Having worked in the mortgage commerce for some time I have come over some pretty informed borrowers, and they commonly get the best deals. Rarely do uninformed borrowers get the "best deal", if they are working with reputable lenders they more than likely get a good deal. However, the incompatibility between a good deal and your best deal could be many thousands of dollars over the life of a loan. For this suspect I decided to put a list of things you should know before you go.
This being said, the list will be minimal due to the fact if I make it too large or complex most habitancy will glaze over this material. Then they would find their selves in the same predicament of waiting for the lender to tell you these things and hoping they are correct. The list is:
1) reputation Scores - You should know all three of your reputation scores And have a fully tri-merged description outlining all of your creditors. Check each and every entry on this description for accuracy, should you find errors you should immediately dispute them with the bureaus and the creditor. You see all over this website, and others, get a free reputation description here. The truth is the only free reputation description comes from every year reputation report.com this is a free service that will in most cases mail you a report. This description is separate than the ones a lender sees. It only list the habitancy on the bureau and how they report, no scores. You should Pay for a fully tri-merged description with scores. It will cost you abut bucks and is worth every penny. If you want you can apply to a reputation management principles and they will give you this free description too. One of the best can be found here.
2) Documentation Type (Doc Type) - You should know what documentation you are ready to provide. This incompatibility is the first thing a loan officer is going to decree when filling out your application and Before he gives you a rate or end cost. Lenders need that you Prove: income, assets, employment, length of self employment, hold assets, housing/ rental history, proof of insurance, collections are paid. Be ready to show proof of anyone that you dispute on your bureau with either a letter from the reporting party or undisputable proof that you are right. If you are unable to prove these things you may still get the loan....but the price is going up.
The documentation type falls into these categories:
Full Doc
Lite Doc
No Doc
There are three main types of light-doc/no-doc mortgages.
Stated-income mortgages tend to be for habitancy who work but don't draw quarterly wages or wage from an employer. That includes self-employed habitancy or those who make a living off commissions or tips. Stated-income mortgages are for habitancy who make the money they say they make, but that amount doesn't show up on the bottom line of their earnings taxes. Expect to pay.5% - 1.5% excellent over full doc loans.
No-ratio loans are often the right call for wealthy habitancy with complex financial lives, retirees who live off investments and habitancy whose lives are in flux because of divorce, new death of a spouse, or vocation change. Expect to pay.5% - 1.5% excellent over full doc loans.
Stated earnings Stated Assets Are for borrowers that do not wish to share or can not share proof of earnings and proof of reserves in the bank. Expect to pay.5% - 1.5% excellent over full doc loans.
No-doc or Nina (no income/no asset verification) mortgages are for creditworthy habitancy who want maximum privacy and can afford to pay for it. Expect to pay 1% - 2.5% excellent over full doc loans.
3) Loan To Value (Ltv or Cltv) This is a measurement of how far into the value of the home you expect the lender loan. For example a 0,000 house with an ,000 loan amount is 80% loan to value or Ltv. We get this value by dividing the present value or sales price by the Actual loan amount (Pv/ La = Ltv). When you begin to go over 80% loan to value you are request the lender to bear more risk, be ready to pay more in the long run should you refinance or purchase above this Ltv. Foreclosures happen most often on homes with less than 20% equity, and the banks know this.
If you go over the 80% threshold on a conforming loan you will be made to carry mortgage insurance, otherwise known as Pmi, Mi. This is to safe the investor should they have to foreclose. There are ways colse to this such as doing a aggregate of loans with a conforming first and a non-conforming second mortgage, any way the second mortgage always comes in at a higher rate thus costing you more for the loan. Know what Ltv loan you are request for before you go.
4) Debt to earnings Ratio (Dti) - This is where your reputation bureau you bought earlier comes into play. Lenders will decree your ability to pay by your debt to earnings ratio. This is naturally the amount of payments that show on your bureau plus the payment of the loan you are applying for divided by your Gross income. (Debts + Current payment / Gross earnings = Dti). Only use the minimum payment that you are required to pay and in most cases you can ignore payments with less than 10 payments remaining.
In times past Fha set the acceptable for allowable Dti Ratios they are currently at 33% & 44%. These ratios are called a Front Ratio and a back ratio. The front ratio is naturally a division derived from dividing your mortgage payment (Piti) by your Gross Income. Example - 00 payment / 00 gross earnings gives us a 25% Front Ratio. The back division is naturally the same recipe we stated earlier. Example 00 total debts divided by 00 total earnings yields a 50% Dti Back end ration.
The back end ratio is used most commonly in non-conforming and accepted mortgages. I have seen borrowers with a 75% back end ratio get beloved with other factors being present such as abundance of liquid assets, job time, low Ltv and so on. So if your ratio looks a puny high you may be ok as long as the other pieces of the pie look good. If not, you may be finding at a stated documentation loan.
5) The Three C's - The 3 C's of reputation include your whole financial life and stand for Character, Capacity and Collateral. You should look at these things as an underwriter would, because these are finally what the underwriter has to prove a case for before she signs off on your loan.
Character is the most leading of the three C's. The underwriter will rank the importance of each of your current and past debts when measuring your capacity. Beginning with the most leading credit, the mortgage, followed by installment loans, such as a car or personal loan, revolving loans, such as reputation cards, and then all other loans. A mortgage lender is primarily going to be concerned with either or not we have made our mortgage / rental payments on time, and then he or she will consider the other loans. Look at yourself as she would and give yourself a letter grade A-F.
The second C of credit, Capacity, is a portion of how much earnings we have versus how much debt we have. As discussed earlier, debt is broken down into two categories. First, the mortgage loan size and resulting payments and second, all other debts and their resulting payments. In normal lenders allow mortgage borrowers to use between 28% and 35% of their gross-pretax earnings for mortgage payments and 33% to 45% for all debts including the mortgage. Give yourself a letter grade here objectively A-F.
The third C of credit, Collateral, is a portion of the size of your down-payment in the event of a purchase, and in the event of a refinance, it is the amount of equity you have in our home. It also calls into suspect the over-all health and desirability of the collateral. For Example a home worth 0,000 in the middle of a subdivision is a good collateral risk should the lender need to foreclose. any way that same house set miles away from other homes of similar value, or surrounded by homes of lessor vale would call into ask the ability to sell this collateral should foreclosure happen. Give yourself a letter grade from A-F on this as well.
Now average these letter Grades together and this will give you a good picture of how your loan application will be viewed and why you may be asked to pay a excellent over other borrowers.
This material is, by no means, the whole picture when trying to price a mortgage. any way if you know the answers to these questions before you go you will be a best informed customer, know what questions to ask and as we said in the beginning. "The best informed customers always seem to get the best deal".
Know Before You Go