Qualifying for a Mortgage Loan

Understanding the real basics in qualifying for the mortgage loan is very important. Many advertisements are misleading eye-catchers. Trash interest rate headlines, which 99% of the world cannot qualify for.

You heard it before, many times – “if it’s too good to be true, chances are it’s not good.”

Let’s keep it simple and break this down.

Credit and credit score
Down payment and funds for closing cost
Debt to income ratio

There are many underwriting factors that are required but once these basics are covered most often the rest is just routine.

Credit and credit score

This is generally the big question I start with, “How’s your credit?”

The most common answer “Oh it’s good.” Well let’s talk about what is good in today’s mortgage world.

A 550 to 580 credit score is just-urhg! It is not as low as you could go, but you only have about a 5% chance of getting your loan through underwriting. Our office currently does not handle loans in this category.

580 to 620 is Okay, we can work with this, but this is going to be a tough loan. You will only have about a 65% chance of getting your loan through underwriting, because of your low credit score.

620 to 640 credit score, this section is slightly better, with a few less conditions; but still with some high levels of stress through the process.

640 to 720 is a good credit score to work with. A medium amount of stress, some uncertainty, and about 85% chance of getting your loan through.

A credit score 720 to 780 is really nice to work with. This level experiences some irritation with the process, generally based on multiple requests for additional documents.

Credit Scores over 780 are outstanding. However, these clients tend to create their own stress by believing that their credit score alone is good enough to get them through underwriting. At this level, you still have to verify everything in detail in the same way as everybody else regardless of credit worthiness.

There is no credit score alone that guarantees you a mortgage loan.

Now even with the above, you still may have credit issues. I have worked with many clients with credit scores in the mid 700’s, yet these people have had what we call, a ‘past housing event’. A past housing event may have been a short sale, deed-in-lieu, or a foreclosure. These are critical events and although they may not be deal breakers, you may end up with only being able to qualify for a loan program that you just don’t like.

Other credit events that impact us without us knowing or understanding why.

Many people who have items that have been put into collects such as; a car repo’, utility bills, deficiency from a short sale. Once these things happen, many people then challenge them on their credit reports. These challenges or disputed items are then blocked off from your actual credit score and hence showing a higher score giving you the consumer a false reading. When applying for your home mortgage loan, these disputes need to be removed. When this happens your credit score will almost always drop significantly. Sometimes disqualifying your ability to get a loan.

Down Payment and Funds for Closing Cost:

The down payment and closing is the most misunderstood part the mortgage loan and buying process. This part is responsible for the two major regulations in the industry, TILA and RESPA (TRID).

Each type of loan program has a minimum down payment requirement except, USDA and VA loans. FHA requires a 3.5% minimum contribution and Conventional loans 3% minimum standard requirement.

USDA, VA, and FHA have funding fee requirements, these fees are added on top of your loan. The VA has exceptions for disabled veterans.

Closing costs vary from lender to lender, title company to title company, and from state to state. Your closing cost may include, but is not limited to- title insurance, a handful of different taxes, surveys, appraisals, credit report fees, underwriting fees, processing fees, flood certificate fees, verification of employment, the proration of taxes, insurance, and homeowner’s association fees. The list is long and the amounts vary widely with many different types of scenarios based on the type of property, location, price of the home, and the amount of the loan.

If you have any questions or would like further assistance please contact us directly and we will try our very best to help wherever possible.

The Settlement Cost, which is reported at the closing on a “HUD1” or “Settlement Statement,” has been replaced for standard dwelling units for 4 units or less; by the “Closing Disclosure” or “CD” on October 3rd 2015 when TRID took effect in the lending industry. “TRID” is the merger of documents, supposedly designed to help the consumer better understand the cost associated with their mortgage loan. TRID = TILA RESPA Integrated Disclosure.

Under TRID, the closing disclosure is, in reality, the final Loan Estimate or “LE” that has been supersized. Once the borrower receives the CD, the federal required three day waiting period will be begin before the mortgage loan can be closed.

The LE and CD are now being used in place of the “HUD1” on primary and secondary residential properties, or on all non-investment dwelling units, whether a purchase or a refinance. The HUD1 can still be used for other types of real estate purchases, such as investment properties purchased by a corporation or LLC, land purchases, and commercial properties. It’s the lender who is responsible for determining which forms are to be used. Using the wrong forms may result in penalties for the lender.

Both the HUD1 and closing disclosure list all the final cost one could expect to pay associated with the mortgage loan whether a purchase or refinance. Both forms contain all fees that have been paid by the buyer or seller, for purchases on the buyer’s behalf at closing or prior too.

The Good Faith Estimate is part of RESPA and on October 3rd, 2015, TRID took effect in the lending industry. TRID is the merger of documents, supposedly designed to help the consumer better understand the cost associated with their mortgage loan. TRID = Truth In Lending RESPA Integrated Disclosure.

Under TRID, the Loan Estimate or “LE” is now used in place of the Good Faith Estimate on primary and secondary residential properties, whether a purchase or a refinance. The Good Faith Estimate can still be used for other types of real estate purchases, such as investment properties purchased by a corporation or LLC, land purchases, and commercial properties. However, you are more than likely to still see the creditor provide you with a LE, versus a Good Faith Estimate, simply because all or most of the creditors have now changed over their software programs to use only the LE.

The Good Faith Estimate was a form containing several pages, and was most often followed by a summary sheet of the expected cost called the Fee Worksheet.

Both the Good Faith Estimate and the Loan Estimate list all the costs one could expect to pay associated with the mortgage loan, whether a purchase or refinance. Both forms contain any and all possible fees. This does not mean you will be charge or experience all the fees or expenses listed on any of these forms. It just simply means that if you were to be charged any of the fees for something associated with anything listed on the forms that should be the maximum cost for that item.

Certain items have a zero tolerance while some items are allowed to be adjusted up or down. If the adjustment is up in cost to you the consumer a new GFE or LE must be sent to you along with the “Notice of intent to proceed” which must be signed either electronically or traditionally and sent back to the creditor before the mortgage loan process can proceed forward.

Truth in Lending Act (TILA) was implemented by “Regulation Z” back in 1968. But this site is not to give you a history or legal definitions. You can find that out on many of the government sites.

What I want to be able to do here is give you a real basic Layman’s term of what TILA is and what form or Form(s) you will see on TILA in your disclosures and why it’s important to you. The TILA notice or disclosure is delivered in one of two basic formats. The first is the older format that most consumers remember as the disclosure form with the four boxes across the top generally just below the first paragraph. These boxes contained information on your annual percentage rate, finance charge, amount financed, and the total of all your payments.

This older format is still used in the mortgage loan industry for financing with Reverse Mortgages, Land purchases, commercial type loans, and investment properties.

Today for your refinance and purchase of your primary residence, second homes and all other real estate dwellings. The TILA form was mashed together with the RESPA form which created TRID (TILA RESPA Intergraded Disclosure). This disclosure was supposed to be simpler for the consumer to understand over the older forms. However, its proved to be overwhelming for the first home buyer, the figures are many and most people do not even read the three plus pages of them.

For most in the industry the TRID forms have grown on us. It’s does make it easier for us to explain your cost surrounding financing in your mortgage loan. For more details and a reasonable explanation of the TRID form(s) please visit our page on TRID.
As for TILA let’s keep it simple. It is the form that tells you how much your loan is going to cost you. It is designed to force lenders to disclose your total cost – it is also a way to alert you of being gouged. This form is subject to audit by both state and federal regulators. If you ever feel you are being gouge or over charged, this form, which you should receive in your initial disclosures, allows you to have in writing your total cost. This form not only discloses to you but it can also be used as your estimate to have in hand to shop around with.
The TILA forms are used in most every type of financing from credit cards, auto loans to personal loans from a licensed financial creditor. Information contain on our pages for general basics in Layman’s terms for mortgage loan purposes only.

The Real Estate Settlement Procedures Act (RESPA) was formed under “Regulation X” in 1974. Like our page on TILA here is a more simple explanation on RESPA. If you want the real legal breakdown, visit the various government websites. This is only going to be a basic street-talk breakdown. The RESPA notice or disclosure, is delivered in one of two basic formats. The first, is the older format that most consumers remember as the disclosure form or good faith estimate (GFE) and a few other pages that went along with the GFE. This older format is still used in the mortgage loan industry for financing with reverse mortgages, land purchases, commercial type loans, and investment properties.

The RESPA forms were mashed together with the TILA form which created TRID (TILA RESPA Intergraded Disclosure). This disclosure was supposed to be simpler for the consumer to understand over the older forms. However, it has proved to be overwhelming for the first home buyer, the figures are ubiquitous and most people do not even read all of the pages.

First the GFE or TRID contains a list of items with an estimated cost of each item you will be paying for as a result of attaining a mortgage loan in conjunction you real estate transaction. These costs have tolerance levels that are subject to review by state and federal regulators during an audit or if a complaint by the consumer is filed.

RESPA requires you mortgage broker and licensed real estate agent to provide you with certain disclosure in a timely manner. Never sign a disclosure without putting the actual date by your signature. These required disclosures are time sensitive. If the licensed real estate agent or loan originator fails to disclose in the required time frame, they may be subject to fines and penalties. Today, most everyone is using some type of electronic signature system. (E-Sign) This helps keep everyone compliant and honest to the public.

Under RESPA, all professional parties involved in the transaction are supposed to disclose their relationship, and if there is any affiliation or benefit paid to one or another licensed professional, in regards to the transaction.

With TRID all the key licensed professionals involved with the transaction are listed on your CD (closing disclosure) including their license number. To learn and understand more about TRID, visit our TRID web page.

For a complete legal explanation of TRID, RESPA and TILA please visit the visit the federal government website sites.

On October 3rd 2015 TRID took effect on the mortgage loan industry, this rule and new disclosure form sent shock waves and very loud and clear message to the mortgage industry. In the simplest of terms, disclose in a timely professional manner as soon as possible with the most accurate information one can put together for the consumer.

The thought behind this page is after more than a year of TRID and feedback from the average or very novice first time home buyer we have worked with, who has never read the government information to be able in Layman’s term or more simple in today’s street talk help get the basic message across. If you feel you want the legal and official written rules please visit the government websites or talk to your real estate attorney. This is not a substitute for legal advice.

On other pages of this website I give a brief on TILA and RESPA. Those two pages are the basic preface to this page. TRID was designed for the everyday consumer to better understand their total cost associated with a mortgage loan. This includes both the refinance and real estate purchase with a mortgage loan. The rule is very strict and all licensed professional involve with the transaction must follow the rule accurately. This rule is designed to better protect the consumer. However, this rule does have its unforeseen side effects if the consumer does not respond in a timely manner to their loan originator’s request for documentation.

Breaking down TRID for you the borrower in Layman’s terms. There are two basic parts you will experience and must acknowledge in order to proceed with your mortgage loan process.

The first part is the LE (Loan Estimate). This form is the merger of two forms TILA and RESPA in shorten format. This basic form is the outline of cost you may experience upon closing of the mortgage loan. Some of these costs are generally a reasonable higher estimate of what you may experience. Reasonable meaning the cost should not exceed a certain percent of actual pricing.

You must be sent an LE within three days from the time you submit a full loan application. A full loan application includes but not limited to your name, subject property address, social security number, income, assets, estimated value of the property, and the loan amount you are apply for.

Along with the LE you will receive addition disclosures that are requirement by law and the discretion of the lender. Included will be the letter of intent to proceed. This letter of intent is only that. When you receive this disclosure package you will ask to acknowledge the receiving of the documents. This is only an acknowledgement and not an obligation to sign or accept the mortgage loan program. The letter of intent is only a form that states you wish to continue along with the loan process and is still not a contract obligation to close on the mortgage loan. However, if this transaction involves a real estate purchase and sales agreement you should review your terms and conditions in your contract with your real estate professional or real estate attorney.

A LE may be generated by your mortgage broker or lender any time something in the process changes. Common examples include but are not limited to the following;

Changing the proposed or applied for note rate from float to lock
The appraisal came in at a lower than expected value
A home inspection caused a change in contract price
Any other unexpected or non-standard change or unforeseen condition
A change of the loan program
Change in the loan amount
Any change in the purchase and sales agreement that effects price or value

If an LE is not acknowledged and the letter of intent to proceed is not signed the lender may not be able to continue working on your mortgage loan. Most lenders today use E-Sign. Please remember if your transaction involves a real estate contract, delaying your mortgage process could put your earnest deposit money at risk. Please review with your real estate agent or real estate attorney.

The second basic part of TRID is the CD (Closing Disclosure). Once the CD is release there is a mandatory wait time of three business days allowing the borrower to review their disclosures and cost prior to the closing. The CD is most cases still may have highest cost listed. It is important to acknowledge the CD in order to start your required clock towards your closing day. This acknowledgment does NOT mean acceptance of the cost or fees involve with the closing. At this point your loan originator, closing agent and lender will continue to work on balancing the cost fees and insure you are not over charged. Most often the final CD is released prior to closing with the accurate total cost. Sometimes this process take the full three days prior to closing to clear up or correct all the items associated with the transaction.

Few important items to remember at this stage of the process.

The release of the CD is not a clear to close (CTC) some lenders will release the CD prior to the final underwrite or CTC, while others work in the opposite
Acknowledging the CD still does not obligate you the borrower to have to close on the mortgage loan. You have no obligation to the mortgage loan until you sign all the documents at the closing table. The only except to this is with a refinance transaction where as you still have the “Three day right of recession” after the closing.

Remember if you do not understand a document or the process ask questions of your loan originator, realtor and closing agent. Never just assume your good to go.

You should also visit the CFPB website and at least read “Know Before You Owe” Your Home Loan Tool Kit.

Protect yourself, read, be informed and ask questions.

The importance of your Credit Score

Understanding credit and its impact on your payments.

Your credit and how it will impact your cost for financing a mortgage loan. Try asking your mortgage broker “What Is The importance of your Credit Score? What does that mean to me, the consumer?”. The Solutions First Team will take the time to explain all of this to you. Until you get in contact with us here is a brief summary for you to start with.

Basically the higher the credit scores the lower the interest rate you may qualify for. however lower interest rates are not just based on credit.

Credit is one of the five major factors impacting your rate.

Your credit score is a gauge used to measure or determine your risk to the lender. Credit is based on your past willingness or ability to pay. Companies report credit to the one or all of the three major credit reporting agencies. These three agencies are TransUnion, Experian, and Equifax. Each of these agencies have slightly different formulas for their very complex mathematical models. They will evaluate many different types of information in your credit file, but ultimately get similar results.

The importance of your Credit Score

The lender’s have their own requirements which must be met, in order for them to approve a mortgage loan. These requirements are called overlays. Meaning they have ‘overlayed’ certain requirements. These are placed over the minimum standards written by Fannie Mae or Freddie Mac. Fannie Mae may have a minimum credit score requirement of 560. However the lenders minimum requirement maybe 620 or 640 before they will approve your mortgage loan.

Unlike credit card companies or auto dealers who may use a Fico score, Real Estate Lenders will typically use a tri-merge credit report. This is a combined credit report pulled from the three major credit reporting agencies. All of the credit information is pulled into one report and the lender uses the middle score as your credit number. This is not an average score, but rather the highest and lowest numbered score will be ignored. The information on items of liability will however, be kept.

These models under the Equal Credit Opportunity Act (ECOA) which is a creditor’s scoring system, may not use certain characteristics. The use of race, sex, marital status, national origin, or religion as factors is not allowed. The law does allow creditors to use age in properly designed scoring models. Ultimately any credit scoring model that includes age must give equal treatment to elderly applicants.

If you are denied credit, the ECOA requires that the creditor give you a notice. This notice will specify the reasons why your application was rejected. You have the right to learn the reasons for the rejection if you ask within 60 days.

A Mortgage loan = combining a promissory note and mortgage in tandem

Adjustable-rate mortgage (ARM) – A Promissory note with an adjustable rate rider (this in whole is generally incorrectly referred to as the Mortgage) that changes interest rate periodically based upon the changes in a specified index.

Adjustment date – The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment period – The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Amortization – The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.

Amortization term – The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Annual percentage rate (APR) – The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

Application – A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security.

Appraisal – A written analysis of the estimated value of a property prepared by a qualified appraiser.

Appraiser – A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation – An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Asset – Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assignment – The transfer of a mortgage from one person to another.

Assumable mortgage – A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.

Assumption – The transfer of the seller’s existing mortgage to the buyer.

Assumption clause – A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption fee – The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Balance sheet – A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon mortgage – A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Balloon payment – The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankrupt – A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy – A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Before-tax income – Income before taxes are deducted.

Beneficiary – The person designated to receive the income from a trust, estate, or a deed of trust.

Binder – A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Bi-weekly payment mortgage – A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower’s bank account. The result for the borrower is a substantial savings in interest.

Blanket mortgage – The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Bond – An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Breach – A violation of any legal obligation.

Bridge loan – A form of second trust that is collateralized by the borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as “swing loan.”

Broker – A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Buydown mortgage – A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

Call option -A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

Cap – A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

Capital improvement – that adds to its value and useful life.

Cash-out refinance – A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Certificate of Eligibility – A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV) – A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of title – A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Chain of title – The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change frequency – The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Clear title – A title that is free of liens or legal questions as to ownership of the property.

Closing – A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called “settlement.”

Closing cost item – A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney’s fees. Many closing cost items are included as numbered items on the HUD-1 statement.

Closing costs – Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney’s fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.

Closing statement – Also referred to as the HUD1. The final statement of costs incurred to close on a loan or to purchase a home.

Cloud on title – Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

Collateral – An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection – The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Co-maker – A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

Commission – The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment letter – A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a “loan commitment.”

Common areas – Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Community Home Improvement Mortgage Loan – An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

Community property – In some western and south western states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Comparables – An abbreviation for “comparable properties”; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Condominium – A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Condominium conversion – Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Construction loan – A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer reporting agency (or bureau) – An organization that prepares reports that are used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Contingency – A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contract – An oral or written agreement to do or not to do a certain thing.

Conventional mortgage – A mortgage that is not insured or guaranteed by the federal government.

Convertibility clause – A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Convertible ARM – An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

Cooperative (co-op) – A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Corporate relocation – Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Cost of funds index (COFI) – An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

Covenant – A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Credit – An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit history – A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit report – A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness. See merged credit report.

Credit repository – An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Debt – An amount owed to another.

Deed – The legal document conveying title to a property.

Deed-in-lieu – A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

Deed of trust – The document used in some states instead of a mortgage; title is conveyed to a trustee.

Default – Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency – Failure to make mortgage payments when mortgage payments are due.

Deposit – A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Depreciation – A decline in the value of property; the opposite of appreciation.

Down payment – The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Due-on-sale provision – A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

Earnest money deposit – A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement – A right of way giving persons other than the owner access to or over a property.

Effective age – An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective gross income – Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Encumbrance – Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Endorser – A person who signs ownership interest over to another party. Contrast with co-maker.

Equal Credit Opportunity Act (ECOA) – A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity – A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

Escrow – An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow account – The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.

Escrow analysis – The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow collections – Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.

Escrow disbursements – The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow payment – The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as “impounds” or “reserves” in some states.

Estate – The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction – The lawful expulsion of an occupant from real property.

Examination of title – The report on the title of a property from the public records or an abstract of the title.

Fair Credit Reporting Act – A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

Fair market value – The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae – A congressionally chartered, shareholder-owned company, that is the nation’s largest supplier of home mortgage funds.

Fannie Mae’s Community Home Buyer’s Program – An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Federal Housing Administration (FHA) – An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

Fee simple – The greatest possible interest a person can have in real estate.

FHA mortgage – A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

Finder’s fee – A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

First mortgage – A mortgage that is the primary lien against a property.

Fixed-rate mortgage (FRM) – A mortgage in which the interest rate does not change during the entire term of the loan.

Flood insurance – Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Foreclosure – The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Freddie Mac – Federal Home Loan Mortgage Corporation�(FHLMC) – is a public government sponsored enterprise�(GSE) created to expand the secondary market for mortgages in the US

Fully amortized ARM – An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Good faith estimate (GFE)- An estimate of charges which a borrower is likely to incur in connection with a settlement.

Hazard insurance – Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

Housing ratio – The ratio of the monthly housing payment in total (PITI – Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio.

HUD – The U.S. Department of Housing and Urban Development.

Index – A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indeces include the 1 Year treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).

Lien – An encumbrance against property for money due, either voluntary or involuntary.

Lifetime cap – A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Loan to value ratio (LTV) – The ratio of the amount of your loan to the appraised value of the home. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.

Lock-in – A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Margin – The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period. A representative margin would be 2.75%.

Mortgage – A legal document that pledges a property to the lender as security for payment of a debt

Mortgage disability insurance – A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.

Mortgage insurance (MI) – Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.

Mortgagee – person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.

Mortgagor – The mortgage borrower who gives the mortgage as a pledge to repay.

Non-conforming loan – Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium.

Note – A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.

Origination fee – A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned..

Owner financing – A property purchase transaction in which the property seller provides all or part of the financing.

Planned Unit Developments (PUD) – A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

PITI – Principal, interest, taxes and insurance, the components of a monthly mortgage payment.

Points – Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.

Prepaids – Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

Prepayment penalty – A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

Principal – Amount of debt, not including interest. The face value of a note or mortgage.

Private mortgage insurance (PMI) – Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

Qualifying ratios – The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

Rate cap – A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

Rate lock-in – A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.

Rebate – Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with “points” (see above).

Refinancing – The process of paying off one loan with the proceeds from a new loan using the same property as security.

Residential mortgage credit report (RMCR) – A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.

Seller carry back – An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Survey – A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.

Tenants-in-common – An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

Title – The evidence one has of right to possession of land.

Title insurance – Insurance against loss resulting from defects of title to a specifically described parcel of real property.

Title search – An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.

Total debt ratio – Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

Truth-in-Lending Act – A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.

Veterans Administration (VA) – A government agency guaranteeing mortgage loans with no down payment to qualified veterans.

Obtaining a mortgage loan, when purchasing real estate in Florida, can be done with ease when you understand the types of real estate you are purchasing. At High Definition Mortgage Inc., we want to help you understand those unforeseen 3rd party costs of obtaining certain types of mortgage loans. The impacts to Debt To Income Ratios (DTI) a high DTI can be a reason for denial of your mortgage loan. Or they could reduce the funds available for you to borrow. A higher DTI could also affect the interest rate you will be offered or qualify for.

In Florida, it is very common to purchase a home in a Home Owners Association (HOA). The HOA fee(s), if mandatory, count toward your DTI. So a $200 monthly HOA fee for a borrower with $4,000 month income, is a 5% impact. This impact, with a note rate of 4.25%, could purchase you $35,000 of more house value, for the same monthly payment. Condo associations have very similar impacts, and with condo associations, you have to consider that you may have both a condo association fee and an HOA fee.

Insurance is mandatory with all mortgage loans. Since almost all of Florida lies in some type of wind zone of over 100 miles per hour, wind insurance coverage is required. This is generally combined with your standard home owner’s hazard insurance policy. The cost of wind insurance will increase when the home is in a higher wind zone, generally near the coast line. Other impacts associated with the cost of wind insurance, are the type and year of construction. For example, a home with a gable end roof versus a home with a hip style roof may see higher premiums. Another example, would be a home built in 1975 vs a home built in 2009; the newer home would have met the newer building codes, making this home more likely to withstand greater wind gusts–hence lower insurance premiums.

Flood insurance: when in a flood zone, flood insurance is mandatory, and in most cases can be priced reasonably. However, if your living area is lower than the 100 year flood elevation, this insurance can be very costly. A certificate of elevation can be completed as part of your survey. This needs to be completed in order to properly price your flood insurance. We recommend getting several insurance quotes as soon as you execute your purchase and sales agreement. If the cost of insurance will have such an impact, as for you to be denied the amount of financing applied for, we feel it is in your best interest to find this out early on in your real estate purchase and mortgage loan process, before spending several hundreds of dollars on inspections, appraisal, and surveys.

Certain types of financing may require specific inspections to be preformed. Appraisals, surveys, and an additional title insurance policy for the lender’s coverage will be additional costs you may have to finance in to your loan, depending on the amount of funds you may have available for your down payment and closing cost.

Applying for a Florida Mortgage

The steps to getting a mortgage are relatively straightforward, once you get past all of the legal-jargon and bank talk. You will still need to understand what you are doing and we are here to assist you in comprehending the mumbo-jumbo before you put pen to paper and sign on the dotted line.

There Six Steps Involved in Obtaining a Mortgage Loan:

Step One: Fact Finding and the Pre-qualification Process-

How much do you earn?
How much are your monthly expenses?
How good is your credit?
How much can you pay each month?
You will authorize us to run your tri-merge credit report and score

We will walk you through a number of scenarios, by asking some simple and straightforward questions. From this, we will be able to give you an approximation of how much you can afford with the types of loan options available for you. Once this is completed, we will provide you with a pre-qualification letter, which is great bargaining clout when negotiating the purchase of a home. It states, in writing, that you have started the mortgage loan process and have a strong probability of being able to purchase a home.

Step Two: Moving forward to find a home-

The pre-qualification letter is a good guide for your licensed real estate professional to follow. Your agent should call and review your letter and its limitations before showing you a home that may fall out of your price range.

Important items that should be understood with the pre-qualification letter:

Maximum purchase price
Down payment or amount to be financed (loan to value, LTV)
Qualifying interest rate, not to be confused with the rate you will be Locked in at, later on.
Property taxes and homestead and other exemptions
Insurance cost, including flood and wind
Home owner’s association and condo association fees (HOA & COA)

These details about the property you are about to purchase will have a great effect on the total loan amount you are able to qualify for. You should review all these details prior to entering into a purchase and sales agreement. You and your agent should confirm these details with your loan originator to ensure they fall within the parameters of your pre-qualification letter.

Step Three: Disclosing Your Loan

Once you have a copy of your fully executed purchase and sales contract for the new home you are to purchase, please send that to your loan originator immediately.

There are time frames inside the financing contingency of that contract and timing is essential. What this does, is start the clock for your loan originator to properly disclose your mortgage loan details to you.

Your loan originator will ask you, or assist, in getting some insurance quotes to be able to more accurately produce your Loan Estimate (LE) along with the other proper disclosures to you. Included in this disclosure package is the “Letter of Intent to Proceed.” You will need to sign this and all the other disclosures before we can move forward with your mortgage loan. Remember, this is only an intent to proceed and not an obligation to accept or close on the loan.

Step Four: Setting Up Your File For Underwriting

Once we receive these disclosures back from you, we will send you a list of items we need to set up your file and get it ready for submission. This will include running DU, LP ,or GUS–this is a pre underwriting gauge that helps guide us to get any additional information that the underwriter may be looking for with your specific situation.

Once we have completed the bulk of the standard paperwork, your file will be submitted to the underwriter for review and conditional approval. Yes, conditional approval. I believe in waiting until your file comes back from the underwriting to see the conditions for approval, before ordering an appraisal and survey. Once we see the conditions and we are fairly confident that we can satisfy the conditions, we will then order the appraisal and survey. Remember, appraisals and surveys are paid by you–the applicant–whether you close on the loan or not.

Step Five: Approval With Conditions

This stage of the loan process tends to be the most frustrating time for borrowers and real estate agents. Everyone asks the same standard question “are we good yet?” At this time, we will review the conditions we need to meet to satisfy the underwriter for full loan approval. Getting these conditions satisfied is essential. Sometimes, these conditions or request for information may sound ridiculous to most people but they are requirements of both the lender and federal law.

Often times, you will submit the required paperwork as we requested only to create more conditions. Examples would be a bank statement. This new bank statement may contain a large deposit. The underwriter must verify the source of these deposits, as required under federal regulations.

Step Six: Clear To Close (CTC) And The Closing Disclosure (CD)

Nearing the end of the process, is to satisfy all the conditions, along with a satisfactory appraisal for closing–outlined by the underwriter. Once all the satisfied conditions have been sent to the underwriter for final review and approval, the underwriter will send us the Clear to Close (CTC).This is followed up immediately within 24 hours with the Closing Disclosure (CD). The CD has a three-business day minimum review or wait time once you, the borrower, receives and acknowledges the CD. It is important to acknowledge it, remember that it is still not a commitment or obligation to close on the mortgage loan, just an acknowledgement of receiving it.

At this point, your loan originator, processor, closing agent, or attorney will start working on finalizing the numbers for your closing. It is important to know that these numbers cannot grow higher and can only be lowered. The people listed will work hard at reducing the numbers to the actual expense. This CD must follow all the regulations of TILA and RESPA.

Some lenders, when a mortgage loan is substantially complete, may issue the CD prior to the CTC in order to meet the required closing date on your purchase and sales agreement. Once the CD is balanced out, everyone is satisfied, and we meet all legal obligations, we will schedule the closing.

The Desktop Underwriting (DU) program of Fannie Mae is similar to Freddie Mac’s LP and GUS from USDA. These automated programs give the mortgage broker or lender basic eligibility guidelines for that specific borrower. A report of Approved/Eligible with conditions is what the lender or mortgage broker is looking for. If we do not see this Approved/Eligible, we need to find out why not. We need to see what the potential borrower would need to correct, in order to get an Approved/Eligible and continue working on the loan process.

Understanding the difference between Pre-qualification vs Pre-approval and eliminating media confusion.

So often we get that letter, post card, or even an email saying “you’re pre-approved” but how can they really say that and what does it mean to me and you the consumer? These all seem to come in the mail just after we make a purchase on an item via credit.

Purchase a car or boat; apply for the credit card at your favorite clothing store or furniture store and within a week your mail box is full.

I wanted to see where the disinformation comes from so I searched the internet in order to help put together a better understanding for you the consumer of the difference from mail propaganda and the reality of the lending industry.

The Junk-Mail Pre-Approval Myth

Generally, these mailings come from companies who have purchased a list of marketing leads. These leads are paid for by companies who may purchase names from the credit bureaus, credit card companies’, auto retailers, etc. Even if you just inquire on an item, that information may be sold to other retailers and credit providing companies, as someone with interest in purchasing something.

This information most always never contains your credit information or your income, yet they use the term pre-approval or pre-qualified as though you are ready to purchase their product. When in reality, you are just a warm blooded consumer with a previous interest to purchase something. In other words, you may be ready to buy something. So they hit you with an emotional sales pitch while you’re in the mood, leaving the terms pre-qualified or pre-approval as only an emotional tool to luring you into their place of business.

Here is an example I actually recieved the morning I wrote this section. You can see that it states ‘Pre-Approved’ on the envelope.

Pre-qualification or pre-qualification letter is a loan originator or bank’s registered representative’s estimate of how much a consumer could be eligible to borrow, based on information they have supplied. Pre-qualification does not mean they will get the loan. Pre-qualifications can vary in strength, as determined by how much of the information provided by the consumer has been verified. Did the loan originator (LO) or Bank’s representative pull the consumers credit report and verify income, or did they just go by the word of the consumer? This pre-qualification only scratches the surface of the consumer’s ability to get a loan. Basically, it’s just a start that there is a possibility for financing–nothing more.

Pre-approval usually means that the decision maker for the lender, generally the underwriter or assist underwriter, is conditionally ready to move forward in making you a mortgage loan based on the information and documentation you provided at the time that your loan application and the documentation that was submitted to the lender.

Most lenders do not issue pre-approvals, but rather conditional approvals. If you see a pre-approval with conditions, chances are it came from the assistant underwriter–who is looking to eliminate more conditions before submitting your loan file to a senior underwriter. Once a senior underwriter issues the conditional approval, this will say how long it is valid for and what conditions must be met in order to issue a ‘clear to close’ on the mortgage loan.

The Solutions First Team at High Definition Mortgage Inc. do our best to give you the best information possible for you to understand the mortgage loan process. We use our experiences to help provide you with this information only to help assist you and it is not intended to be used as legal advice. We always recommend our clients seek a real estate attorney for all real estate and mortgage loan transactions.

First Time Buyers Getting Credit Score

Your credit history alongside income is where a lender takes their first look at a borrower. Your credit history is pulled from these three credit reporting agencies which are TransUnion, Experian, and Equifax. These agencies generally will only report credit dating back over the past ten years.

There are always exceptions to rules of course but if you see information on your credit report that maybe negative but older than ten years you can send a request to the reporting agency to have it removed. If there is information that is over ten years old on report and is in standing, than it is wise to leave it alone. The longer an account has been open even with a zero balance and no activity these accounts are still considered beneficial in factoring your score. Do not close out these accounts as doing so could have a negative effect on your score.

A negative item on your credit report can always be challenged. Many times items show up on a person’s report that does not belong to them. Generally people with similar names may experience these issues more often than others. Keeping good records of your payments can prove very valuable when you have a need to challenge an improperly reported item. Remember the most important factor is not missing any payments. The information in your credit report is collected from various companies that provide data about your credit. These companies have to follow specific credit reporting rules, as listed under the federal Fair Credit Reporting Act.

Once you have challenged any improperly reported items on your credit reports, you will find your report credit score is based on accurate information and there is no quick antidote in drastically improving your credit score. Most often this is something that takes time since a portion of your credit score is based on longevity.

However, consumers may have a chance to improve their score anywhere from 10 to 25 points by paying down some debt on certain accounts.

Talk to the Solutions First Team at High Definition Mortgage Inc. before doing anything to your credit if you want to apply for a mortgage loan. Our credit experts will review your reports and find the right balance between our different lenders’ loan programs. It is our goal to get you on the correct path for your mortgage loan as there can be parameters as to which loan programs you can qualify for due to various factors.

Why is this important? Your interest rate you are offered by the lenders is based on several factors of which two of them are credit score and Debt to Income Ratio (DTI). Let’s take a look at someone who may have a good credit score of 710. If a lender requires a 720 for a ¼% lower interest rate, improving your credit score 10 points can have a major impact over the life of your loan. Your DTI can have major impacts as to which loan programs you may qualify for. For example the difference between a conventional loan and a FHA loan for the same $100,000 could have an increase as high as $125 per month towards your payment.

The Solutions First Team believe there is more to the mortgage loan process than just pulling your credit and verifying your income for a loan. It is about taking the time to look at your overall financial picture, so we can find the best options for you to choose from and arrive at the solution to turn your dreams into reality.

First Time Buyers – Buy vs Rent

In today’s real estate market, with so many home owners having lost their homes to foreclosure, bankruptcy, short sales, and deed in lieu of foreclose, the market has more renters than available homes for purchase. This high demand for rental properties has driven rents to an all time high.

Renters are now paying 30 to 40% more for a monthly rent payment than they would be paying for a mortgage loan payment for the same property.

The Solution First Mortgage Team’s philosophy is to help guide you in preparing for responsible home ownership. Responsibility starts with education on how credit works and how important it is to stay disciplined and current with all liabilities.

How to understand the limitations of your income and DTI (debt to income ratios), we will also help you assess your past credit issues and may be able to direct you with options on how best to overcome these obstacles and who may be able to help you.

As a renter sometimes we do not see or understand all the options we may have available to us in order to be able to purchase our own home. The Solution First Mortgage Team’s goal is to help find all the possible options available for you.

There are many reasons why someone may want to refinance their home. First and foremost the best reason would be to reduce your monthly payment, but also to pay off your home in a shorter period of time. Being debt free should be your main goal.

Owning a home clear of any mortgage loans is the first step in preventing yourself from being homeless. Once your home is paid for, you should talk to a real estate attorney or an estate attorney about putting your home in a trust.

Many people have refinanced their homes in order to consolidate their total debt, as a debt consolidation plan to reduce their monthly payments. In short, most of these people just went right back out and charged up their credit cards again. And now actually have more debt than when they actually started.

For debt consolidation, we at The team at High Definition believe it is better to refinance your mortgage loan if you can reduce your monthly mortgage loan payment. Take the difference you are saving and apply it to one debt at a time until all are paid. Starting with the debt obligation with the highest interest rate. We call this an accelerated debt reduction plan.

Refinancing to change to a shorter term loan is another great way to accelerate your debt. In today’s market with lower interest rates, refinancing and retaining the same monthly payment by reducing the term from a 30 year fixed rate mortgage loan to a 20 year fixed rate mortgage loan or even a shorter term mortgage loan, could save you tens of thousands of dollars.

Refinancing for home improvements, having a home that is safe, clean, and functional is very important to your overall heath and well being. Refinancing your home for a roof, air conditioning and heating unit, and functional plumbing are good reasons for home improvement. Putting new curtains, new interior doors, brick pavers, and landscaping may improve the property’s value some, but may not be in the best interest of your total financial picture. Those items might best be paid for in cash after saving and planning well in advance.

Cash-Out Refinancing for Investing is something many people do to invest in other real estate or even in the stock market. This can be very tempting, as most often the math on paper looks good. There is no law against doing this but overall, economical factors could work against you, and the possibility of losing everything is very real as we have seen over the past several years.

Other reasons for refinancing, which we do not recommend, are for paying medical bills, paying for student loans or buying toys such as boats, motorcycles, and cars.

If you have any questions or would like further assistance please contact us directly and we will try our very best to help wherever possible.

The steps to refinancing a mortgage are relatively straightforward once you get past all of the legal-jargon and bank talk. You will still need to understand what you are doing of course and we are here to assist you in comprehending the mumbo-jumbo before you put pen to paper and sign on the dotted line.

There are essentially four steps involved in obtaining a mortgage loan:

Step one: Fact Finding and pre-approval process.

How much do you earn?
How much do you spend?
How good is your credit?
How much is your current mortgage loan balance?
How much do you estimate your home’s current value?
You will have to authorize us to run your credit score and report.

We will than need to collect your personal financial paperwork including the last two years tax returns, last six days banks statements and other assets along with your last pay stubs and more.

Step two: complete the application process

This is assembling all your paperwork in putting it on Form 1003 (A Fannie Mae form) with all your credit report information. From here we will have all your disclosures ready to sign including a “Good Faith Estimate” Once this is completed we will run DU* this is a pre underwriting gauge that helps guide us to get any other additional information that the underwriter may be looking for you specific situation.

Step three: Submission to underwriting!

Once we have completed the bulk of the standard paperwork your file will be submitted to the underwriter for review and conditional approval. Yes conditional approval. I believe in waiting until your file comes back from the underwriting to see the conditions for approval before ordering an appraisal or survey if needed. Once we see the conditions and we are fairly confident that we can satisfy the conditions we will than order the appraisal and survey. Remember appraisals and surveys are paid by you the applicant whether you close on the loan or not.

Step four: Clear to close and funding

The last step here is to satisfy the conditions for closing outlined by the underwriter. Once all the satisfied conditions have been sent to the underwriter for final review and approval, the underwriter will send us and the closing attorney (title company) the CTC, Clear to Close. Upon receipt of the CTC closing Documents will be ordered and coordinated with the closing attorney with a time for closing on your new refinanced mortgage loan.

So that’s it! A simple four step procedure to raising a mortgage on your home which has been designed to remove the stress and misunderstandings commonly associated with refinancing your Home.

For further information about getting the right mortgage for you and to arrange your ‘NO-FEE evaluation’ call us on 941-223-9416 Or simply fill in your contact details in this form.

* DU is Desktop Underwriting program of Fannie Mae, similar is Freddie Mac’s LP and GUS from USDA. These automated programs give the mortgage broker or lender basic eligibility guidelines for that specific borrower. A report of Approved/Eligible with conditions is what the lender or mortgage broker is looking for. If we do not see this Approved/Eligible we need to find out why not and see what the potential borrower would need to correct or overcome in order to get an Approved/Eligible to continue working on the loan process.

Under the Ability to Repay Rule

Prior to 2010, lenders more often allowed mortgage loans to consumers who could not truly afford them. Under the Ability-to-Repay rule, all new mortgage loans must meet the basic requirements that will help prevent consumers from taking on loans that they cannot truly afford. This is to benefit both the consumer and the lender. Some of the features of the new rule are:

:: All financial information has to be supplied and verified: Lenders must review and verify a consumer’s financial information. A lender must document and verify: a borrower’s employment status; income and assets; current debt obligations; credit history; monthly payments on the mortgage; monthly payments on any other mortgages on the same property; and monthly payments for mortgage-related obligations. This rule has put a stop to all no-doc, low-doc loans, in which lenders are forced to underwrite better and more responsible mortgage loans. Hence hoping to lower the risk of foreclosure, bankruptcy or other negative debt or credit impacts on the consumer.

:: All borrowers have to have sufficient assets or income to pay back the loan: Lenders must verify, evaluate and conclude that the borrower has the ability to repay the loan. As an example; Lenders may calculate the consumer’s debt-to-income ratio. This is their total monthly debt divided by their total monthly gross income. Verifying how much income a consumer has and is expected to have, and knowing how much currently owe, helps a lender determine how much more debt a consumer afford.

:: Teaser rates can no longer mask the true cost of a mortgage: Lenders must calculate the consumer’s ability to repay on both the principal and the interest over the long term – not just during an introductory period when the rate may be lower.

Refinancing to reduce your monthly payment can provide many benefits for a household but use caution, refinancing too many times can be costly and may not be a benefit in the long run. In today’s market a borrower should be looking at more than just the note rate of a mortgage loan. All borrowers should look at their total cost to obtain their mortgage loan.

Conventional versus FHA type mortgage loans; after April 1st of 2013 the mortgage insurance rates on FHA loans may now prove to be too costly for borrowers with a loan to value greater than 90%. Some points to consider when refinancing, generally FHA mortgage loans have a lower interest rate than conventional mortgage loans, but the cost of mortgage insurance on conventional type mortgage loans is about half the cost of mortgage insurance on FHA mortgage loans.

The team at High Definition believes it is very important to look at all the different mortgage loan types that you may qualify for from Conventional type mortgage loans, VA, and all FHA mortgage loans. You may also be upside down on your current mortgage loan and may be able to take advantage of one of the HARP mortgage loan programs.

Cash-out refinance allows you to take cash out to pay closing cost, cash for home improvements, or cash for debt consolidation or other expenses.

Cash-in refinance allows a borrower to put down a sum of money in order to lower their loan to value ratio which may help get them a lower interest rate and may also be used to eliminate mortgage insurance.

If a borrower qualifies for a VA mortgage loan the borrower should first figure out their LTV (loan to value ratio) before using their VA benefits. A mortgage loan with a LTV greater than 80%, for a Veteran, should price out the different options between Conventional, FHA, and VA. The Veteran or Borrower should look at their total cost of the mortgage loan and not to be drawn into just a lower note rate in its self.

In short to refinance your home there are many options but getting all the facts surrounding your personal financial situation is just as important in matching the best type of loan that fits you and your needs.

Almost every type of loan can be used to refinance including; Conventional, FHA, USDA, VA, HARP loan programs and reverse mortgages.

One of the most asked questions regarding refinance is “How much are the closing costs?”. Well it’s not that easy of an answer to give if we do not know what type of loan and how much your borrowing. So let’s break it down for you.

The cost of refinancing should be measured against your new monthly savings or the overall savings due to a shorter loan term, such as reducing the term of a 30 year fixed rate mortgage loan to a 20 or 15 year fixed rate mortgage loan.

Title insurance breaks down in two parts, a lenders policy and the owner’s policy. The cost for title insurance is very competitive and there is very little difference from company to company. When refinancing you can give your old title policy to the closing attorney and receive a credit towards your new policy.

Underwriting fees vary from lender to lender but are generally between $750 to $1800 depending on the size and complexity of the mortgage loan.

Processing fees can be from a lender’s in house processing team or a contract company. Costs generally are fixed and are usually between $795 and $1,100. The processor’s job is to align and coordinate all the paperwork in an orderly manner from the client, closing company and insurance company in presentation to the underwriter. Once the underwriter releases the conditions the processors chases down all the conditions needed to close. Once the underwriter has verified all the conditions have been satisfied the processor will coordinate the closing package with the closing company to ensure your paperwork is correct.

Document ‘prep’ fees can be charged by the lender and or closing company. The fee varies depending on the type of loan and complexity of the loan. Fees typically range from $90 to upwards of $500.

Government fees include but are not limited to Recording fees, intangible taxes, and document stamps. Some of these fees are fixed price per county and some are percent based on state rates.

Title company’s or Closing attorney’s have their expenses too and the cost varies depending on how much work is needed to be done with title searches and lien pay offs.

Loan origination fees; in short can be offset by adjusted loan origination charges and or yield spread premiums. This is similar to a banks “service release premium”. The difference between mortgage broker /lenders and banks are Banks do not have to disclose their service release premium while mortgage brokers / lenders do.

Mortgage loan funding fees are associated with certain types of loans; such as FHA, VA and USDA. These are percentage base fees and are part of your closing cost.

Other costs which may be included are the cost for Surveys, Appraisals, Credit, fund wiring and over carrier fees.

No one has a crystal ball that really works other than in a fantasy world so with that aside locking in an interest rate or also known as your note rate is something that should be discussed in detail with your loan originator.

Several factors should be considered prior to locking in your note rate.

Starting time frame; the window of time in which the lender will allow you to “lock-in”. Each lender has a different start or beginning time frame. Some lenders allow you to lock when as soon as you register you name with them and you know the amount of you loan (that is a brief description) most lenders require you to acknowledge the “LE” (Loan Estimate) and also return the signed “Notice of Intent to proceed” prior to being able to lock in an interest rate.

Closing date; on a purchase this is a little simpler to understand it’s written in the purchase and sales agreement however on a refinance you are truly guessing or have predetermined some expectations of the closing date.

Loan approval with conditions; this is tough to understand for those that are not working in the industry. Once your loan has come out of underwriting your loan originator will receive the approval with conditions. These conditions may range for few to a great many conditions depending on how well the loan originator and processor first submitted the file and how complicated, you the consumer may be with items or issues in your personal and business financial profile. The time frame to complete these items which most often will include an appraisal. Most appraisals take 7 to 10 days.

Underwriting turn times; you should always ask about the mortgage loan process. This includes turn times. A turn time is the time it takes from submitting an item to your loan originator to the loan originator submitting it to the processor who will review it prior to uploading it to the underwriter and where in line will it before the underwriter will have a chance to review your item(s) submitted. This process is generally 24 to 72 hours. Sometimes the items submitted actually create new conditions repeating the process. Not submitting the full documents or having missing items can create aggravation causing this to repeat once again. This will add delays to the process.

Once you have talked to you loan originator and reviewed the conditions and understand the time frames involved with the process. Then you would want to count the days you have remaining to your expected closing date. You should add at least 5 days for a buffer or safety net to this time frame. Once you know the number of days to closing then you can best calculate the lock time frame.

Current market events and conditions; also have an effect on interest rates. Some lenders do live pricing while others set and change pricing 2 or more times a day. Rate pricing; do you know if you need a lender credit for closing cost or do you want or need to buy down the rate to meet debt to income ratio requirements?

Locking in a note rate is not only based on the current interest rate being offered to you that day but is also based on how long that rate will be locked in for. Standard time frames are 15, 30, 45 and 60 day lock time frames. The longer the time frame the higher or more costly the rate will be.

If you guess wrong and something happens within the loan process you will have to pay for a rate lock extension. Unexpected issues may include a bad appraisal, damage to the property you are purchasing or even a hurricane or other severe weather events.

If you choose to lock a rate for 15 days and need to extend the lock time frame you can only extend for another 15 days. If you need more time than another 15 days you will have to extend twice and each time this may cost you the borrower more money. It is most common to do a 30 day lock.

In summary its best to fully review and understand the process, loan and market conditions with your loan originator prior to locking in your rate.

Pre-qualification vs Pre-approval

Understanding the difference between Pre-qualification vs Pre-approval and eliminating media confusion.

So often we get that letter, post card, or even an email saying “you’re pre-approved” but how can they really say that and what does it mean to me and you the consumer? These all seem to come in the mail just after we make a purchase on an item via credit.

Purchase a car or boat; apply for the credit card at your favorite clothing store or furniture store and within a week your mail box is full.

I wanted to see where the disinformation comes from so I searched the internet in order to help put together a better understanding for you the consumer of the difference from mail propaganda and the reality of the lending industry.

The Junk-Mail Pre-Approval Myth

Generally, these mailings come from companies who have purchased a list of marketing leads. These leads are paid for by companies who may purchase names from the credit bureaus, credit card companies’, auto retailers, etc. Even if you just inquire on an item, that information may be sold to other retailers and credit providing companies, as someone with interest in purchasing something.

This information most always never contains your credit information or your income, yet they use the term pre-approval or pre-qualified as though you are ready to purchase their product. When in reality, you are just a warm blooded consumer with a previous interest to purchase something. In other words, you may be ready to buy something. So they hit you with an emotional sales pitch while you’re in the mood, leaving the terms pre-qualified or pre-approval as only an emotional tool to luring you into their place of business.

Here is an example I actually recieved the morning I wrote this section. You can see that it states ‘Pre-Approved’ on the envelope.

Pre-qualification or pre-qualification letter is a loan originator or bank’s registered representative’s estimate of how much a consumer could be eligible to borrow, based on information they have supplied. Pre-qualification does not mean they will get the loan. Pre-qualifications can vary in strength, as determined by how much of the information provided by the consumer has been verified. Did the loan originator (LO) or Bank’s representative pull the consumers credit report and verify income, or did they just go by the word of the consumer? This pre-qualification only scratches the surface of the consumer’s ability to get a loan. Basically, it’s just a start that there is a possibility for financing–nothing more.

Pre-approval usually means that the decision maker for the lender, generally the underwriter or assist underwriter, is conditionally ready to move forward in making you a mortgage loan based on the information and documentation you provided at the time that your loan application and the documentation that was submitted to the lender.

Most lenders do not issue pre-approvals, but rather conditional approvals. If you see a pre-approval with conditions, chances are it came from the assistant underwriter–who is looking to eliminate more conditions before submitting your loan file to a senior underwriter. Once a senior underwriter issues the conditional approval, this will say how long it is valid for and what conditions must be met in order to issue a ‘clear to close’ on the mortgage loan.

The Solutions First Team at High Definition Mortgage Inc. do our best to give you the best information possible for you to understand the mortgage loan process. We use our experiences to help provide you with this information only to help assist you and it is not intended to be used as legal advice. We always recommend our clients seek a real estate attorney for all real estate and mortgage loan transactions.

What are mortgage points?

When is 1 point worth .125?

Mortgage Loans points defined in laymans terms; Points in the mortgage loan industry can be explained easier as having a dual definition.

Let’s first explain it from an interest rate prospective. One point is equal to 1/8 of a percent. The difference from a 5% interest rate and a 4.75% interest rate is 1/4% or written as a 2 point spread (difference). A borrower who only qualifies for a rate of 5% but would like to have a smaller monthly payment can buy discount points. So buying 2 points would give them the 4.75% interest rate reducing their monthly payment.

The second part of the term point or points is the dollar value of a point. Let’s stay focused on the dollar amount of the loan. The cost or value of each point is a percentage of the total amount of the loan. 1% of a $200,000 loan amount is $2,000, so if the borrower wanted to reduce their interest rate from 5% down to 4.75% they would pay the value of two points, in this case the value or cost of two points on a $200,000 loan would be $4,000.

Points should always be a choice for the borrower and never an excuse for a bank representative or mortgage loan originator to make more money.

A borrower should always know the breakeven point on a loan for the point to be effective. Example; the breakeven point for cost of the 2 points on a $200,000 for a 30 year fixed rate mortgage loan may be at the seven year time frame in the loan. If the borrower pays off the mortgage loan by either selling the property or refinancing the borrower will lose money. If the borrower keeps the mortgage loan beyond the breakeven point they will be saving money on the total amount of interested paid during the life of the mortgage loan

On a more complex side, with good strategies and the proper combined use of points, origination fees and adjusted origination charges a borrower can have additional options they can use to adjust their monthly payments or have a lender credit issued to reduce the amount of funds needed for closing.

The team at High Definition at Inlanta Mortgage Inc. believes that a well educated borrower given the right options can choose the best mortgage loan program for their needs.