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Buying a Home in Phx! Where Do I Begin?

June 7, 2017 by · Leave a Comment 

Getting Started

The decision has been made, I am BUYING a new HOUSE!! and I don’t know what to do next.

First things first: Get organized and do your homework.

CAN I AFFORD THE HOUSE?

You will need to determine what’s affordable.  Remember, when you purchase a home, you will also incur some additional costs, “upfront costs”, such as the down payment and closing costs associated with the loan.  You will need to be prepared to pay these costs.  You can refer to  Mortgae 101: and our  Mortgage Calculator:  (see above) to help estimate what you can afford.

WHERE IN THE PHOENIX METRO AREA DO I WANT TO LIVE?

Know the area in the Valley that you want to live so that you can focus on on your specific needs such as schools, proximity to work, etc.

WHAT DO I WANT VS WHAT I NEED?

Make sure you have a definite ideas of what you are looking for in a new home and base your decisions on these.  there are many choices-from townhouses,and condominiums to single family or multiple-family homes.  You need to know exactly what each has to offer.  You probably will not be able to check off everything on your list, but knowing what your requirements are before you get started will make your life much easier down the road.

WHERE DO I START?

Before you do any serious home searching, you will need a Mortgage Broker that you can trust and a Real Estate Agent qualified to get the most affordable home available.  You will also want to get your finances in order such as pay stbs, W2s, bank statements, etc.  Call me and I will get the information you need to get started.

WHAT ABOUT A DOWN PAYMENT?

In today’s economy, the preferred down payment of 20% is just not feasible.  We offer FHA loans which require as little as a 3.5%  down payment.  But please note that this loan will be require to pay Mortgage Insurance each month until you reach 20% equity in the home.

WHAT ABOUT MY CREDIT?

You will definitely need to know what your credit report says.  This will determine how credit worthy you are and what you will need to do to qualify for the loan.  Often, you will find inaccuracies or mistakes.  These will need to be corrected.  You will need to meet the qualification set by the lender which is typical a minimum credit score of 620.

For more information, please do not hesitate to call me at 602.248.4200.

What’s My Debt-to-Income (DTI) Ratio?

June 7, 2017 by · Leave a Comment 

Debt-to-Income (DTI) is one of the many new mortgage related terms many First-Time Home Buyers will get used to hearing.

DTI is a component of the mortgage approval process that measures a borrower’s Gross Monthly Income compared to their credit payments and other monthly liabilities.

Debt-to-Income Ratios are designed to give guidance on acceptable levels of debt allowed by particular lenders or programs.

There are actually two different Debt-to-Income Ratios that underwriters will review in order to determine if a borrower’s monthly income is sufficient to cover the responsibility of a mortgage according to the particular lender / mortgage program guidelines.

Most loan programs allow for a Total DTI of 43% and a Housing DTI of 31%.

Two Types of DTI Ratios:

a) Front End or Housing Ratio:

  • Should be 28-31% of your gross income
  • Divide the estimated monthly mortgage payment by the gross monthly income

b)  Back End or Total Debt Ratio:

  • Should be less than 43% of your gross monthly income
  • Divide the estimated house payment plus all consumer debt by the gross monthly income

Remember, the DTI Ratios are based on gross income before taxes.  Lenders also prefer to use W2’s or tax returns to verify income and employment.

However, the adjusted gross income is used to calculate DTI for self-employed borrowers on most loan programs.  Since there is room for interpretation on these guidelines, it’s important to review your personal income / employment scenario in detail with your trusted mortgage professional to make sure everything fits within the guidelines.

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Related Articles – Mortgage Approval Process:

Conventional or FHA Loans In Phoenix

October 31, 2013 by · Leave a Comment 

How does one decide between a FHA loan or Conventional loan?  In a nutshell, if you can qualify for a Conventional loan, go for it.  Conventional loans are harder to qualify for but well worth it.

The main reason for this rational is the Mortgage Insurance associated with a FHA loan.

Mortgage insurance  is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer.

For example, suppose Ms Smith decides to purchase a house which costs $150,000. She pays 10% ($15,000) down payment and takes out a $135,000 ($150,000-$15,000) mortgage on the remaining 90%. Lenders will often require mortgage insurance for mortgage loans which exceed 80% (the typical cut-off) of the property’s sale price. Because of her limited equity, the lender requires that Ms Smith pay for mortgage insurance that protects the lender against her default. The lender then requires the mortgage insurer to provide insurance coverage at, for example, 25% of the $135,000 ($33,750), leaving the lender with an exposure of $101,250. The mortgage insurer will charge a premium for this coverage, which may be paid by either the borrower or the lender. If the borrower defaults and the property is sold at a loss, the insurer will cover the first $33,750 of losses. Coverages offered by mortgage insurers can vary from 20% to 50% and higher.

To obtain public mortgage insurance from the Federal Housing Administration, Ms. Smith must pay an upfront mortgage insurance premium (UFMIP) equal to 1.75 percent of the loan amount at closing.[1] This premium is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well, of 1.35%. The United States Veterans Administration also offers insurance on mortgages.[2]

On conventional loans, the borrower does not have an up front mortgage insurance  (UFMIP) and borrowers pay mortgage insurance only if the the ratio of loan amount to propery value )LTV) exceeds 80% and the premiums are lower than than those on FHA’s.

To sum up, it is almost always better to go with a Conventional loan over FHA loan if you qualify.

 

 

The New Mantra in Phoenix: Documents, Documents and More…..

October 18, 2012 by · Leave a Comment 

The perception today while purchasing or refinancing a home mortgage is that securing the mortgage approval and satisfying the guidelines required by the underwriters of these loans is the most difficult aspect of the process.  NOT true in this day and age. Your difficulties lie in meeting the rigorous documentation the underwriters are demanding these days.  But there is a solution!  Just scan, copy, fax, e-mail, and or deliver every minute area of your life int he past 7 or so years of your financial life to your loan officer. (If you have a pet, you may want to include their’s also).

It is better to go into this process with the attitude of: I Will Provide Documents, Documents and More Documents!  And I will enjoy it.

As a Loan Officer, I want to provide to the lender as clean a file as I can.  The more information I can provide in a a concise and logical manner, the better.  Believe me when I tell you that on more than one occasion when an underwriter requests documentation and I reply: “Are you kidding me, why do you want that?, their answer often is “Because I said so!  Acceptance is the key here.

The Underling Reasons For So Much Documentattion

Mortgage lending companies have suffered staggering losses and many have gone out of business because of loan repurchases.  As mortgage delinquencies increased, Fannie Mae and Freddie Mac began to audit the loans they had purchased from these lenders and discovered many of these loans  to be below standard or outright fraudulent.  These goverment agencies then began to to force these lenders to buy back these loans.  Many of these lenders were not in a position to buy back the bad loans and most went out of business.

The Solution

The mortgage companies that did survive therefore, had to create new underwriting guidelines and procedures that would prevent a recurrence of these bad loans.

What you need to do is have the documentation that meets the credit underwriting guidelines for the loan you are requesting. And, more importantly, you have to have to be able to trace, with a hard copy every aspect of the guidelines.  In other words, we need documentation of everything!  We need to be able to validate everything!

So be forwarned and prepared.  You will need  Documents, Documents and More Documents!

  Call me, I can help you with this.

Do I Need To Sell My Home In Maricopa County Before I Can Qualify For A New Mortgage On Another Property In Phoenix?

September 24, 2012 by · Leave a Comment 

We realize that your situation may be unique, you, as a home-buyer may qualify for a new mortgage on a new home while still living in your primary residence.

The reasons for the move may vary, perhaps you have outgrown your current house, or you need to relocate rom the west side of Phoenix to the east side ?  Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:

To Sell Or Not To Sell?

Yes. No. Maybe. It depends.

Welcome to the whole new  world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.

You may be in a  financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is No!

  But there ar things you will need to factor in.

Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.

What If I Rent My Current Property And Live In The New Home?

This scenario presents the “maybe” and the “it depends” answers to the question.

This can occur when you can’t qualified to carry both mortgages.  You may have to rent the other property in order to offset the mortgage payment.

In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.

So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.

Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.

Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.

Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.

For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.

Keep in mind, this reserve requirement is incremental to your down payment on the new property.

What If I Can’t Qualify Based On Both Mortgage Payments?

This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.

If you are in this situation, then you will have to sell your current home before buying a new one.

If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great real estate agent that is in tune with property values in your neighborhood.

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As you can tell, purchasing one home while living in another can be a very complicated transaction.  Please feel free to contact us anytime so we can review your specific situation and suggest the proper action plan.

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Ten Things You Can Do To Protect Your Identity

March 28, 2010 by · Leave a Comment 

Facts About Identity Theft:

It’s estimated that there were 10 million victims of identity theft in 2008, and 1 in every 10 U.S. consumers have reported having their identity stolen.

The U.S. Department of Justice reported in 2005 that 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised).

And, the U.S. DOJ also reported that those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000.

What Is Identity Theft?

According to the United States Department of Justice, identity theft and identity fraud “are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”

Such personal information may include your name, address, driver’s license number, Social Security number, date of birth, credit card number or banking information.

Victims of identity theft can spend months trying to restore their good name. And most victims do not realize it has happened until they get denied for a mortgage or a credit card.

Ten Ways to Protect Your Identity:

1.  Dumpster Diving –

Avoid “dumpster diving” by shredding all papers that contain any personal information.

Criminals sift through trash looking for the following:

-Bank Statements
-ATM Receipts
-Canceled Checks
-Credit Card Statements
-Credit Card Purchase Receipts
-Credit Card Solicitations (unopened “pre-approval” solicitations)
-Pay Stubs
-Tax Documents
-Utility Bills
-Expired Identification Cards (Drivers License, Passports…)
-Expired Credit Cards
-Medical Statements
-Insurance Documents

2. Personal Info / Phone Calls -

Never provide personal information, including your Social Security number, passwords or account numbers over the phone or internet if you did not initiate the call.

If you are asked for any type of personal information, before giving any information, ask the caller for their name, telephone number and the organization that they are representing.

You should then call the company using the customer service number the company provides with your account statement. Do NOT call the number you were given by the caller.

To reduce the number of solicitations you receive, you can sign up at the do not call registry:

web: http://www.donotcall.gov
call: (888) 382-1222

3. Look Over Your Shoulder –

Avoid “Skimming and shoulder surfing” (Never let your credit card out of your sight).

Pay with cash. Try never to let your credit card out of your sight to avoid a fraud scheme known as “skimming”.

According to Wikipedia:

“Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an “inside job” by a dishonest employee of a legitimate merchant. The thief can procure a victim’s credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ credit card numbers.”

Be aware of people “shoulder surfing”. This is when they are looking over your shoulder or standing too close trying to obtain your PIN number when making purchases with your debit card. They may also be listening for your credit card number.

4. Secure Your Mail –

Always mail your outgoing bill payments and checks from the post office or a neighborhood blue postal box and never from home.

Pick up your incoming mail as soon as it is delivered. The longer it sits the better chance a criminal has of stealing it.

-Get a P.O. Box.
-Lock Your Mail Box

Contact your creditors if a bill doesn’t arrive when expected or includes charges you don’t recognize. It may indicate that it was stolen.

5. Read Credit Card Statements -

Review account statements to make sure you recognize the purchases listed before paying the bill.

If your credit card holder offers electronic account access, take advantage and periodically review the activity that is posted to your account.

The quicker you spot any unauthorized activity, the sooner you can notify the creditor.

6. Monitor Credit Report -

Review your credit report at least once a year to look for suspicious activity. If you do spot something, alert your card company or the creditor immediately.

7. Email Links –

Never click on a link provided in an email if you believe it to be fraudulent.

Keep in mind, no financial institution will ask you to verify your information via email.

Criminals may link you to phony “official-looking” web site to confirm your personal information. This is known as “phishing”.

According to Wikipedia:

“Phishing” is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.

8. Opt Out –

Opt out of credit card solicitations. (Take your name off marketers’ hit lists)

You can opt out of credit card solicitations by calling 1-888-567-8688 to have your name removed from direct marketing lists.

You can do this online at OptOutPrescreen.com, which is the official consumer credit reporting industry opt-out website for the three credit companies:

Experian
Equifax
Trans Union

9. Safeguard Your Social Security Number -

Protect your Social Security number.

Never carry your Social Security card or anything else with your social security number on it in your wallet or purse, along with your driver’s license.

Do not put your Social Security number or driver’s license number on any checks you may write.

Only give out your Social Security number when absolutely necessary.

10. Read Privacy Policies –

Find out what company privacy policies are (know who you are dealing with).

When being asked for your Social Security number or driver’s license number, find out what the company’s privacy policy is.

Inquire as to why it is being asked for.

Ask who has access to your number.

Ask if you can arrange for them not to share your information with anyone else.

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Is There A Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open?

March 28, 2010 by · Leave a Comment 

While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.

Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.

However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.

A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.

Credit Trade Line / Approval Bullets:

  • Banks usually won’t count a trade line that is less than 12 months old.
  • The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
  • Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.

Exceptions to Trade Line Rules:

Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:

Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’

Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.

Another exception to this rule is if you have no FICO score, and no negative trade lines.

In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.

Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors.  A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.

*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof.  Lenders will need canceled checks and / or copies of bank statements to start out with.

Since not all companies report to credit bureaus, it’s possible to get a free credit report at AnnualCreditReport.com to verify your total reported trade lines.

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Alternate Sources For Establishing Credit

March 28, 2010 by · Leave a Comment 

While the basic Rule-of-Thumb for acceptable credit history is a minimum of four trade lines documented on a credit report, there are alternative methods of building a credit picture that an underwriter can use to make a decision for a loan approval.

For potential home buyers with little or no credit history, keeping records for 12 months of paying bills on time is essential for mortgage loan approval. In fact, loan officers will appreciate receiving proof that you have paid a variety of accounts regularly and on time. Even if you do not have a credit history, or your credit report isn’t as good as it could be, this may enable you to get a mortgage.

The industry term for this is “thin credit.”

Some loan types, namely FHA and USDA, will accept alternative credit sources in order to establish proof of financial responsibility.

Alternative credit is unreported to the bureaus, but will still be verified and can be instrumental in a home loan approval.

Those with thin credit don’t usually have bad credit, but have just not had an opportunity to build enough traditional credit, such as bank/store credit cards, auto loans, etc.

Alternative Sources for Building Credit:

  • Rental History – Canceled checks and letter from property management company
  • Medical Bills – 12 months of statements from medical billing company showing paid as agreed
  • Utilities – power, gas, water, cable, cell phone
  • Auto Insurance
  • Health / Life Insurance – as long as it’s not auto-deducted from pay check

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What’s The Difference Between A Single Family, Second Home and Investment Property?

March 28, 2010 by · Leave a Comment 


When applying for a mortgage, a borrower’s “Occupancy Type” is a major factor in the amount of down payment required, loan program available and mortgage interest rate.

Whether you are purchasing, doing a rate/term refinance or taking equity out of your property through a cash out refinance, occupancy type is always considered by the underwriter.

Three Types of Occupancy:

Owner Occupied / Primary Residence -

According to HUD, a principal residence is a property that will be occupied by the borrower for the majority of the calendar year.

At least one borrower must occupy the property and sign the security instrument and the mortgage note for the property to be considered owner-occupied.

Second Home -

To qualify as a second home, the property typically must be at least 50 miles from the primary residence, and it cannot appear that the real estate is being purchased for rental investment purposes.

Investment Property -

A property that is not occupied by the owner and is typically utilized for rental income purposes.

Down Payment Requirements:

Owner Occupied / Primary Residence -

Purchases for VA and USDA can go up to 100% financing, while FHA requires 3.5% of the purchase price as a down payment.  Conventional financing may require anywhere from 5% – 25% depending on the credit score, county, property type and loan amount.

Second Home -

Average 10% down for a purchase, and 25% equity for a refinance.

Investment Property -

Down payment requirements will range from 20-25% depending on the number of units.  When doing a cash-out refinance on an investment property with 2-4 units, the required loan to value will need to be 70% or lower to qualify.

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*It should be noted that on any high balance loan amount the above mentioned Loan-to-Value (LTV) requirements will change. Credit score requirements also apply.

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Calculating Loan-to-Value (LTV)

March 28, 2010 by · Leave a Comment 

Understanding the definition of Loan-to-Value (LTV), and how it impacts a mortgage approval, will help you determine what type of loan amount and program you may qualify for.

Since the LTV Ratio is a major component of getting approved for a new mortgage, it’s a good idea to learn the simple math of calculating the amount of equity you may need, or down payment to budget for in order to qualify for a particular loan program.

The LTV Ratio is calculated as follows:

Mortgage Amount divided by Appraised Value of Property = Loan-to-Value Ratio

*On a purchase transaction for a residential property, the LTV is calculated using the lesser of either the purchase price or appraised value.

For Example:

Sally qualifies for a 96.5% Loan-to-Value FHA program, which means she’ll have to bring in 3.5% as a down payment.

If the purchase price is $100,000, then a 96.5% LTV would = $96,500 loan amount. And, the 3.5% down payment would be $3,500.

$96,500 (Mortgage Amount) / $100,000 (Purchase Price) = .965 or 96.5%

In addition to determining what mortgage programs are available, LTV also is a key factor in the amount of mortgage insurance required to protect the lender from default.

On a conventional loan, mortgage insurance is usually required if you have an LTV over 80% (one loan is more than 80% of the home’s appraised value). On that point, if you are currently paying mortgage insurance and think that your LTV is less than 80%, then it may be time to refinance, or call your lender to restructure the payment.

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Frequently Asked LTV Questions:

Q:  Why do the lenders care about Loan to Value?

Lenders care about the LTV because it helps determine the exposure and risk they have in lending on a certain property. Statistics show that borrowers with a lower LTV are less likely to default on their mortgage.  Also, with a lower LTV the lender will lose less money in case of a foreclosure.

Q:  Can I drop my mortgage insurance on an FHA loan?

The mortgage insurance on an FHA loan is structured differently than a conventional loan. On a 30 year fixed FHA loan, the monthly mortgage insurance can be removed after five years, as well as when the borrower’s loan is 78% LTV.

Q:  What does CLTV stand for?

CLTV stands for Combined Loan To Value. The CLTV calculation is as follows:
(1st Mortgage Amount + 2nd mortgage amount) / Appraised Value of Property = CLTV

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