Getting Started With Your Home Loan

Eligibility for most residential mortgage loan programs is based on the following four primary factors:

Loan-to-Value (LTV)

Loan-to-Value, or LTV, is a term lenders use when comparing the difference between the outstanding loan amount and a property’s value.

Certain loan programs require a borrower to invest a larger down payment to avoid mortgage insurance, while some government loan programs were created to help buyers secure financing on a home with 96.5% to 100% LTV Ratios.

Credit Profile

Credit scores and history are used by lenders as a tool to determine the estimated risk associated with a borrower.

While lenders like to see multiple open lines of credit with a minimum of 24 months reporting history, some loan programs allow borrowers to use alternative forms of credit to qualify for a loan.

Debt-To-Income (DTI) Ratio

A borrower’s DTI Ratio is a measurement of their income to monthly credit and housing liabilities.

The lower the DTI ratio a borrower has (more income in relation to monthly credit payments), the more confident the lender is about future on-time payments based on the loan terms.

Property and Residence Type

The type of property, and how you plan on occupying the residence, plays a major role in securing mortgage financing.

Due to some HOA restrictions, government lending mortgage insurance requirements, and appraisal policies, it is important that your real estate agent understands the exact details and restrictions of your pre-approval letter before placing any offers on properties.

Let’s start with the most commonly asked question about mortgage loans. Getting a pre-qualification letter for a new home purchase is mainly to let everyone involved in the transaction know what type of mortgage money the buyer is approved to borrow from the lender.

The pre-qualification letter is based on loan program guidelines pertaining to a borrower’s DTI, LTV, Credit, Property Type, and Residence Status.

A complete pre-qualification letter should let the borrower know the exact terms of the loan amount, down payment requirements, and monthly payment, including principal, interest, taxes, insurance, and any additional mortgage insurance premiums.

Keep in mind, one of the most important items to remember when looking into financing is that there is sometimes a difference in the amount a borrower can qualify for vs. what’s in their budget for a comfortable and responsible monthly payment.

This is typical in the case of a short sale or a new home development. The listing agent or seller needs to know that the seller they represent can feel safe in accepting the purchase contract.

There are literally hundreds of moving parts with a real estate purchase transaction that can impact a final approval up until the last minute, and then after the fact in some unfortunate instances.

In most cases the lender or borrower rushed a pre-qualification and did not do a thorough overview of all potential roadblocks.

With the borrower – credit scores, income, employment, and residence status can change.

With the property – appraised value, poor inspection report, title transfer/property lien issues, seller cooperation, HOA disclosures.

With the mortgage program – Interest rates can change affecting the DTI ratio, mortgage insurance companies change guidelines or go out of business, new FICO score requirements…. the list can go on.

It’s important to make sure your initial paperwork is reviewed and approved by an underwriter as soon as possible. Stay in close contact with your mortgage approval team throughout the entire process so that they’re aware of any delays or changes in your status that could impact the final approval.

Depending on your mortgage program and final underwritten conditions, you may have to re-submit the most recent 30 days of income and asset documents, as well as have a new credit report pulled.

Worst case scenario, the lender may even require a new appraisal that reflects comparables within a 90 day period.

It’s important to know critical approval and condition expiration dates if your real estate agent is showing you available short sales, foreclosures, or other distressed property purchase types that have a potential of dragging a transaction out several months.

Yes, no, and maybe…

If you are in a financial position where you are qualified to afford both your current residence and the proposed payment on your new house, then the simple answer is no!

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.