Prospective home buyers are naturally confused and wondering what to do. With interest rates double what they were not all that long ago, they’re wondering whether they’ll continue to rise or whether waiting a bit will mean paying a lower rate.

In July it looked as if mortgage rates were rising, but then at the end of the month they dropped back to 6.81%, which is where they were at the beginning of the month.

Various financial gurus are making predictions, but of course no one can know what will happen.

According to Mortgage News Daily, “U.S. Treasuries are at the core of the rate market.  When investors become less interested in buying them or when the government becomes more interested in selling them, rates rise.”  

The inflation rate, the Federal Reserve’s attempts to rein it in, the consumer price index, and the monthly jobs reports also play roles. Due to all these factors, the Fed has been making rate hikes to the benchmark federal funds rate since March. As of July 2023, the federal funds rate is the highest it has been in 22 years.

The official inflation reading for June 2023 was 3%, after going to 9.1% in June of 2022, but the target number is 2%. The word is that it won’t be easy, but the Fed committee will continue efforts to “wrestle inflation down” to the 2% target. The next meeting is scheduled for September 19-20, and no one knows yet whether they’ll raise rates again or pause.

While many are expecting rate increases, other economists are saying no. Higher interest rates have slowed home sales, caused people to cut back on investments, and put strain on community banks.

Fannie Mae’s July Housing Forecast predicted a third quarter average mortgage interest rate of 6.8% on a 30 year loan. Realtor.com economist Jiayi Xu believes rates could drop to near 6% by year’s end. Others, such as New American Funding CEO Rick Arvielo, Transformational Mortgage Solutions founder David Lykken, and Home Qualified president Ralph DiBugnara say they believe rates have crested and will likely remain in the6.9% range through the end of the year.

Refinancing numbers have dropped considerably.

Fourteen million homeowners refinanced in 2020 and 2021, when rates were at their lowest. In addition, 40% of current U.S. mortgages originated during those years. Those homeowners have enviably low mortgage interest rates, so have no incentive to refinance in 2023.

After years and years of low rates, current rates are a bit of a shock to consumers. Thus, according to Mortgage Bankers Association data, purchase and refinance applications are near their lowest level since the 1990’s.

Some homeowners ARE still paying a higher interest rate than is currently available. For them, a refinance is feasible – but only if the rate will be at least 1% lower, and only if they intend to remain in that home for several more years. Remember that refinancing does cost money, so it could be a few years before you’ll reach a break even point to balance what you’ll save with what it costs to refinance.

Refinance could also be a good idea if you have an adjustable rate mortgage (ARM) and want to refinance to a fixed mortgage. Since ARMS due fluctuate, a fixed rate lends much more stability to household budgeting.

What about purchasing a home in 2023?

Purchasing a home right now, even at today’s elevated mortgage interest rates, is a wise idea if your other choice is renting.

That advice is, of course, conditioned on you planning to stay in the community to occupy that house for a few years.

Renting gives you no stability at all, since rental properties can be sold (or foreclosed upon) and landlords can either raise rents or ask you to vacate at the end of your rental contract. Rents are going up across the country, so higher rents are a probability rather than a possibility.

Additionally, should rates come down, prices are likely to go up, in accordance with the law of supply and demand.

To get the very best rates you can get…

First and foremost, take steps to increase your credit score. And… check your credit regularly in order to spot and correct errors. Yes, they do happen!

Save for a larger down payment. If necessary, sell some seldom-used toys to build your down payment fund. (Do keep records of anything sold.)

Or – use some of your saved funds to buy discount points. Once you’ve chosen a lender, he or she can help you determine which would save you the most money in the long run.

Shop around. Get quotes from multiple lenders. Do NOT assume that they all offer the same rates and terms – they do not.

Negotiate with lenders – ask them to match the best deal or to reduce or waive some loan fees. Remember that when demand is low, lenders do want your business and are likely to offer incentives to get it.

Opt for a shorter-term loan.

Keep an eye on rates and forecasts and lock in when rates are down.

What is the 5-year forecast for mortgage rates?

Most experts believe rates will come down again, by perhaps as much as 2%, but when? Some think within a year. Others think it will happen within 2 or 3 years.

Most do admit that mortgage interest rates will fluctuate in reaction to other issues, such as the inflation rate, the bond market, consumer confidence, etc. Events outside of our realm, such as the war in Ukraine, could also affect our rates.

No one can accurately predict the future, so you should do what makes the most sense for you today.

If you have a high interest mortgage loan or an adjustable rate loan that is apt to turn into a high interest rate loan, then you should at least consider refinancing.

If you’re currently renting, and planning on staying in your community for at least the next 3 or 4 years, then you should consider purchasing your own home.

If you’d like to discuss your options…

Contact us at Homewood Mortgage, the Mike Clover Group. We’ll be glad to go over your situation with you and help you determine the best course of action. We’ll also be glad to provide you with a loan estimate that you can use in comparing us to other lenders.

We do have a reputation for fast, friendly service, with some of the lowest rates and best terms available anywhere in Texas.

What’s the difference between a Conventional Mortgage loan and a FHA loan?

If you’re thinking of buying a home, you may be getting advice regarding the kind of mortgage loan to choose. Does it matter? What are the real differences between Conventional and FHA loans?

Policies vary between lenders, but these are the generalities:

First, the similarities:

• Both Conventional and FHA mortgage loans are available for varying lengths of time. While most do choose a 30-year amortization, you might instead choose 10, 15, or 20 years.
• Both can be obtained for a low down payment.
• Both are available to borrowers with less-than-stellar credit scores.
• Both base the interest rate for individual clients on that client’s income, credit scores, debt load, etc.

So what are the differences?

Conventional loans:

Contrary to popular belief, it isn’t necessary to have a 20% down payment in order to obtain a conventional loan. In fact, in some cases, borrowers may pay as little as 3% down.

It is always preferable to pay 20% down, because that exempts you from paying for private mortgage insurance. This is the monthly fee the lender collects to mitigate the damage should you default on your loan. This fee ranges from just under 0.6% to 1.86% of your home loan.

To be considered for a conventional loan, you need a credit score of at least 620.

Your debt-to-income ratio must not exceed 50%. That means that all of your monthly payment obligations, including your new mortgage loan, must not exceed 50% of your monthly pre-tax income.

The other differences are that conventional loans can cover higher loan amounts than FHA loans, and they take less time to process.

FHA Loans:

Approximately 40% of the homes mortgaged in the U.S. today are obtained with FHA loans. These are government-backed and insured by the Federal Housing Administration. This insures that the banks will not lose money should the borrowers default.

That means that all FHA loans are subject to MIP – a Mortgage Insurance Premium. The borrower will pay an upfront fee of about 1.75% of the loan value and an annual fee that is typically 0.85% of the loan amount. This fee remains in place for the life of the loan, making it advantageous for homeowners to refinance into a conventional loan once they have 20% equity in the home.

This government backing enables first-time buyers with little savings and those with poor credit to become homeowners.

The minimum down payment for a FHA loan is 3.5%. However, a portion of that down payment may be in the form of a gift from a family member.

The stated minimum credit score is 580. However, applicants with scores as low as 500 may be approved if they have a down payment of at least 10%.

FHA loans are stricter than conventional in that the debt-to-income ratio is lower, at only 43%. The difference: If your monthly income is $5,000, you can qualify for a Conventional loan if your debts don’t exceed $2,500. For FHA, your total debt must not exceed $2,150.

FHA loans do come with a loan limit. In most places that limit is $472,030. However, in high-cost areas such as San Francisco County or the Bronx, in New York, the limit is $1,089,300. Check with your lender to learn the FHA loan limit in your city.

Which loan should you choose?

If you can manage it, a conventional loan is the one to choose. However, if you can’t, and if all of the reasons to purchase a home apply to you, then it could be advantageous to start your homeownership career with an FHA loan.

When you’d like to explore your options…

Turn to Homewood Mortgage, the Mike Clover Group. We’ll be happy to discuss your situation and show you the options available.

Call us today at 800-223-7409

First, what is a home equity investment (HEI)? Also known as a Home Equity Sharing Agreement, it is a way for a cash-strapped homeowner with shaky credit to turn some of his or her home equity into cash.

The homeowner can get cash without taking on additional debt. However they do come with high fees and a loss of home equity.

When you enter into a home equity investment, you allow an investment company to buy a portion of your home’s equity in exchange for cash. These investments are liens, not loans, and they are sold for a percentage of equity, rather than cash.

Generally these agreements last for 10 to 30 years – or until the house is sold. If it is not sold, the homeowner will be liable to pay back the original lump sum, plus the agreed upon percentage of any appreciation in the home’s value.

If the homeowner doesn’t have the cash and cannot get a loan for repayment, the investor can force the sale of the house.

When homes are appreciating significantly, the homeowner could owe the investor 2 or 3 times the original investment at the end of the contract period. Smart homeowners do go into these agreements with a set cap on the annual appreciation that the investor can earn.

The homeowner is taking a risk of owing far more than expected. However the equity buyer is also taking a risk, because at the end of the agreement, the home could have lost value.

Pros and Cons of a Home Equity Investment

The most significant pro is being able to access cash immediately, even with bad credit. This can be attractive to homeowners who are real estate rich and cash poor, with a credit score too low to qualify for a home equity loan. (620 is generally the bottom limit).

Self-employed homeowners and those with a high debt-to-income ratio might also find a Home Equity Investment to be their best option, since there are no monthly payments. 

On the downside, taking on a HEI means pre-selling a percentage of your home’s equity – and future equity. Barring a real estate market crash, you will be paying back more than the lump sum you received.

If you’re a homeowner with options, doing the math might be a good idea.

Doing a simple comparison without considering fees for either type of transaction, let’s look at how the numbers might add up.

Let’s say your home is worth $300,000. If you sell 15% of your equity, you’ll receive $45,000. If your repayment is due in 10 years and the house appreciates by 5% per year, it will be worth $488,668. In other words, it will have gained $188,668 in value. 15% of that would be $28,300. Therefore, you would owe the investor $73,300 (the original $45, plus $28,300).

Had you taken out a home equity loan for $45,000 at 8%, your monthly payment would have been $546. 120 payments at $546 would equal $77,520, so the Home Equity Investment would have cost less.

Unfortunately, we don’t know how much a home will appreciate in 10 years, and the rate a homeowner could get on a home equity loan would depend on credit scores, debt to income, and all the rest. Again, a ceiling on the investor’s income percentage would help protect the homeowner’s interest.

Another con is that your present mortgage holder might not allow you to enter into a HEI, or they might assess a penalty for doing so. They could also invoke their acceleration clause and require immediate payment in full.

Therefore – before you consider this option, do read your mortgage contract carefully.

If you’d like to talk it over with a knowledgeable loan officer, call us.

We at Homewood Mortgage, the Mike Clover Group, will be glad to sit down with you and examine your options.

Call us today at 800-223-7409

When you’re thinking of buying a home, friends and family often come forth to advise you, caution you, and tell you the rules regarding home mortgages.

While some of these rules have served a purpose in the past, now is a good time to ignore them, because things have changed.

Interest rates are no longer low. In fact, recently they’ve been at 20-year highs.

Mythical rule #1: Always use a 30-year fixed rate mortgage.

That was true for a while, but now, with interest rates much higher, it’s time to take another look at Adjustable Rate Mortgages. (ARMs)

ARMs come in many sizes and styles, with 6 details to examine and consider before deciding upon an ARM. These are:

• The initial interest rate compared to a fixed rate mortgage
• The adjustment frequency – how often can the bank change the rate? In some cases, it could be monthly, so be sure to check.
• The adjustment indexes. This refers to a benchmark, index, or asset such as Treasury bills. Ask your lender what would determine an interest rate change in the ARM you are considering.
• The margin: This refers to index again – you’ll agree at the outset to pay an interest rate that is a set percentage higher than the adjustment index.
• The caps: This indicates how much the rate can change at each adjustment period. The cap could also refer to the monthly payment, but beware. A cap on the monthly payment could put you into a negative amortization situation – owing more after 10 years than the original loan.
• The ceiling: This important number tells you just how high the interest rate can go.

Mythical rule #2: You have to wait to buy a home until you have a 20% down payment.

This rule has actually never been true. It’s good thinking, because a larger down payment will generally result in a lower interest rate. In addition, if you’ve paid 20% down, your loan will not be subject to mortgage insurance – thus saving you money.

However, FHA offers loans with as little as 3.5% down and VA and USDA–backed loans are available at zero down. (Yes, there are closing costs, but no down payment.)

Whether it’s wise to take out a loan with a low or no down payment depends upon your circumstances and details such as how much you must pay for rent and how long you expect to remain in the community.

Mythical rule #3: Never ask sellers to pay your closing costs.

This was true while interest rates were low and buyers were getting into bidding wars over homes. Sellers simply did not have to make any concessions to buyers in order to sell their houses.

Now the tide is turning. Rising interest rates have made it more difficult for buyers, so there are fewer buyers. Wanting to buy a house doesn’t translate to being able to buy a house – especially when home prices are still high.

Many savvy buyers are now asking sellers to pay closing costs in lieu of asking them to accept an offer lower than list price. This makes sense for cash-strapped buyers because it reduces the number of dollars they’ll need at closing.

Mythical rule #4: Don’t pay to buy down your interest rate.

As you may know, it is possible to pay mortgage points and buy down the interest rate on your home mortgage. Essentially, that means paying interest up front rather than having it spread over the life of the loan.

One point equals 1% of the loan amount. While the actual number varies from lender to lender, you can generally expect that buying one point will reduce your interest rate by 0.25%.

Since paying points means paying more at closing, many discourage it, but for buyers who will remain in the house for several years, and who can afford the initial outlay, it could be a wise move.

Consider a 30-year fixed-rate loan for $200,000 at 7.3%. The monthly payment would be $1,371.14. If the interest rate was reduced by .25%, the payment would be $1,337.33, or $33.81 less per month. If the borrower paid one point ($2,000) for that reduction, it would take 59.15 months to come out even.

After the 5-year mark, this borrower would be saving $405.72 each year.

A second benefit to paying points depends upon your income tax status.

Discount points paid to buy down interest rates are the only portion of your closing costs that are tax-deductible. So if you paid the $2,000 as noted above, you could take a $2,000 deduction on your taxes. And If this deduction happened to put you in a lower tax bracket you’d be getting a huge bonus.

The bottom line: Look at all the numbers, do the calculations, and speak with a trusted mortgage lender before making decisions of this magnitude.

We here at Homewood Mortgage, the Mike Clover Group, will be happy to help you determine which is the best course of action for your specific financial situation.

Call us today at 800-223-7409

Before you decide to simply take the standard deduction for 2022, check to see if your home ownership gives you a better break.  

The 2017 Tax Cuts and Jobs Act of 2017 did reduce your allowable deductions. However, there is still an opportunity to save, especially if your mortgage is in its early years.  

Do check the year-end statement from your mortgage lender to see how much you paid in mortgage interest during 2022. 

The standard deduction for 2022 is $12,950 for individuals, $19,400 for heads of household, and $25,900 for couples filing jointly.  

If your mortgage interest plus other home ownership deductions bring you to or near these numbers, look at your other expenses.  If you file Schedule A to claim mortgage interest, then you can also claim property taxes, state and local income taxes (up to a combined $10,000), charitable contributions, and medical expenses that exceed 7.5% of your income. Together these may well bring you above the standard deduction.  

Mortgage Interest is probably the largest number. 

Note the changes. If you took out your loan before December 15, 2017, you can deduct interest on up to $1 million in mortgage debt. ($500,000 for single filers.)  

If you took out your loan from that date forward, you can deduct interest on only the first $750,000 of mortgage debt.  

Not that this $750,000 does include home equity loans and home equity lines of credit.  

Note the restriction on Home Equity debt interest. 

Interest on home equity loans is deductible ONLY if the money was used to make improvements to the home. Using it to consolidate credit card debt, pay for a wedding, or take a cruise, renders it non-deductible.  

So if you take out a home equity loan or home equity line of credit to remodel the kitchen, be sure to save your receipts. Should you be audited you’ll need to show proof of where that money went. 

Points you paid to buy down your interest rate. 

Since discount points are essentially pre-paid interest, you can deduct them along with your mortgage interest. Each point is equal to 1% of your mortgage loan, so if you paid 2 points on a $400,000 loan, you can deduct $8,000.  

Private Mortgage Insurance is no longer deductible.  

Property tax deductions are also limited. 

While you can claim property tax deductions for all the properties you own, there’s a $10,000 deduction cap on the combined amount of property taxes plus state and local income taxes. In states without income tax, you can deduct sales tax, but still only up to the combined limit of $10,000. 

Energy Efficient upgrades to your home. 

If you added solar panels or a solar water heater last year, you can deduct up to 30% of the cost, including installation.  

In addition, if you upgraded exterior windows, doors, or skylights, or if you added insulation or paid for an energy audit, you can take advantage of a credit for up to $500. In general, the credit is limited to 30% of the cost of improvements. This credit expired on December 31, 2022.  

However – Passage of the Inflation Reduction Act renewed and expanded the credit to up to $1,200 annually for property placed in service on or after January 1, 2023. 

The home office deduction still stands, but… 

The rules have changed and this deduction has gone away for W-2 employees who have a company office that they could use. 

Self-employed people who actually have dedicated office space in their homes are still entitled to the deduction. Under the simplified home office deduction, they can deduct $5 per square foot of office space, up to 300 square feet.  

Do note that your bedroom or dining room doesn’t count, just because you have a computer and printer, or a file cabinet set up in the corner. It must be a space used only for work.  

Refinancing takes time.  In fact, it can take anywhere from one to two months depending upon your lender and depending upon your own diligence in getting your paperwork submitted and in answering questions immediately. 

Given the fact that interest rates are rising you might wonder why anybody would refinance. 

There are a few reasons. First, some people still have high interest rates from years ago. They didn’t refinance when rates were really low, perhaps because of a financial problem, but now they can qualify, and they want to lower their rate. Or, perhaps they want to pull some equity out of their house. Still others would like to stretch out their payments a little longer. 

Whatever the reason, if you want to refinance, there are a few things you can do to ensure a smoother transaction. 

First research your options. Talk with your current lenders and let them know that you’re thinking of refinancing. They may offer you an attractive interest rate and perhaps a break on the closing cost, just to keep your business. Then do check with other lenders. Let them know that you’re shopping for the best rates, and you will refinance with the lender who offers you the lowest price both in interest rates and closing costs. 

Because interest rates fluctuate from day to day, once you’ve narrowed your choices, check rates with each lender on the same day.  

If time is of the essence for you, ask each lender how long it might take to complete your refinance. The fact is that some lenders put refinances at the bottom of the pile because purchase transactions have deadlines. They need to get those done first.  

Next get your documents gathered and fill out your loan application completely. If you leave blank spots the lender will send it back to you to complete, so get it all done right the first time. Talk to the loan officer in advance so you know exactly what documentation you’re going to need to submit with that application. 

It should include at least your proof of income, copies of your bank account and investment account statements, and the last two years of your tax returns. Be sure the documents have been generated within the last month. You’ll also need a copy of your homeowners insurance and possibly a copy of your deed of trust and a property survey. Again, your lender can advise you on the paperwork you need to submit.  

It’s likely that your lender will have questions or need documents that you haven’t supplied, so respond quickly to any Email, text, or phone call from your lender.  if you delay, your refinance will be delayed. 

Once you’ve submitted your completed loan application and all your documentation, your lender will be required to supply you with a loan estimate and loan disclosures within 3 days. Read the estimate carefully to ensure that the interest rate, closing costs, and other details are the same as those that were quoted verbally. The estimate should include your monthly payment information, your interest rate, your closing costs, and, unless closing costs are wrapped into your new loan, how much you will need to bring to closing.  

Be sure you know exactly what costs you will be required to pay at closing. The last thing you want at this point is to come up short and be scrambling for funds the day of closing. 

Assuming that you are satisfied with the lender’s interest rate and costs, and that the lender has conditionally approved your loan, the next step is the appraisal. You need to be on hand to let the appraiser into the house, so plan ahead to be at home that day. Be sure that your lender knows how to contact you during the day in case the appraiser wants to make a same-day appointment.  

Underwriting is the final step before closing, and it can be the most time-consuming step. On average it takes from 5 to 8 days. In some cases, it can take much longer, especially if the underwriter calls for more information from you. In addition, underwriting on a refinance often takes longer than underwriting on a purchase. This is simply because purchase transactions have deadlines. When they’re busy, your transaction might go to the bottom of the pile. 

Don’t be shy. 

If you don’t hear from your lender within a reasonable amount of time, reach out. Let your lender know that you’re there and waiting and ready to close. Sometimes you really do need to be that squeaky wheel. 

Whatever you need, we’re here for you. 

Whether you’re buying a new home or refinancing your current home, we at Homewood Mortgage, the Mike Clover Group, are here to serve you with fast friendly service.  

Call us today at 800-223-7409. 

 

Bridge loans can be convenient tools, but they are not right for every borrower and/or every real estate market.

A bridge loan, also known as a gap loan, is granted to bridge the gap in financing for a homeowner who is selling one house and buying another.

It’s a useful tool for a homeowner who could not otherwise qualify for a new mortgage loan while still making payments an existing loan. It also allows the homeowner to shop with confidence in his or her ability to close on a new home.

Few home sellers are interested in accepting an offer contingent on the buyer selling their existing home, and the bridge loan eliminates that problem. It allows the homeowner to complete his or her purchase and move into a new home before the old home sells.

How a bridge loan works:

A bridge loan is a single loan that uses two homes as collateral. The bridge loan pays off the existing home loan and provides the funds to purchase the new home.

Typically, banks will grant loans up to 80% of the combined value of the two homes. For example, if the homeowner has a home valued at $250,000 and is buying a new home for $400,000 (combined $650,000), the loan could be as high as $520,000. That means that the borrower must have at least $130,000, either in equity, cash, or a combination of the two.

Compared to conventional loans, bridge loans also take less time to process.

A bridge loan sounds wonderful, but there are drawbacks…

Bridge loans cost more than long-term mortgage loans. Both interest and origination fees ae typically higher than on a standard home loan. Interest rates could go as high as 16% – giving homeowners plenty of incentive to get the old home on the market and sold. However, do be sure to read the fine print. Even though these are considered to be short-term loans, some lenders to charge a prepayment penalty.

Also, not all homeowners will qualify. Bridge loans typically require excellent credit scores and low debt-to-income ratios.

Your local market matters…

If you’re in a hot seller’s market, where homes are selling within a few days of coming on the market, a pre-approved bridge loan is probably a useful and safe tool. It will allow you to grab the house you want while some other buyers might be slowed down by getting loan approvals.

If you’re in a buyer’s market, where homes take a few months (or years) to sell, a bridge loan might be a poor idea. You’d probably be better off to sell your house first, then move into a rental while you shop for a new home.

Your real estate agent matters…

The real estate market across the nation is in flux due to rising mortgage interest rates and inflation. However, each market is affected differently.

So before you choose a bridge loan, discuss your local market conditions with a real estate agent who has been keeping a close watch on changes. Learn whether your current home could be expected to sell within a week – or if it might remain on the market for a year or more.

Your lender matters too…

Here at Homewood Mortgage, the Mike Clover Group, we offer bridge loans at one of the lowest rates in the nation. And, to make life easier for our clients, we’ll finance up to 95% of the combined value of both homes.

Whether you want a bridge loan, an FHA loan, or a conventional mortgage loan, we’re here for you – with the friendliest service in Texas.

Call us today at 800-223-7409

 

Underwriting plays a crucial role in the timing of your home mortgage loan.

Before you write an offer to purchase a home with a mortgage loan, discuss the time line with your loan officer. You won’t want to promise a closing date that you cannot meet.

While your loan officer will have gone over your credit report, income, assets, obligations, etc. before writing a pre-qualification letter, your transaction must still go through underwriting. Your lender will have a good idea of how long underwriting should take based on the type of loan, the lender in question, and the complexity of your finances.

But keep in mind that is not the only factor affecting the time line. In addition to those factors, your own cooperation will determine the time required for underwriting.

What is underwriting?

Underwriting is the (almost) last step between making a down payment and closing on your home purchase.  It is the process of carefully examining every part of your financial life for the purpose of determining whether or not you are a good credit risk. In order to do the job properly, the underwriter will access your credit report, then require documents such as:

• Your tax returns
• W-2 and 1099 forms
• Pay Stubs
• Bank accounts
• Investment accounts
• Documents verifying other income

When any of these documents raise other questions, you’ll be asked for more. For instance, if your bank account shows a lump sum deposit that is not consistent with your regular income, they’ll want to know where it came from.

Banks want to be assured that you have not borrowed money for your down payment or closing costs. With that in mind, if you want to speed the underwriting process, plan ahead to demonstrate the source of those funds. Did you sell something? Did you receive a gift from a family member? Did you take on some kind of self-employment?

The faster you can answer the underwriter’s questions, the faster he or she will complete the job. So if you anticipate such questions, send the answering documentation along with your other information. (ie: a letter explaining a cash gift from your Grandmother or a copy of the bill of sale from selling your ATV.)

If there’s a question you didn’t anticipate, make haste to provide whatever the underwriter asks for.

Underwriters must verify the documentation…

In addition to reviewing the documents you provide, underwriters contact banks, employers, credit card issuers, etc. to verify that the information is current.

This is why real estate agents and lenders tell borrowers NOT to make any changes in their financial status once the loan is underway. This is not the time to change jobs, buy a car, withdraw funds, or run up credit card bills.

Underwriters are not ogres…

While there are many jokes about underwriters being fearsome creatures, they are not. They are simply people following the lender’s guidelines to confirm and assess your debt to income and your credit worthiness.

When they ask for more documentation, it is not because they don’t trust you, but because their own employment rests on following the guidelines. Unlike small-town bankers of 100 years ago, they are not allowed to make decisions based on instinct or their own judgement.

When the underwriter is finished and satisfied that you’re a good risk, you’ll get a conditional approval.

What does “conditional” mean? Just that. The approval is conditioned on nothing changing between the time of approval and the time of closing.

Some lenders will wait until the last day to re-verify such things as bank and credit card balances. So take heed of your agent’s and your lender’s advice: Do nothing to change your financial picture until after your home mortgage loan is closed and finalized.

 

www.mikeclover.com

 

 

When you approach a lender to obtain a conventional mortgage loan, one of the first things he or she will do is order a credit report. This report will outline your financial history and provide what is known as a FICO score. A high FICO score means you have a long history of paying your debts on time and have not over-used the credit available to you.

The higher your FICO score, the better interest rate you’ll be offered on your home loan. This score, by the way, is also used by those offering credit cards and car loans. So no matter what kind of credit you want, high scores are to your benefit.

FICO scores can go as high as 850, which is a perfect score. An excellent score is anything from 750 to 850, while a good score ranges from 700 to 749. Fair is from 650 to 699 and lower than 650 is considered poor.

If your score is good or excellent, and provided that other lender requirements are met, you should have little trouble obtaining a home mortgage loan.

Lenders are most comfortable lending to borrowers who have a habit of repaying their debts, so the better your FICO score, the more they’ll want your business. Because banks do compete for business, they’ll try to attract you by offering a low mortgage interest rate.

Does a poor to fair score mean you cannot get a mortgage loan? No, although you might be better off with a FHA or VA backed loan. Low scores will mean you may only be offered a subprime loan, with a higher interest rate, and you may be required to purchase private mortgage insurance.

For that reason, if you’re thinking of purchasing a home, do check your own credit report. If your scores are low, take action to bring them up.

If you’re thinking of home ownership, please feel free to contact Homewood Mortgage, the Mike Clover Group ahead of time. We’ll be happy to take a look at your financial situation and let you know the interest rate we could offer today.  And, if your scores need improvement, we’ll provide some sound advice on raising them.