Starting to Shop for a Mortgage? How to Assess Your ‘Debt-to-Income Ratio’ and Why This Number Matters

Those who are looking to buy a home may want to start by shopping for a loan first. Having financing ahead of time may make it easier to get sellers to take a buyer seriously and help move along the closing process. For those who are looking to get a mortgage, the most important factor for having a mortgage application approved is the debt-to-income ratio of the borrower.

What Is a Debt-to-Income Ratio?

A debt-to-income ratio is simply the percentage of debt compared to the amount of income that a person brings in. If a person brought home $1,000 a month and had $500 worth of debt, that person would have a DTI of 50 percent. To improve the odds of getting a home loan, experts recommend that potential borrowers keep their DTI under 43 percent.

What Debt Will Lenders Look At?

The good news for borrowers is that lenders will disregard some debt when calculating a borrower’s DTI. For example, a health insurance premium would not be considered as part of your DTI while, and income is calculated on a pre-tax basis. This means that a borrower doesn’t have to factor in taxes when calculating their qualifying income.
What lenders will look at are any installment loan obligations such as auto loans or student loans as well as any revolving debt payments such as credit cards or a home equity line of credit. In some cases, a lender will disregard an installment loan debt if the loan is projected to be paid off in the next 10-12 months.

What Is Considered as Income?

Almost any source of income that can be verified will be counted as income on a mortgage application. Those who receive alimony, investment income or money from a pension or social security will have that money included in their monthly income when they apply for a loan. Wage income is also considered as part of a borrower’s monthly qualifying income. Self-employed individuals can use their net profit as income when applying for a mortgage. However, many lenders will average income in the current year with income from previous years.

How Much Debt Is Too Much Debt?

Many lenders will only offer loans to those who have a debt-to-income ratio of 43 percent. However, government backed loans may allow borrowers who have a DTI of 50-55 to qualify for a loan depending on their income and other factors. Talking to a lender prior to starting the mortgage application process may be able to help a borrower determine if his or her chosen lender offers such leeway.
A borrower’s DTI ratio may be the biggest factor when a lender decides whether to approve a mortgage application. Those who wish to increase their odds of loan approval may decide to lower their DTI by increasing their income or lowering their debt. This may make it easier for the lender and the underwriter to justify making a loan to the borrower.

The FHA Hawk Program for New Homebuyers is Coming: Here’s How It Affects Your Mortgage Insurance Premiums

The FHA offers many new programs and incentives for new homebuyers to take advantage of so that
they can be part of the effort to ease the credit crisis. If you are in the process of shopping for a mortgage prior to shopping for your new home, it can benefit you to learn about programs that you may qualify for that are being created by the Federal Housing Administration and piloted.
One such plan, which is has been approved as a four-year pilot program, is referred to as the FHA HAWK Program. Read on to learn how this program works and how it can affect mortgage insurance premiums.

What Is The HAWK Pilot Program?
The FHA HAWK program, which stands for Homeowners Armed With Knowledge, is designed to help first-time homebuyers make educated decisions when borrowing and buying a home. Individuals who are eligible to participate must qualify and meet the definition of first-time home buyer.
They will also be required to complete a housing counseling and education program that is available through HUD where they will learn financial information that can help them make smart home buying decisions.

Some of the topics covered in the educational program include: how to better manage finances, mortgage options, how to evaluate affordability, understanding your rights and the responsibilities that come with homeownership. Upon completion of the program, the applicant can submit their application for an FHA-insured mortgage and receive specific FHA mortgage insurance pricing incentives that will lower premiums.

What Type of Mortgage Insurance Incentive Will You Receive?
Once you participate in the program, the Federal Housing Administration will give all of the borrowers who qualify for the incentive a mortgage insurance premiums incentive by applying a 50 basis point reduction in the upfront premiums and a 10 point reduction in the annual premium starting at the time the loan originated.

As long as the borrower stays in good standing with their lender, they will receive these incentives and fee reductions for the life of the loan. This brings the upfront premiums down from 1.75 percent to a more manageable 1.25%. Add in the fact that you are saving on annual premiums that range between.45 and 1.55 percent, and you can see how beneficial this program can be over the period of 30 years. Finance experts predict that the average buyer will see a savings of $325 per year, which is a savings of $9800 over a 30 year loan term.

The FHA is piloting this new HAWK program in an effort to reduce delinquency of borrowers who borrow from FHA-insured lenders and to also reduce the costs of loan processing. By offering first-time homebuyers a discount to learn about the market, the FHA is trying to battle the ongoing credit crisis and in the same time service more educated buyers. If you would like to learn more about how you can reduce the mortgage insurance premiums that you pay initially and throughout the life of your loan, contact your trusted mortgage agent and discuss your options when it comes to the HAWK program.

What To Do When Your Real Estate Loan Is Declined

There are many reasons why a mortgage loan could be declined. It doesn’t have to be the end of your real estate dreams. Here are a few things to consider if you’ve been turned down for a mortgage.


Loan-To-Value Ratio
The loan-to-value ratio (LTV) is the percentage of the appraised value of the property that you are trying to finance. For example, if you are trying to finance a home that costs $100,000, and want to borrow $75,000, your LTV is seventy-five percent.
Lenders don’t like a high LTV. The higher the ratio, the harder it is to qualify for a mortgage. To reduce the percentage, you can save up a bigger down payment. Some lenders may approve the loan if you buy mortgage insurance, which protects the lender in the case of default, but makes your mortgage payment higher.

Credit To Debt Ratio
Lenders will be less likely to approve your mortgage loan if you have a high credit-to-debt ratio. The ratio is figured by dividing the amount of credit available to you, on a credit card or auto loan, and dividing it by how much you are currently using.
High debt loads will scare away most lenders. Try to keep your debt to under fifty percent of what is available to you. Lenders will appreciate it, and you will be more likely to be approved for a mortgage.

No Credit Or Bad Credit
Few things can derail your mortgage loan approval like credit issues. Having no credit record can be as bad for your approval chances as bad credit. With no record of timely loan payments from anywhere, a lender is unable to determine your likelihood to repay the mortgage. Some lenders will consider other records of payment, like utility bills and rent reports from your landlord.
If you have frequent late charges or collections, you’ll need to work on getting those paid on time, every time. There aren’t many lenders who will approve someone with bad credit, especially in today’s market.

Talk to your loan officer to determine which problem applies to you, and learn the steps to fix it. Then, you can finance the home or condo of your dreams.
If you’re ready to buy a home or condo, I can help. Together, we’ll determine how much you can afford, and I’ll negotiate to get the best price and terms for you. Get in touch with me so I can help you.

5 Tips To Protect Yourself When Buying Newly Constructed Real Estate

Buying newly constructed real estate isn’t much different from buying an “already used” home.
What variances there are, however, can make all the difference between buying a diamond or a lemon. 
Here are a few tips to keep in mind when buying new construction:
Tip #1: Don’t Use The Builder’s Sales Agent – Hire Your Own
If they’re the builder’s agent, they’re being paid to represent the builder, no matter what they tell you.  Your own real estate agent, who is representing you, is required to tell you the negatives as well as the positives.  The builder’s agent doesn’t have to tell you the drawbacks of the transaction.
Tip #2: Find Your Own Lending Agency
Again, if you go through the builder, the lending agency may offer you a deal that isn’t in your best interest.  In addition, the builder may actually own the lending company, and will have full information on your personal progress.
Your real estate agent can refer you to a reputable lender, if you don’t already have one of your own.
Tip #3: Talk To A Real Estate Agent Or Lawyer
Although standard agreements are made to keep everyone out of court, they aren’t necessarily in your best interests. Ask about cancellation rights and make sure you understand both your liability and your commitments.  Also, check your contract to make sure it doesn’t contain warnings about health issues.
Tip #4: Decide What Options Or Upgrades You Want
Remember that the profit margin for many builders is highest in upgrades.  Find out if your lender allows the options and upgrades you’ve chosen to be added to the loan. If your lender doesn’t allow this, the cost of the upgrades will come out of your pocket in cash.
Tip #5: Research The Builder
It’s amazing how many people think a builder is good, simply because they can build a house. Unless you’re a licensed home inspector, the chance of you catching a cut corner or shoddy building practices is slim to none.
Check out the neighbors’ homes and talk to them. Are the homes a consistent size or are they shrinking in size?  Do the neighbors have consistent complaints about the quality of their homes?  Also, check public records for lawsuits.
Owning newly constructed real estate and knowing that you’re the first person to live in the home can be a wonderful, exciting experience.  Make sure that you protect yourself so you can enjoy it!
Thinking of buying newly constructed real estate? Talk with me before you start shopping.  If you visit a builder prior to working with me, I won’t be able to legally represent you with that builder.
To find out more about how I can help you save money and get the best terms when buying newly constructed real estate, call or email your trusted mortgage professional for more information.

4 Tips To Lower Homeowners Insurance For Your Home

With the prices for everything skyrocketing these days, every penny counts. This includes your
homeowner’s insurance costs. If you’re thinking of buying a home and need homeowner’s insurance, here are a few tips on getting quality insurance for a fair price:
Tip #1: Shop Around
Ask family and friends about their homeowner’s insurance. Check the Yellow Pages, the National Association of Insurance Commissioners (NAIC) and the state insurance department.
Other places to shop for insurance include consumer guides, insurance agents and online insurance quote services. Don’t just look for lower prices, however. You need a fair price for the services you need.
Tip #2: Raise Your Deductible
The deductible is how much you have to pay before the insurance company starts to pay a claim on your home. The higher the deductible, the lower the premiums. If you live in a disaster-prone area, your policy may have a separate deductible for specific types of damages.
Make sure, when reading the policy, you carefully go over damage-specific information.
Tip #3: Use The Same Insurer
Some companies will take five to fifteen percent off your premium if you buy more than one policy from them. If the insurer offers homeowner’s, auto and liability coverage, you stand a chance of having a lower premium than if they only offer one or the other.
The key is to make sure that the combined price is lower than if you bought them separately.
Tip #4: Improve Home Security
By installing a sophisticated fire sprinkler system and a fire/burglar alarm that rings the monitoring stations, some companies will cut your premium as much as fifteen or twenty percent.
For a smoke detector, burglar alarm or deadbolt locks, you can usually get at least a five percent discount. Check with your insurer to make sure that the system you’re installing will lower your premiums, though; the systems aren’t cheap and not all of them qualify for a discount.
Read everything carefully before you sign, to make sure the policy covers your insurance needs without adding on hidden fees. Even a little money saved can go a long way toward making it easier to live within your budget.
Ready to buy a home? Let me help you find the perfect home and get it at the best terms and price. Call or email your trusted real estate professional.

How Pre-Qualifying Helps You Find the Right Home

Too often, home buyers are disappointed when they find their dream home only to discover they are 

not able to get a mortgage to purchase the property. There are methods that potential buyers can use to ensure this does not happen to them. One of these options is to ensure you obtain a pre-qualification from your lender.

It is important to understand the difference between a pre-approval and a pre-qualification. While both are helpful, they do not carry the same weight.

What Are The Differences Between These Options?
A pre-qualification allows a borrower to determine how much money they may be able to borrow. For most borrowers, this allows them to start the house-hunting process with a mortgage amount in mind. Borrowers should understand, while the loan amount can be calculated, changes in interest rate as well as the borrowers credit are not evaluated in this process. In general, the lender will request specific information from the borrower including income and expenses as well as ask about their credit. None of this information is verified by the lender before sending a pre-qualification letter.
On the other hand, a pre-approval requires the borrower to provide a number of documents to the lender, typically the same documents borrowers need to apply for a loan. Oftentimes, this leads borrowers to speculate as to whether a pre-qualification is useful.

Why Pre-Qualification Helps
There are many valid reasons why potential homebuyers should ask about pre-qualifying for their mortgage. Some of these include:

• Home prices – if a borrower is eligible for a mortgage of $200,000 they will know they will have to seek homes in a specific price range. If a borrower is only able to put down 10 percent, they know the maximum home price they can afford is $220,000.
• Down payments – in most cases, borrowers who can afford to put down a large down payment will have more options available to them. In some cases, understanding how much mortgage a borrower may qualify for beforehand allows them to save additional money for a down payment.
• Estimates of dollars needed – another advantage to pre-qualifying is borrowers can get an idea of what additional closing costs they may need to qualify for a mortgage. This can be very helpful for a first time home buyer.

Pre-qualifying for a loan can save a home buyer from being disappointed. There are few things that are more upsetting than finding a home you love only to discover you are not eligible for the loan you need in order to purchase that home.
If you’re contemplating a pre-qualification, call your trusted mortgage professional today for more information.

Small Business Owner? Here’s What You Need To Know About Mortgages

If you are an entrepreneur or a small business owner, you probably know that there are a lot of  advantages to this lifestyle – the freedom, the exciting challenges, the opportunities and the ability to make a living doing what you love.

However, you also know that being a small business owner can make some things more challenging – such as apply for a mortgage for your home.
Many small business owners find it tough to get approved for a mortgage, because their income can be erratic and the banks want to see proof of consistent earnings over a significant period of time.
However, it is possible to qualify for a loan as a small business owner. Here are some important things that you need to know about the process:

Ask Your Mortgage Lender What They Look For
If you ask your mortgage lender, they will probably offer you a checklist for putting together all the information needed in your mortgage package. It should have instructions on what specific documents you need to include if you are self-employed.

Filling Out The Right Forms
When applying for the loan, you will need to fill out IRS Form 4506-T, which is a Request for Transcript of Tax Return. This is basically a form that will allow the lender to look at your tax returns from the IRS, which shows proof of your earnings.
You are not able to show lenders copies of your tax returns. They must get them directly from the IRS themselves.

Submitting A Profit And Loss Statement
It can also help to ask your accountant to prepare a Profit and Loss Statement, which highlights the amount of money that you have brought in compared to the expenses of setting up your business.
If you present several of these on a quarterly basis, it will prove to the bank that your business is growing and is profitable enough to cover your mortgage.
The important thing to remember is not to give up on the idea of owning a home just because you are a small business owner. Ask your accountant for help and take the time to submit the right proof of earnings, so that you get the mortgage for your dream home.