Team 1 Realtors

FINANCING YOUR PURCHASE

After finding the right Realtor, your next step in your home purchase is financing. Taking the time to talk with a lender will save you disappointment and frustration later on in the process. Once you connect with a lender, you’ll then know what price range you can consider to stay within your comfort level for monthly mortgage payment.

We always encourage our clients to talk with their bank or credit union as they have an established relationship with them. There can be benefits as a result of that relationship.

In addition, Team 1 recommends several preferred lenders for you to explore. Each has their own individual style; all possess the necessary experience, knowledge level and access to loan products that will serve you well. Our experience has shown they each conduct their business with integrity and a high level commitment to customer satisfaction. We’ve included in our lender list a combination of loan officers – some who work as mortgage brokers, some who are mortgage bankers. Some are boutique companies, some are with national brands you’ll recognize and trust. We’ve also included a lender who specializes in “B-Paper” mortgage products – for buyers who have a low credit score, or other financial challenges. You can choose one, or talk with all to determine the best fit for you and to shop the best product/program for you specific situation.

Q. How do I compare lenders?

Typically we’ve found there are 3 areas our clients consider when determining which lender is best for them.
1. Interest rates
2. Cost of doing business: points, origination fees, closing costs
3. Qualifying requirements

Be sure to ask for a Good Faith Estimate (GFE) from each lender you’re considering; analyze the GFE item by item. You want to make sure you’re comparing apples to apples and the total cost of the loan, don’t look at interest rate alone.

Also, once you’ve received a GFE and are told you’re qualified with a lender, you need to request a Loan Commitment letter. This letter states that the lender commits to providing you a loan based on the loan parameters specified below.


Mortgage Broker versus Mortgage Banker

A Mortgage Broker is typically independent of a specific financial institution. They have access to and relationships with multiple “investors” – individuals and/or companies who have elected to lend money for the purpose of a home purchase.

A Mortgage Banker is someone who works for a specific Bank or financial institution and is subject to that organizations lending requirements. They typically are more conservative and therefore more stringent in their lending requirements.
 
If you’ve encountered some financial challenges, normally Mortgage Brokers, with their access to a wider array of programs, offer more flexibility in qualifying.


Points

Points allow you to reduce the interest rate for your loan. One point is equal to 1% of the loan amount. The cost of points varies by lender. You need to calculate the up front cost and weigh how long it will take for you to recoup the cost in order to benefit from the reduced payment as a result of a lower interest rate. You do that based on how long you plan to be in the home.

Q. What do I need to prepare before talking with a lender?
Your lender will need documentation in the following areas:

1. Income/Assets
   
1. W2s; Tax Returns; Bank Statements; 401(k) statements; Investment Account statements
   
2. Debt
   
1. Mortgages that won’t be paid off before your next purchase; auto loans; revolving loans; credit card minimum payments; child support/alimony; student loans
   
3. Credit
   
1. Credit reports for all who will appear on the loan
   

Q.    How does my financial picture need to look in order for me to qualify for a home loan?

The best analogy we can give is to think of your ability to qualify as a 3-legged stool. The 3 legs are the 3 areas mentioned above: Income, Debt and Credit. Think about a stool – if one leg is broken, you can still keep the stool standing up – it’s just weaker and not very comfortable, but it will still stand. If 2 legs are missing however, then it’s almost impossible to keep the stool standing.

A lender will look at your financial picture in that same way – if you have 2 out of 3 areas in good shape, they can typically work around the weak area and still qualify you. If you have 2 areas lacking, it’s pretty tough to qualify.

Example: If you have a really strong income and very little debt, they can be forgiving of a less than perfect credit score – particularly if you can provide a good explanation for the credit issues.


Credit Score

The most stringent requirement in today’s tight lending environment is credit score. Gone are the days of obtaining a mortgage with less than good credit. The cut off score for qualifying for a conventional loan is 680. At 680, you won’t receive the best interest rate or pricing. You need to have a 720 score or higher to be considered a good credit risk and to receive optimal pricing.


Ratios

Front end ratio refers to the percentage that your monthly mortgage payment is of your total gross monthly income.

Example:                
      Gross Income:   $6,000/month
      Mortgage:         $1,500/month, which equals 25% of gross income

Back end ratio is the percentage that your combined debt, including your mortgage payment, is of your total gross monthly income. Examples of other debt factored into this ratio are car payments, revolving credit lines, credit card minimums, child support, student loans.

Example:
      Gross Income:   $6,000/month
      Mortgage:         $1,500/month
      Other Debt:       $750/month
      $1,500 + $750 =    $2,250 = 37.5% of gross income

Acceptable ratios fluctuate with the lender and the current market. Currently, and a good rule of thumb always, is that your debt to income ratio should not exceed 38%.

Example: 
      Gross Combined Monthly Incomes of all parties to the loan:                      $8,333 
                                                                                                              x  38%
                                                                                                              $3,166

      $3166 is the monthly mortgage payment you should qualify for
      -Calculate your anticipated monthly mortgage payment; include taxes,      $1,800
       CDD fees and HOA Dues       
      -Add car payments, minimum credit card payments, other loan                 $1,200
       payments, child support/alimony etc. – exclude all other                        $3,000
       monthly expenses – they don’t count.
                                                                 
      $3,000 is below the $3,166, therefore as long as you have an acceptable credit score, you should qualify for a
      $3,000 combined mortgage payment/debt payments.


Down Payment

In today’s tighter lending environment, you will typically need to contribute a down payment of a minimum of 10% of the purchase price of the home for most loan programs. If you put down less than 20%, you are considered a higher risk to a lender and therefore you will have to pay an additional charge for Private Mortgage Insurance (PMI) which provides protection for your lender if you default on your loan.
However, there are loan programs which don’t require 10% down. Please see VA and FHA loan information below.


Q. How can I calculate the monthly mortgage payment?

Team 1 members are all qualified to ESTIMATE your monthly payment based on the anticipated purchase price of the home, your anticipated down payment and an estimate of today’s interest rates. Team 1 members can also provide for you your estimated taxes for a specific area. However, it will just an estimate – there are so many variables involved in determining a monthly payment, you will need to have a lender provide a Good Faith Estimate for a realistic and reliable monthly payment.     


Q. What are the tax benefits of home ownership?

Both the interest on your home mortgage as well as certain real estate taxes are often tax deductible. In addition mortgage closing cost expenses are deductible. It’s best however to consult your financial advisor to calculate the total tax savings you’ll enjoy as a result of home ownership.


Q. What is an FHA loan and how do you qualify?

An FHA loan is a First Time Homebuyers loan, however it isn’t just for first time homebuyers any longer. It was designed to help first time buyers who don’t typically have a lot of money for a down payment.
FHA loans today only require 3 ½ % down, however they are only available on loans under a specific amount which varies based on geographical region. In the Tampa area today, the FHA loan limit is $292,000. Required credit scores can also be a lower with an FHA loan – currently 620 is the qualifying score.


Q. What is a VA loan and how do you qualify?

A VA loan is a Veterans Administration loan and is available to anyone who has served in the military. 100% financing is available with a VA loan based on qualifying parameters. Your lender can guide you through obtaining a VA loan.