When you decide to buy a home, you should first contact a good mortgage consultant who has experience, and a complete range of mortgage products.

We offer all main "types" of mortgage loans.

1. Government - VA, FHA, MHFA
2. Conventional - (10, 15, 20, 25, 30 yr fixed, and ARMs)
3. JUMBO - (15, 30 year fixed, ARMs)
4. Portfolio (Niche programs - Self employed, ARMS, bruised credit, unique situations)
5. Non-Conforming (Bruised credit loans)

Unless you fit into one of the "special categories" of loans: VA, FHA, MHFA, First Time Homebuyer, bruised credit, you are going to get a "conventional loan". Some areas, by their demographics, have a lot of these special case loans, some do not. The remainder of this discussion contains general rules for all loan types. Each person has different needs, and a different situation. Please call and talk with us today for a complete (and free) evaluation of your exact situation.

• Click here for help Understanding the Mortgage Loan Application Process
• Click here for information on How to Identify a BAD Good faith Estimate
• Click here for 10 Tips to a Smooth Mortgage Closing
• Click here for 10 Mortgage Mistakes to Avoid
• Click here to use our extensive FREE mortgage calculators

 

The COMPLETE Home Buyers Guide to Financing Your Home  Understanding Your FICO Credit Score  Knowing and Understanding Your Credit  #1 Mistake People Make When Buying a Home

The purchase price that you will be able to afford will depend on 3 factors: 

1. Your income and how much other debt you have. This will determine how large a PITI (principle, interest. tax and insurance) payment you can afford,

2. How much you have for down payment and closing costs, and,

3. Your credit history.

Jargon

You need to understand 3 terms to follow the rest of this:

1) LOAN-TO-VALUE (or LTV). This is the loan amount as a percentage of the purchase price or appraised value (whichever is less). If you are buying a $150,000 home with $15,000 down payment you have a 90% LTV. Loans over 80% LTV (less than 20% down) typically require PMI (Private Mortgage Insurance). There are ways to try to minimize it, but the reality is that you will always "pay" somehow. Plus, now that PMI is tax deductible (as of 1/1/07), using tricks to avoid it is no longer necessary.

2) HOUSING RATIO This is your total monthly housing expense (principle, interest, tax, insurance, and PMI and homeowners dues, if applicable) divided by your gross monthly income ("gross" = pre-tax income). If you have a "W2" job your income is easy. If you are self employed please note you gross income is what you bring from your Schedule C onto line 12 of your 1040. Also, a 2 year history of consistent self-employment income is usually necessary.

3) DEBT RATIO This is your total monthly obligations (PITI above) plus your monthly payments of your installment and revolving debt (credit cards, car loans, student loans, etc.). Utility payments (gas, electric, telephone are not counted). Some details here: this would include child support, alimony or separate maintenance. Any debt with fewer that 10 months to go does not count. A debt such as a "buy furniture now make no payments until more than a year from now" does not count as long as there are 12 months to go without payments. The same goes for student loans.

We often see young couples "blow it" by buying a couple of nice cars. If you are spending 15% of your gross income on your auto loans you should make one of them a van because you will not be able to afford a house.

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OK, Now What?

First rule? There are no rules! Although the basic information that follows is typical for most loans, there are many programs that allow for compensating factors. Please understand that none of this is etched in stone. Compensating factors, such as a long time on the job, or significant other liquid assets will enable higher ratios at a given loan. You really need to talk with your Loan Officer to sort this out. Don't ASSUME. Contact us today to discuss your exact situation. You may be surprised at what you hear!

Generally, if you have excellent credit you can buy a home with little down. As your credit score declines your maximum loan-to-value will decline and your ratios will have to be lower. If your credit is really lousy you might have to put 20% down.

Although ZERO down may sound good, it is often NOT the best way to go. To get your best pricing (interest rate, etc.) but making a down payment. Plan on putting down a minimum of 3% of your own money for a FHA program, or 5% for a conventional program. PLUS, in today's market, zero down loans have pretty much disappeared and are almost impossible to find.

The best advice I can give young people just thinking about this is to keep absolutely perfect credit. Once you get out of college your credit score is like your SAT was before you got into college. It is the key to opportunity. Remember if your credit is bruised, you probably still qualify for a mortgage. Don't assume you can't buy a house because of a few late payments on a credit card. Each situation is different. Call right now to discuss your personal situation.

Your income and credit will determine the size loan you can qualify for. You now need the cash to make it happen. You need cash for 3 things:

1) Down payment - The actual down payment required depends on what program you are using. 5% down typically gets you the best rates and program options. 20% down is usually the minimum required to avoid mortgage insurance. We have great low down/no down programs too:

2) Closing costs. This is where a lot of people get misled. You need to cover your one time or "non-recurring" closing costs, your recurring closing costs: prepaid interest, insurance, impounds if there is PMI and potential pro-rated property tax, origination, credit report, appraisal, etc. Click here for a more detailed example of real closing costs that you should expect on all mortgages, with all lenders. Also be advised that a lot of mortgage companies are being very sneaky in how they quote your closing costs. Read "Beware of the Bad Good Faith Estimate" so you don't get taken. (FYI: On VA, it is zero down payment. You still have closing costs! Call for details on how you can sometimes buy with no out of pocket expense)

3) Reserves. Your lender does not want to see a loan application the shows that when you close the deal you will have $5.99 left in the bank They usually want to see 2 months PITI in reserve. Don't try to minimize this. Make sure that you get together all of the cash necessary to close. (Again, understand that none of this is etched in stone. Its just a general guideline. We have many programs that do not require any reserves. Call for details.)

NOTE: If you are planning on seeing Realtors and potentially making an offer on a home, it is essential that you get "pre-approved". This is very different from "pre-qualify".

• Pre-Qualify is usually when you simply talk with a lender on the phone. Give them basic information, etc. Then they say something to the effect of "sounds like you should be able to buy a house for $X amount" THIS IS NOT AN APPROVAL. Do NOT make an offer to buy a home based on this information.

• Pre-Approval is when you go through the entire application process. An underwriter has APPROVED your loan. The only thing missing is an actual property address.

Need a Realtor? We can help you with that too! As a full service lender, we offer Real Estate, Title, and Mortgage services all in one location!

Using this web site you can apply for your mortgage online, or download an application, fax it to us, and we can Pre-APPROVE you. For faster service, all it takes is a 15 minute phone call. Then you can walk into a Realtor's office with a letter stating that you can close a given deal. This will get the attention of the Realtor, it will get the attention of the seller, and it will mean that you can close quickly. This is very important for properties for which the seller has multiple offers. I have seen my client's offers accepted even though they were $3,000 less that other offers because they knew they were pre-approved and could close in 2 weeks. To some sellers time is more important that the extra money. This is especially true if they are buying another house and need the cash to close their deal.