Once your loan application is filled out and sent to the lender for review, the first thing they will look for is your ability to pay back the loan you are requesting. My team and I have a streamlined loan process to help you get your ducks in a row prior to this review. A grand slam loan package is in perfect order and answers all the important questions up front. We know what the lenders are looking for, based on long-term relationships with them and extensive knowledge of guidelines for a multitude of loan programs that are available today.
What is the lender looking for when they review the loan application?
The lender wants to know about your personal financial picture, including savings and credit history and your employment stability. The co-borrower’s history is also taken into consideration. The lender also considers the loan amount and appraised value of the home you are looking to purchase. Not every applicant is approved the first time through the process. If the underwriter has any questions or concerns, he or she will require certain conditions be met before they approve the loan. Pre-Approval prior to house hunting lets you know exactly how much you are qualified to borrow in advance.
What can I do on my end to make it easier?
Before taking out a home loan it helps to establish a consistent record of paying your bills on time. If you have utility bills that are overdue, bring these up to date. Make sure you are paying credit card installments in a consistent and timely manner.
We can help you evaluate your debt-to-income ratio to determine what mortgage payment will be comfortable and affordable for you on a monthly basis. Aim for having enough savings to cover your down payment, closing costs if necessary, and two month’s expenses in case of emergency. We’ll help you find the loan program that works for you.
If I just started a new job six months ago, can I still apply for a loan?
A stable employment history is important, but the lender does take human factors into consideration. If you’ve recently completed college or vocational training, or were released from the military, you have good cause to have a lack of consistent work history. If your profession is seasonal, and gaps in employment are normal in your field, there are loan programs that can work with your situation. If you are a freelancer or do contract work, the lender will look for consistency in income over the last two years.
Consistency is the key word in the lender’s mind. But know that lenders have developed many different loan structures to meet the needs of the general public. When your grandparents bought their first home, they probably put 50% down and made a lump sum payment when the note was due. Times have changed, and so have loan programs. My team and I stay on top of current mortgage trends. We monitor rates daily and have a support network of Realtors®, CPAs, Financial Planners and Credit Repair Consultants to lend you additional assistance.
What Are Points and When Should You Pay Them?
Points are up-front fees paid by the borrower to obtain a better interest rate on a loan. One point equals one percent of the loan amount. And while a lower interest rate may result in a lower monthly payment, it is important to consider how long you intend to be in the loan and to compare current interest rates to historical market trends. This will help you to determine whether paying points is a worthwhile investment.
Let’s look at a sample scenario. If you take out a $300,000 mortgage and decide to pay one point in order to lower your interest rate, this would translate into an up-front cost of $3,000. To keep things simple, we’ll assume that paying this one point will save you $50 a month. This means it will take you 60 months to recoup the cost of that point. If you decide to refinance or sell the home before the 60-month mark, your money is lost – not to mention the opportunity cost of not having this money invested elsewhere. In this scenario, you would only benefit financially from paying points if you were to remain in the home for no less than 60 months.
It’s also important to remember that interest rates run in cycles. When rates are at historical lows, it makes more sense to pay points if you plan to live in the home for an extended period of time. If it’s unlikely that rates will go down in the near future, then there will be no need to refinance.
When interest rates are high, however, there is a strong likelihood that they will come down again before too long. Therefore, this is not a good time to pay points. The chances of refinancing in the near future are extremely high, and you will likely not be in the loan long enough to recoup the up-front cost of the points.
Tax deductibility is another thing to consider when choosing whether or not to pay points. For new purchases, interest from both points paid and your mortgage are tax deductible up front. For refinances, however, points are not deductible up front. Instead the deductions are spread out over the term of the loan (unless the entire loan is paid off early), making points more costly in comparison.
Ultimately, there’s a lot to consider when it comes to points and whether or not they are a worthwhile investment. An experienced mortgage professional will work with you to determine the best course of action based upon your specific situation. Request a comprehensive cost comparison to see whether paying points could be financially beneficial to you.
Interest Rates! When is the Best Time to Lock?
When it comes to mortgage loans and interest rates, it’s never a good idea to gamble. That’s why I typically advise my clients to lock in an interest rate at the earliest opportunity. This is just one step of the standardized system we have put in place to ensure the best possible loan experience for each borrower that we work with. A mortgage loan cannot be closed without a locked-in rate, and there are three main elements to take into consideration: Interest Rate, Points or fess and length of rate lock.
Locking in a rate does not obligate the borrower to commit to the loan until the loan is actually closed. The lock is merely a security measure designed to eliminate the risk of market volatility throughout the duration of the purchase or refinance transaction. As long as the loan is approved and funded before the end of the lock period, the borrower will receive the interest rate quoted.
When a lender permits an extended lock-in period, the borrower will likely face a higher interest rate or additional fees that could be quoted as points. In other words, the borrower pays for the lender to take on the extended risk of being exposed to potential changes in the market.
For example, let’s say a 30-day rate lock commitment costs the borrower one-half point, while a 60-day rate lock commitment costs one full point. If the borrower in this scenario needed the extended lock period, but did not want to pay points, then an alternative would be to accept a slightly higher interest rate. In this case, a 60-day lock would typically have a higher interest rate than a 30-day lock.
Our standard procedure is to lock in a rate as quickly as possible. My team and I want our clients to know that while interest rates fluctuate daily, most lenders do not want to lose any business because of it. If a significant rally causes interest rates to drop 0.25% or more, we know that we can most likely renegotiate the rate. In many cases, lenders prefer this option over losing the loan to another lender. On the other hand, if we’d allowed our clients to sit on the fence and not lock in their rate, we would have exposed them to market volatility without a safety net. Then, if rates were to increase, the borrower might no longer qualify for the loan they want – a situation that we want to avoid at all costs.
By knowing our clients’ needs and working intimately with them to make the right decisions early on, my team and I are proud to say that we have helped them to achieve their home ownership dreams. “By Ed Eissa”