Step 1: Determining Your Borrowing Capacity

The journey to securing a loan begins with assessing how much you can borrow. If you’re in the market for a home, it’s essential to establish your budget before starting your search. By answering a few key questions, we can estimate your borrowing power using standard lender criteria. [Click here to Get A Quote.] Another option is to seek pre-approval, which involves verifying your income, credit, assets, and liabilities. It’s advisable to get pre-approved before house hunting, as this allows you to:

1. Focus on homes within your budget. Strengthen your negotiation position with sellers (they’ll know your loan is already approved).Speed up the closing process.

More About Pre-Qualification

• Loan-to-Value (LTV) and Debt-to-Income Ratios FICO™ Credit Score Considerations for Self-Employed Borrowers Down Payment Sources

Loan-to-Value (LTV) and Debt-to-Income Ratios

LTV, or Loan-To-Value ratio, represents the maximum loan amount a lender is willing to offer based on the value of the property. Lenders may finance a higher percentage, even up to 100%, for borrowers with excellent credit. Another crucial factor is the debt-to-income ratio, which compares your monthly debt payments (like car loans) to your income. Generally, your monthly mortgage payment should not exceed one-third of your gross monthly income. If your debt-to-income ratio is high, you may need a larger down payment to qualify for a lower LTV ratio. FICO™ Credit Score FICO™ Credit Scores are a critical component in the lending decision-making process. These scores, developed by Fair Isaac and Company, quantify your creditworthiness by comparing your credit history to that of the general population. Factors influencing your FICO™ score include your payment history, total debt, length of credit history, pursuit of new credit, and the types of credit you have. It’s important to authorize a lender or broker to run your credit report only after you’ve decided to apply for a loan, as multiple inquiries can negatively impact your score. Self-Employed Borrowers If you’re self-employed, obtaining a loan can be more challenging compared to salaried employees. Conventional lenders often struggle with verifying the income of self-employed applicants since there are no pay stubs to review. Instead, lenders typically require two years of income tax returns to assess your earnings. Source of Down Payment Lenders usually expect borrowers to provide sufficient funds for the down payment and other fees at the time of loan funding. Typically, these funds come from your savings. However, if you don’t have the required amount, you may receive “gift funds” from an acceptable donor, accompanied by a signed letter stating that the funds do not need to be repaid.

Choosing the Right Loan Program

Home loans come in various forms, and selecting the one that best suits your financial situation and goals requires an understanding of each option’s benefits. Whether you’re purchasing a home or refinancing, there are two primary types of home loans:1) Fixed Rate Mortgage Fixed rate mortgages generally have terms of 15 or 30 years, during which the interest rate and monthly payments remain constant. This type of loan is ideal if you:

• Plan to stay in the home for more than seven years. Prefer the stability of a fixed principal and interest payment. Want to avoid the risk of future payment increases. Expect your income and expenses to remain steady.

2) Adjustable Rate Mortgage (ARM)

Adjustable Rate Mortgages, or ARMs, also typically have 15- or 30-year terms. However, the interest rate on these loans can fluctuate, causing your monthly payments to increase or decrease. You might choose this loan if you:

• Plan to live in the home for less than five years. Are comfortable with the possibility of changing monthly payments. Are willing to accept the risk of potential payment increases. Expect your income to rise in the future.

By carefully evaluating these factors and seeking professional guidance, you can select the loan that aligns with your current situation and long-term financial objectives.

Applying for the Loan

Initiating the Loan Process Although lenders follow standards set by government agencies, the guidelines for loan approval can vary based on the loan’s terms. Generally, approval hinges on two factors: your ability and willingness to repay the loan, and the value of the property. Once we receive your loan application, the approval process begins immediately. Your loan processor will verify all provided information, and if any discrepancies arise, either the processor or your loan officer will work to resolve them. The key areas of focus include:

• Income/Employment Verification: Does your income sufficiently cover monthly payments? We’ll evaluate your income and debts using industry guidelines. Credit Check: Can you repay debts on time? Your credit report will be reviewed to assess the terms of previous loans and any payment delays or lapses. Asset Evaluation: Do you have the funds for the down payment and closing costs? Property Appraisal: Does the property have sufficient value? An appraisal will determine its market value, considering location and zoning. Additional Documentation: In some cases, we may request extra documentation before making a final decision on your loan approval.

To enhance your chances of approval:

1. Complete your loan application thoroughly. Respond promptly to requests for additional documentation, especially if your rate is locked or your loan is scheduled to close by a certain date. Avoid transferring money in or out of your bank accounts without proper documentation. If receiving funds from family or friends, prepare a gift letter and contact us. Refrain from making significant purchases until your loan is finalized, as this could increase your debt and negatively impact your application. Try not to be out of town during your loan’s closing date. If travel is unavoidable, consider signing a Power of Attorney.
Closing on Your Loan

After loan approval, you’re ready to sign the final documents. Before signing, review the terms to ensure the interest rate and loan conditions match what was promised. Also, verify the accuracy of your name and address on the documents. Signing typically takes place in front of a notary public. At closing, you’ll be responsible for paying various fees associated with obtaining the mortgage and transferring property ownership. If required, bring a cashier’s check for the down payment and closing costs, as personal checks are usually not accepted. You’ll also need to present your homeowner’s insurance policy, any other required insurance (such as flood insurance), and proof of payment. Your loan will usually close shortly after signing the documents. For owner-occupied refinance loans, federal law allows three days for you to review the documents before the loan transaction is finalized.