. The higher mortgage rates apply to both purchase transactions as well as refinances.
The qualifying requirements for jumbo home loans will also be more stringent. Required credit scores will be higher. Down payment requirements will more restrictive leading to larger down payments and lower loan to values. Financial reserves or funds that are available after the mortgage loan closing costs and down payment will need to be more substantial.
This not to say that jumbo home loans will have extremely high interest rates or a thicket of qualification requirements. It is simply that jumbo home loans have discernibly higher requirements and theta a jumbo home loan borrower should be prepared that in order to borrow much more than the standard mortgage loan borrower they will have a somewhat higher burden during the mortgage underwriting process.
When shopping and comparing jumbo loans, a prospective borrower will want to research and compare as many mortgage lenders as possible and be sure to ask about the jumbo loan mortgage rates to avoid obtaining inaccurate information. There is no point in searching for the mortgage rate and qualifying requirements on a 30 year fixed rate loan only to find out that the information you receive is for a conforming loan amount.
While these mortgage rates on jumbo loans are higher than others, once you look at all of the payment options and how this interest is distributed throughout the life of the loan, you will be able to find the home loan that fits your financial situation best. Just because you have to use a jumbo loan doesn’t mean that you have to pay a jumbo monthly mortgage payment.
Draw on the mortgage calculator to help calculate the monthly payments differences between the varying jumbo loan terms as well as the rate difference between a conforming loan and a jumbo loan to thoroughly evaluate all options. A good source for mortgage calculators can be found at www.selectcalculators.com.
A New Mortgage Loan, Is It Time To Buy a Home
If you’ve wavering between buying and renting, there is more than the pride of ownership to consider. Buying a home comes with additional costs, but it also has many more perks than renting. Even with the possible financial advantages of homeownership over renting, if you’re beginning to itch to buy your own home be sure you’re truly ready.
A home should be first viewed as a place to live, it can also be considered an asset for future plans, an investment in a community and possibly and financial asset as well. This unquestionably does not mean the house buying is one big bonanza.
Renting allows an individual or family the ability to be generally free of most maintenance responsibilities that would come with a home. By renting you do lose the chance to build equity, by property appreciation and mortgage balance reduction, take advantage of tax benefits, and protect yourself against the inconvenience of rent increases.
For first time home buyers, purchasing a new home can be overwhelming and comes with the uncomfortable process of obtaining financing or getting a home loan. Unfortunately, the home loan process is simply overly complicated because of the confusing expressions and rules in the mortgage lending industry. A few steps taken in advance to prepare for the home purchase can go a long way to facilitating the purchase and mortgage loan transaction.
Given the asset value, stability of payments, freedom, stability, and security of owning a home, potential new buyers have to consider whether they are prepared to make the leap into a new home and new home loan.
You Have the Down Payment
The first step to decide if you can buy a home is not the monthly costs. It is the initial costs of a home. If you can afford a true down payment on a home including closing costs and possible points, it most likely makes sense for you to buy. Home owners get serious tax breaks, but that tax break will be lost if you’re paying a penalty for not having an adequate down payment or are struggling with a subprime mortgage that is too much for your income to bear.
Save at least five percent of the home’s value before purchasing and push for up to 20 percent. In addition to having immediate home equity, you’ll also find that your mortgage loan options are much more attractive without trying to find loans which require low down payments that will also require higher credit scores and mortgage insurance. The exception would be loans for qualified veterans and FHA loans which are subsidized by the government.
Can You Afford It Long Term
A home is an excellent investment, but the bulk of homes are an investment that should be considered over the long-term. Despite television shows to the contrary, flipping a home or selling it after a few well chosen modifications, is often not a lucrative option in the majority of housing markets. Invest your money first is proper securities and market options.
With this sort of investment you are able to access your money quickly in case of emergency. By tying up all of your money in your home and a home loan, you will have to take out a new mortagge loan or sell your home, which can take months, to access funds should a financial crisis arise. And as recent markets have shown, home values can go down as well as up.
You must also consider your income in the long-term. If you’re stretching to meet your monthly mortgage payments, but know that you’ll need a new car in a year or less, buying a home may not be a wise use of your money. Either invest in a smaller, more affordable home, with a smaller mortgage loan or continue renting until your income rises to the level you need to afford the sort of home you’d prefer.
There is a tremendous array of mortgages available today, but all of the varieties fall into two main categories, fixed rate mortgage loans and adjustable rate mortgages - all carry quite long repayment terms.
You Have Done Your Homework
Arranging financing on a home is likely one of your first steps in buying. Begin working with a bank to arrange a prequalification or preapproval which is an estimated amount of financing before making any offers on a home. This will facilitate the sale and make the sale itself much cleaner and faster. To arrange mortgage loan financing, anticipate 6-8 weeks for the complete home loan underwriting process and closing. Home loan preapproval takes far less time, however.
Knowledge is the key to successful homeownership with regards to the dwelling as well the home loan used to secure the purchase. To become a first time homebuyer, it’s important to know where and how to begin the home buying process.
Evaluate whether you have a steady source of income to handle the monthly mortgage payment. Investigate your credit report to see that you have a good credit record and credit score. Look at your outstanding debts as wells, looking especially close at outstanding long-term debts, like car payments. Review your monthly budget to be prepared for the mortgage payment, mortgage loan costs, moving and ongoing expenses such as home maintenance and repair.
Consider Whether You Have Time
Another major consideration for homeownership is that you have the time to deal with the upkeep of that house itself. When will you mow the yard and repair any little problems that arise? Renting makes these little tasks other people’s problems. You can hire a cleaning or lawn service, but you still must be around enough to facilitate any workers in or around your home.
Examine Potential Homes Thoroughly
When it’s time to begin actively searching for a new home, look at all manners of homes within your price range. Travel the area where you’ll be moving and consider various locations and neighborhoods. As you view each house, try to minimize the emotional response, although that is important, and instead work through your checklist. In addition to the features you’ve listed, you should also be comparing each home on the basis of cost, convenience, condition, and capacity. When you compare homes on a logical basis, it will soon be evident which home is the best investment for you and your family.
You’re Staying Put
If you move constantly or have a career that takes you far from home on a regular basis, you may be better off renting a while longer. Owning a home means putting down roots in a particular community. You’ll be paying for the upkeep of the neighborhood as well as school taxes. You will be paying a monthly mortgage payment that requires timely payments. Your children will be friends with other kids nearby and you may enjoy getting to know your neighbors at backyard grills or such.
If you’re constantly moving around the country or even the globe, owning a home may be a commitment you’re not willing to endure. You’ll be responsible for the home’s upkeep even while traveling and selling a home after a short-term will likely cost you far more than you’ve made in equity.
Follow the boy scouts motto and be prepared before you decide the time is right to buy a new home and obtain a new mortgage.
Q. If I am concerned about getting approved for a mortgage loan, what should I do?
A. Of course, the first answer is to do your research. The number one way to help the mortgage loan approval process is to be prepared and understand how the mortgage loan process unfolds.
This may sound too simplified, but with the creation of credit scores and automated underwriting, the home loan approval process is based on the analysis of a series of numbers. Numbers such as, the amount of the down payment, the loan to value ratio, the borrower’s credit scores, debt to income ratios and more are all quantified and evaluated to come up with home loan approval or denial.
What is not included is subjective analysis. Number based assessments help to eliminate discrimination since color and race is not part of the input process. But, numbers can also hurt those borrowers that fell on tough times and are now putting their financial house in order. The mortgage loan approval and application is based on your debts, income, assets and credit at a point in time. Another words, you are approved or denied for a home loan based on your credit and income and other figures today, not where you will be tomorrow.
Mortgage lenders use an automated underwriting program, usually the one’s established by either FNMA of FHLMC, and input data about your current financial situation including your credit, income, debts and assets into these systems. Taking all the necessary information, the mortgage lender determines mortgage affordability. The key to any one individuals loan approval is be prepared and have the prettiest set of numbers for the mortgage lender to input in the automated underwriting system.
One of the most important numbers input or evaluated by the automated underwriting program is the borrower’s credit score. The credit score is one of the primary indicators of your ability to repay the mortgage loan, so it’s a good idea to know it before you apply with a mortgage lender. For the most part, if your score is above 760 you can expect to get the best mortgage rate a mortgage lender has to offer; if your score is below 660 you may have trouble getting approved until you improve your credit and credit score. You can obtain a free copy of your credit report annually at www.annualcreditreport.com.
Debt ratios are another key number quantified by the mortgage lender. Debt ratios are simply a measure of affordability. Debt ratios are measurements of affordability expressed as the percent of a borrowers income used to pay for debt. Mortgage lenders want to make sure a borrower’s monthly mortgage payment does not exceed 28 percent of their income before taxes. The mortgage lender will also look to see that total monthly debt payments including the mortgage payment, car payments and credit cards doesn’t exceed 36 percent of total gross monthly income. These two debt ratios are referred to as the front end and back end ratios in the mortgage industry.
Do the math calculations on your own with one of the mortgage calculators to see how your debt ratios stack up against these guidelines. The web site, www.selectcalculators.com is great site for mortgage calculators. If your proposed housing expenses or monthly mortgage payment is greater than 28% and total debt payments, car loan, student loans and other loans, is greater than 36 percent of your gross income, you may have trouble qualifying for new home loan. In tight situations, you may want to see is if there is a way to reduce some of those monthly debt payments before you apply for a home loan.
The down payment, assets and loan to value are all related measurements. The loan to value measure the loan amount in relation to the value of the home. An 80% loan to value mortgage equates to a home loan that 80% of the home’s value. For a purchase transaction, which would mean the borrower is putting 20% down or a 20% down payment.
The assets the mortgage lender is evaluating are the funds held by the borrower needed to cover that down payment, closing costs and reserves. The reserves are a measure of funds left over after paying for down payment and closing costs as a cushion or safety net. At least two months reserves will be mandatory. This is defined as two months worth of monthly mortgage payments. More reserves will make the home loan approval easier. Once again, the mortgage calculator and a look at your own finances can tell you where your loan to value will be as well as the number of months of monthly mortgage payments you have in reserve.
All of these numbers, debt ratios, credit scores and loan to value are evaluated by the mortgage lender via the automated underwriting program. The better any of the numbers are the easier the home loan approval process will be. Really high credit scores will be approved with less paperwork than lower scores. Larger down payments are processed faster. Low debt ratios will facilitate the approval process as well.
In a perfect world you want to save for a large down payment, improve your credit score and lower your debt-to-income ratio. But, in light of that, you may simply want to know where your weak spots are regarding these factors and see what you can do to improve on them before you apply for new mortgage loan. This is a good rule whether you are applying for a purchase or a mortgage refinance.
Q. How do I find the best mortgage lender?
A. The most important step in the process of finding the right mortgage lender is to do plenty of research. Unfortunately, most consumers will spend more time shopping and comparing the price of a new television set than they do shopping for a mortgage lender.
When shopping for the best mortgage lender is not only important to shop around and compare mortgage rates and costs, it is equally important to investigate the mortgage lender and their services. It’s important that you find a mortgage lender who will work with you to meet your needs and who you feel comfortable with and gives you a feeling of trust. This will entail comparing rates, services and competence.
It’s not that difficult to choose a good mortgage lender, but you do have to be informed and know what you are looking for in a mortgage lender. In order to shop and compare mortgage lenders, you need to fully understand what you are searching for not what they are selling. In order to understand the product, a prospective home loan borrower has to learn about the mortgage loans available, the average mortgage rates, the costs and the terminology involved in the mortgage loan process. With the knowledge of how the mortgage loan decision making process works, a mortgage shopper can better compare mortgage lenders and question the services and products offered.
Above everything else, do your homework before the application process begins. To find the right mortgage lender a consumer will have to question the mortgage lender and loan officer and this will be difficult to do without some understanding of how a mortgage loan is originated, processes and closed.
Once you, as the potential home loan borrower, understand the mortgage loan types and the process involved, its time to quiz the mortgage lender and mortgage loan officers. The first thing to find out is how knowledgeable the mortgage loan officer is about the home loan options and equally important, how well they explain the process and any potential pitfalls to a smooth home loan closing. The mortgage lender or mortgage loan officer should explain the mortgage rate lock process, the mortgage payments, the loan term, when and if you can refinance again and more.
Which mortgage lender has the best mortgage rate will certainly be a consideration. Of course, it is important to discuss mortgage rates and closing costs. This is a big ticket item and the mortgage rate can have a significant impact on the total costs of the loan. Comparing mortgage rates fortunately is fairly straight forward process.
Go online and check the prevailing mortgage rates in your area for the home loan product you are most interested in. Use these mortgage rates as a starting point to compare the mortgage rates of lenders you call and measure how competitive their mortgage rates really are. Don’t choose a mortgage lender based on mortgage rate alone. Make sure the mortgage lender is competitive with their mortgage rates but be sure to investigate the costs and service as well.
Comparing closing costs can sometimes get fishier. Some mortgage loan officers remain intentionally vague about the total closing costs. Other mortgage lenders employ loan officers that just don’t know that much about what they sell. In these cases it may be wise to move on. A representative of any mortgage lender should be able to explain the mortgage costs with great detail. That means they should explain any origination points, the costs of the appraisal, the title insurance costs, the cost for processing, the credit report, the tax service fee and any other fees the mortgage lender will be charging.
Not only should a good mortgage lender explain these costs, they should be able to explain what they are and why you are being charged the corresponding fee. Once you have chosen your mortgage lender and submitted a home loan application, get a Good Faith Estimate in writing itemizing approximate mortgage costs and fees. Pay close attention to all the figures on the Good Faith Estimate.
You should know, up front, how the mortgage lender will evaluate your application. Have the mortgage lender explain the mortgage loan process and the how they come to approve your home loan request all the way up to how and when they set up the mortgage loan closing or settlement. When you speak with the mortgage lender they should explain the automated underwriting process, the verification process, the documents needed by you to support the down payment and your income as well as how long this process should takes.
While the mortgage lender briefly explains the process, find out how accessible they will be while your home loan application is being evaluated and underwritten. With all the transactions now taking place on line including mortgage origination’s, a face to face application or consultation is not necessary with a mortgage lender but you should at least be able to contact your loan officer by phone or email regularly. Some customers can be annoying but the job as the mortgage loan officer to help you get a home loan. You want to be assured it will be easy for you to monitor the status of your mortgage loan application and be able to ask questions along the way.
A final step should be to ask for references. As good mortgage loan officer should be able to immediately provide references of satisfied customer’s even customers that they are presently working with.
In a nutshell, to choose a good mortgage lender you want to research the products they offer and the mortgage rate, the level of service in handling a home loan application from beginning to end and the reputation of the mortgage lender. Mortgage lenders who understand mortgage rates and costs and the whole loan process are most certainly going to be a very knowledgeable and resourceful mortgage loan officer who has not merely a salesman. Be sure to choose a company that gives helpful advice and that makes you feel comfortable.
Q. What happens when you change the mortgage loan amount after the loan application is with the mortgage lender?
A. Generally this is not a big problem when the loan amount is altered by small amounts, but it will depend on a number of variables of which one may be significant. Mortgage loans are almost entirely approved or denied based on automated underwriting systems or programs or AUS. The two biggest are FNMA’s Desk Top Underwriter and FHLMC’s Loan Prospector program.
Once a home loan application is preliminarily approved that is an indication it has been submitted through one of these programs. The loan approval takes only minutes but the data entry and processing leading up to the approval may take an hour or more. Once the home loan is submitted the automated system will generate an approval with conditions or findings that need to be satisfied for final loan approval. The conditions usually involve items and procedures such as employment and income verification and supporting documents such as current paystubs or asset documentation. The key is that the mortgage loan request is approved based on several numerical factors such as the applicants credit score, debt ratios, income and assets not subjective judgments performed by an individual.
Altering the loan amount after the initial input in these automated underwriting systems is relatively easy. Once a mortgage loan request is entered into one of the automated underwriting programs the loan request can be altered multiple times without recourse. Each alteration does not change the credit profile or cause another inquiry into the applicant’s credit report. The credit score doesn’t change due to a higher loan amount nor does the applicants job or income. If an increased loan amount is not accepted it does not invalidate the prior approval amount and conditions.
Raising the home loan amount is most often a minor change that impacts the debt ratio slightly as well as the LTV or loan to value. It would also be easy to see that a loan increase of $3,000.00 on a $200,000.00 loan request is not going to raise the mortgage payment very much and therefore will have very little impact on the debt ratios. This can be verified by running your own mortgage payment calculations on a mortgage calculator. Therefore, unless the debt ratios are very tight the most significant factor in determining the outcome of increasing the loan amount is the loan to value.
This leads to the conclusion that for home loans that are already approved, raising the loan amount slightly should be relatively easy. It requires some simple data entry changes into the original approval request with the automated underwriting system and viola, a new loan approval.
However, if the loan request is for a home purchase, the loan amount change may very well be changing the down payment and the loan to value significantly. A home loan for 180,000.00 on a $200,000.00 purchase that changes to a $182,500.00 loan amount involves a fairly measurable change to the LTV. The original home loan request calls for a down payment of $20,000.00 or 10% of the purchase price which is equivalent to a 90% loan to value home loan. By raising the loan amount by only $2,500.00 the loan to value is now over 90% (91% or $182,500.00 / $200,000.00). Home loan requests that may alter the LTV above the minimum accepted level are likely not to be approved.
The first step to solving the question of whether your mortgage loan request can be increased is to run the loan figures on a mortgage calculator so you know how the loan amount changes are impacting the mortgage payment and debt ratio. Next, speak to the loan officer or mortgage lender and ask for their input. For a refinance it is fairly common for the loan amount to be changed. Underwriting considerations may prevent the mortgage lender from raising the loan amount but there is no downside to asking. If the credit, income and collateral allow room to change the mortgage loan amount, it should a fairly simple process.
Mortgage Rates at Sugar River Bank, NH
There are of course a number of banks and mortgage lenders to apply for a mortgage loan with in New Hampshire. One of these banks is the Sugar River Bank which is headquartered in Newport, New Hampshire. Along with the office in Newport, Sugar River Bank has bank branches in Grantham, New London, Sunapee and Warner.
Sugar River Bank offers a variety of home loan options. The bank offers first mortgages for purchases and refinances. The bank provides construction loans or interim loans covering construction costs that are secured by a mortgage on the property financed. The bank has a One Step Construction Loan Program, in which the construction financing is paid off from the proceeds of a permanent mortgage which is originated at the same time as the construction loan. Sugar River Bank has home equity lines of credit and home equity loans that allow existing homeowners to tap into the accumulated equity. The bank also offers land loans as well as mobile home financing.
The standard mortgage loan products include adjustable rate mortgages and fixed rate mortgages. The adjustable rate mortgages come in a wide variety of terms and mortgages rates. The fixed rate mortgages have an interest rate that does not vary over the term of the loan and also comes in a variety of terms and mortgage rates.
Sugar River Bank is currently offering the following fixed mortgage rates and terms:
15 year fixed rate mortgage with one point has a mortgage rate of 4.745% APR.
15 year fixed rate mortgage with no points has a mortgage rate of 4.844% APR.
20 year fixed rate mortgage with two points has a mortgage rate of 5.066% APR.
20 year fixed rate mortgage with one point has a mortgage rate of 5.196% APR.
20 year fixed rate mortgage with no points has a mortgage rate of 5.451% APR.
30 year fixed rate mortgage with two points has a mortgage rate of 5.108% APR.
30 year fixed rate mortgage with one point has a mortgage rate of 5.270% APR.
30 year fixed rate mortgage with no points has a mortgage rate of 5.431% APR.
The bank offers the following adjustable rate mortgage terms and mortgage rates:
A one year ARM with 2/6 rate caps and a mortgage rate of 4.385% APR
A 3/1 ARM with 2/6 rate caps and a mortgage rate of 4.404% APR
A 3/3 year ARM with 2/6 rate caps and a mortgage rate of 4.780% APR
A 5/1 ARM with 2/6 rate caps and a mortgage rate of 5.047% APR
A 7/1 ARM with 2/6 rate caps and a mortgage rate of 5.375% APR
All mortgage rates are based on a minimum 20% down payment. Mortgage loans with a LTV greater than 80% require Private Mortgage Insurance (PMI). The mortgage Annual Percentage Rates (APR) are based on $ 100,000 home loan. Mortgage rates and terms are subject to change at the bank’s discretion. For current mortgage rates and home loan information contact the bank directly at 800-562-3145. Additional mortgage loan and mortgage rate information can be found at the bank website located at www.sugarriverbank.com.
To help calculate how these mortgage rates and tems impact the monthly mortgage payment visit www.selectcalculators.com. For auto loans and auto loan rates from Sugar River Bank visit www.selectautorates.com.
Mortgage Loans and Loan to Value
LTV, or loan to value, is only one of the factors mortgage lenders use to evaluate or underwrite a home loan. LTV is expressed as a percentage or ratio. The ratio is calculated by dividing the mortgage loan amount by the value of the property. An example of this ratio is if someone was obtaining a $200,000 mortgage loan for a property that is valued at $400,000, the LTV of this transaction is 50%. Mortgage lenders use the loan to value ratio as a significant measure of risk in making a mortgage loan decisions.
The LTV is a very important consideration for the mortgage lender and the mortgage applicant for several different reasons and its risk measure will change with the home loan type and request. As a simple tool to measure risk, the higher the loan to value on a home loan, the riskier the home loan is perceived to be. Loan to value is essentially measuring the amount of equity in a property. This equity is a result of either the down payment amount, a larger down payment would equal more equity, or a reduced balance on a existing mortgage loan for a refinance request or an increase in property value.
Loan to values therefore measure the amount of equity in a property. The greater the equity, whether it be with a large down payment or appreciation when you already own the property, the more committed to the property a borrower generally will be and the larger the cushion there is to absorb losses by the mortgage lender should a borrower default on their home loan. Not only our borrowers more committed when there is more equity in the property, but the lenders loan balance has a greater level of protection should a borrower default. Certainly, 100% loan to value home loan transactions are defaulting at a higher rate than lower loan to value home loan transactions are.
If you are applying for a mortgage to purchase a home, the loan to value is measure of how much money has to be placed as a down payment to buy the property. In order for the mortgage lender to determine the value aspect of the loan to value ratio they will look at the lower of the purchase price, or appraised value of a home, when you are purchasing a new house. If the home appraises for an amount greater than the purchase price, this may make the transaction more desirable for you the borrower, but the mortgage lender will now use the lower sales price figure to determine the mortgage loan underwriting evaluation. Because of this, the mortgage lender will not have to worry about lending more money than the actual property is worth or lending more than you would be willing to purchase the property for or got caught in an over inflated purchase transaction.
The importance of the amount down payment for the borrower can’t be disregarded either. An important item to remember, when a property is purchased, the total down payment you make will have to come from your source of money, borrowed funds are unacceptable. If your down payment is less than 20%, you will need private mortgage insurance (PMI). This is insurance you pay to protect the mortgage lender if you don’t repay your home loan in full. With mortgage insurance coverage an extra premium or fee is included within your monthly mortgage payments. The type of home loan you receive, the insurance company as well as the home’s LTV determines the exact premium amount for the private mortgage insurance. Higher loan to value loans or home loans with smaller down payments will have a higher mortgage insurance payment, adjustable rate mortgages will also have a larger mortgage insurance cost.
When an existing home owner is refinancing their home, the appraised value is what will be used to find the value part of the loan to value equation. The biggest component in calculating your home’s appraisal value is by analyzing past sales of comparable homes that are within one mile of your property and were sold within the past year. Houses for sales or listings do not count towards this amount because they are not finalized sales and their prices can either rise or drop.
Mortgage refinances fall into two categories, cash out refinances and rate and term refinances. A cash out mortgage refinance is when you take out funds with the new home loan for anything other than paying off the existing mortgage and closing costs. A rate and term refinance is for paying off just the mortgages and closing costs. In these cases, the new home loan is changing either with a new mortgage rate or a new loan term. When you have to combine a first and second mortgages within a mortgage refinance transaction, you will want to remember than the second mortgage loan needs to have been open for at least twelve months. If your second loan is not “seasoned” long enough, the mortgage lender will consider the consolidation of the two mortgages as cash out refinance loan, thus you are subject to all LTV guidelines and their associated mortgage rate adjustments.
With all mortgage refinance transaction, you will find that the ratio used with the loan amount to appraised value is will be a big determinant of the home loan approval. This is especially true if the borrower wishes to cash out within the transaction. The typical rule for cash out transaction is a maximum amount of 90% of the appraised value for the entire loan amount, which also includes any cash out. And a 90% cash out refinance is the absolute high end of the approval range, meaning the mortgage lender considers this loan the riskiest loan is less likely to approve such a request.
When your LTV is over 75%, you will usually experience a minimum .125%, or 1/8th of a point, increase within the mortgage rate for every 5% in the LTV. An example of this would be when a person takes 85% cash out mortgage loan; their mortgage rate would generally be .25%, or 1/4th of a point, higher than with a 75% cash out mortgage with established mortgage rates. The main reason for the mortgage rate increase is the increased risk factor on the home loan, there is now less equity in the property.
If you require more than 90% cash out rate, there are lenders that will supply this to you. However, the mortgage rates are generally significantly higher than standard rates with the exception of FHA loans. FHA loans allow 85% cash out LTVs without a significant impact on the mortgage rate.
The lower the ratio between the loan amount to the appraised value, the loan to value, the more likely a mortgage lender will accept the risk of the home loan. The risk considerations will be different in owner occupant versus non-owner or rental situations. Loan to values will be more significant in cash out transactions versus rate and term refinance loan requests. As you compare mortgage lender costs and qualification requirements you will see how loan to value can play a key role in the final outcome.
Mortgage calculators are a great tool to evaluate the loan to value on a home loan. www.selectcalculators.com offers a wide assortment of mortgage calculators to help determine LTV and evaluate home loan products and mortgage rates.
Tips for Avoiding Mortgage Fraud
Mortgage fraud continues to be a major problem for banks, mortgage lenders and consumers. Mortgage fraud is action that is not only investigated by local law enforcement but will be investigated by the Federal Bureau of Investigation as well. In fact, engaging in mortgage fraud can be punishable by up to 30 years in federal prison or $1,000,000 fine, or both. Mortgage fraud scams impact banks and mortgage lenders with loans that default as well the real estate profession, the economy and a significant number of individual homeowners.
Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the FBI recently commented in a press release that, “We will not stand by while real estate professionals and others exploit the financial system for their personal gain. Mortgage fraud – and the foreclosures and boarded up houses that often follow from it – has a real and significant effect on neighborhoods and property values. The FBI is working tirelessly in every part of the country to protect communities and financial institutions from the effects of mortgage fraud.”
For those consumers that are buying a new home, refinancing an existing mortgage, or searching for help to reduce their home loan debt and other debts, they could be a target of mortgage fraud by individuals and mortgage professionals.
Mortgage fraud is defined as a material misstatement, misrepresentation, or omissions relied upon by an underwriter or lender to fund, purchase, or insure a loan. The FBI puts out notices that remind individuals that it is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.
There are two general types of mortgage fraud, fraud used to acquire property and fraud used purely for profit. Mortgage fraud that is used to purchase a home or acquire property usually involves a borrower who is committing fraud on a single home loan transaction. Often, the individual committing fraud is buying the property to occupy it and fully intends to repay the home loan. Though the intentions may not sound bad, the borrower makes misrepresentations about their income or their debts, the value of the home or falsifies data about the down payment. At times mortgage and real estate professionals are involved in assisting the home loan borrower so that they qualify for the mortgage and can purchase or refinance the home.
Fraud that is committed for the motive of turning a profit will involve mortgage or real estate industry professionals. These cases of mortgage fraud generally involve several home loans and can often be for millions of dollars. Mortgage fraud cases with professionals can be much more complex and involve issues as wide spread and complicated as having straw buyers which involves a borrower that assumes the identity of another person, property value that are fraudulently inflated, scam down payments that do not exist or are borrowed and disguised as the borrowers own funds, as well as flagrant misrepresentations including: overstating income, overstating assets, overstating collateral, fictitious employment and other related untrue facts and figures.
Some tips for recognizing and avoiding being part of a mortgage fraud transaction include:
Make sure to read and understand everything you are signing. Speak to another mortgage professional or an attorney if you need something explained. Don’t sign anything you don’t understand at anytime in the purchase, mortgage application or closing process.
Do not sign any home loan documents that contain inaccurate information, such as inflated or inaccurate income, sources of the down payment, incorrect sales price, type and length of your employment, your intent to occupy the property as your primary residence, existing debts, etc.
Don’t sign any mortgage loan documents with information left blank. Blank spaces can be filled in later by other parties to the transaction yet still has your original signature.
Know and understand the terms of the home mortgage. Check your information against the information in the home loan documents to ensure they are accurate and complete.
Do not agree to a price above your asking price. If there are any unusual circumstances regarding the purchase price, take a second look at the transaction and ask for assistance if the arrangement seems unusual. This may be particularly important if you are asked to refund the difference after the closing or if the extra money is to be used for repairs or improvements that you know are unnecessary.
Do not let someone else use your name or social security number to buy a property, especially if he or she offers to pay you for using it.
Deal directly with the mortgage lender or the mortgage broker. Do not let a third party arrange your mortgage loan.
Make sure to get a complete set of the mortgage loan and related closing documents at the time of settlement.
Review the title history to determine if the property has been sold multiple times within a short period. It could mean that this property has been flipped or bought and sold recently and the value can possibly be falsely inflated.
It is always sound advice to get referrals for real estate and mortgage professionals before filling out the mortgage loan application or signing a contract. Check the licenses of the real estate professionals and mortgage lenders involved in the transaction with the local licensing authorities.
Shopping and comparing mortgage loans and mortgage rates involves some work, don’t skimp on the process since the long term costs of a mistake can be significant.
Are Your Ready to Buy a Condo?
When you think you’ve found the perfect unit, you have your down payment ready, your going to call the mortgage lender and you’re ready sign on the dotted line, hold off for a moment. Are you sure you are completely prepared to buy into a community property? Do you know everything there is to know about your future home? Are you really ready to buy a condo?
Documented Problems
One of the best places to look for hidden dirt on your future home is in the minutes of the condo association board meetings. Anyone with complaints will likely come before the board and if you notice several of the same complaints, you may be buying into a lemon or simply a property that is poorly managed. You don’t want to be part of either one.
Delinquencies
Has there been a history of missing payments from your future neighbors? You should be able to find the delinquency records for the building. High rates of delinquency, or even moderate ones, are a sign of bad things to come. One problem is that the condo owners are having financial trouble which can lead to more distressed sales that bring down prices. In addition, when the condo owners are delinquent less money is paid into the project for common area maintenance and expenses.
Repair/Reserve Fund
Owners pay into a repair and reserve fund. Research the fund to see how much it contains. Older properties should have as much as 50% of the estimated costs of refurbishing the building and grounds in the fund for planned improvements, new fixtures or roofing, and emergencies. Newer buildings should have at least 10-25%. Make sure to carefully review the condition of the property, not just the unit you intend to buy but the exterior of the building and the common areas as well.
Insurance
Make extra sure you take a look at the insurance on the property. Find out if replacement costs and costs of rebuilding are correct and find out if the property has a building ordinance clause. This pays for improvements to the building to bring it up to date as ordinances change. You should also be sure you know how much of your unit and personal property is covered by the building insurance policy and be sure to make up the difference with your own insurance.
Legalities
Utilize the services of a real estate lawyer to work through all the paperwork and bylaws of the association to be sure everything is up to snuff. The laws should not only make sense for the units, they should also be in line with state and local laws as well. Your lawyer can also head over to the local courthouse to check and see if any suits have been brought against the property.
Renters
You need to know how friendly your condo is to renters. You don’t want too many renters as they can change the attractiveness of the units to other buyers, but you also want to know if you are able to rent your own unit to others. Would you need to find and screen those renters or is that taken care of by the management company? Also be aware that bylaws affecting renting can change at any time. If a fair number of owners rent, however, that is considerably less likely to happen. The number of renters may also present a problem when it comes time to obtain a home loan for to purchase the property. Mortgage lenders consider is a greater risk if the condo project has a large quantity of renters and may not approve a mortgage loan on a heavily rented project.
Management
Finally, understand exactly who is managing the property. Are the owners managing the building or is it under the control of a management company? Buildings managed by the owners can be fraught with hassles, even if the overall management is done effectively. If you are looking at a building with a property management company, find out all you can about that company and be sure to interview the day-to-day manager directly. You want to be sure your property is in excellent hands at all times.
Condo Mortgage Loans
A final caution is to be fully aware of the home loan guidelines on condos. Many mortgage lenders, during times of tight mortgage credit, restrict their home loans on condos. Mortgage lenders will often require a slighter larger mortgage down payment and may increase the mortgage rate. The reason behind the restrictions is that condos will generally not appreciate as fast as single family homes and when they have to be foreclosed on and sold in times of distress, it is more common that the sale price will not be enough to cover the mortgage loan balance. Also, condos have historical had a higher mortgage delinquency rate during economic contractions. Therefore, mortgage lenders like to reduce their risk exposure to these types of mortgage loans.
While new buyers may not be overly concerned about refinancing the home loan, since condos will appreciate at a slower rate than single family homes in general, refinancing in the future may be slightly more difficult than it would be on a single family detached home. Increased equity by appreciation or mortgage loan balance reduction makes mortgage refinances easier especially when the mortgage holder is not requesting cash out. Since the condo may not increase in value as fast that little benefit of increased home equity in the home is not a strong on a condo as it is in a single family detached home.
Not-So-Glorious Home Ownership
According to any number of experts in the media, political arena and at backyard barbecues, we should all own our own homes. Home ownership has always been a goal in the United States as it makes a statement about the stability of your income and makes you a better citizen, among other things. Homeowners have long been extolled as being pillars of the moral society, being more involved in the community, and having more educated children. But how much of that is fact, and how much is mere propaganda?
Recent numbers have certainly shown that far too many Americans own homes that they can not afford. Mortgage delinquency is rising as more mortgage payments are slipping seriously past due. These homeowners fell victim to irrational pressures that push home ownership on the American people. People that are now trying to recover from financial loss associated with an unsustainable mortgage loan, credit problems and personal problems stemming from the desire to follow the propaganda pushing the American dream.
Is Home Ownership for Everyone?
If propaganda is to be believed, we should all own our own homes. Unfortunately, many people buy into this belief but fail to consider if, in fact, owning and maintaining their own home is really the right personal decision. There is no doubt society is telling you to buy a home. But it may very well be that your bank account, your lifestyle and your career are sending a very different message entirely.
There are many home loan programs available from the government and banks that have helped low income families become proud home owners with reduced mortgage down payment programs. Unfortunately, many of those homeowners are now staring at rising mortgage payments and imminent foreclosure. Many of these families and individuals took advantage of the sub prime lending craze that swept the nation in recent years thanks to overall low interest rates, low mortgage rates and in some cases additional government assistance.
Now, with mortgage rates creeping back up, mortgage loan payments are coming up too and money is getting tight. When these sub prime buyers are unable to pay their mortgage, they face eviction and foreclosure. Mortgage refinancing, which seemed like a viable option for mortgage payment relief, became more difficult and often involved an even higher mortgage rates. Not only have they lost any investment up to this point, they have also lost their credit rating and their pride. It’s hard to feel good about yourself after being kicked out of the home you were so proud to own a few short years ago as well as losing the mortgage down payment funds and any other money that may have allocated to make previous mortgage payments and housing maintenance.
Don’t Buy a Home
Home ownership isn’t for everyone. When you own a home you must have time and money to spend maintaining that property. You must learn how to cut and edge the lawn and how time consuming driving from the suburbs to the city can be. Many city dwellers who buy a home in the suburbs chafe at the sudden isolation and removal from community activities.
Others find their free time now consumed by drives to and from work every day. Still others realize that paying homeowner association dues and property taxes isn’t as much fun as they were anticipating.
Many homeowners are not only overwhelmed by the new mortgage payment, referred to as payment shock in the mortgage industry, especially when the home loan is based on an adjustable rate mortgage but are also unpleasantly surprised over the cost of maintenance. Maintenance does not just mean maintaining the yard and cleaning but unlike a rental unit in which the structure is maintained by the landlord, your home physical structure including plumbing, electrical and physical wear and tear is maintained by the home owner.
Buying a home isn’t the right choice for many people. If you are in a career that relocates you often, you may be frustrated trying to sell home after home and losing money in mortgage closing costs and commissions. You may also not be an ideal candidate for home ownership if you are at retirement age. Many retirees would do well to sell their homes (along with the maintenance they represent) and find a high-quality, well maintained rental instead.
But Is It Better To Own a Home?
There is some truth to studies that children are more successful academically in families that own homes. There is no difference between those children and children of long-term renters, however. It seems the mobility of families, not the home location is a factor in educational success. Your children will do just as well in a rental as a home, so long as you live there for a long period of time.
Home owners are not necessarily more involved in the community or better citizens, either. Again, the longer you are in a community, the more involved you are likely to become.
As evidence, you can look too many of the cities in Europe. In the United States, 70% of citizens own their own homes. In the well-educated, successful country of Switzerland, only 34% of residents own their own homes. In Berlin, a mere 11% are homeowners.
Perhaps your desire to own a house springs more from the pressure around you than your actual desire to plant a garden or build a porch. Consider strongly your motivation before following the rest of the country into the home buying craze. Study your own personal choices regarding time and your budget for both the mortgage loan down payment and the monthly mortgage payments. Investigate the mortgage programs available and mortgage rates and do not fall into a false sense of security believing that you can always refinance a high mortgage rate into another home loan. The mortgage calculators may be especially helpful in determining mortgage options and mortgage payments. But, the mortgage calculator and mortgage rates can not determine if the work, time and investment in home ownership matches your individual goals and needs.