Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Every home buying situation is unique, but there are a number of buyers who qualify for a mortgage loan on another home, while they still reside in their first home. There are a number of reasons why people opt for a 2nd home. Their family might be growing and they feel the need for a bigger house. In some cases, people get a job transfer and have to relocate to a new home. The question here is- are you required to sell before you buy?

Things to Consider

The answer is not a straightforward yes or no as there are a number of factors that come into play. If you are in a strong financial position, you qualify and can afford your present residence as well as the proposed payment on the new home, then you will not have to sell the first home.

Even if you do qualify for a mortgage loan on a second home without having to sell the first, there are some other considerations you will have to take into account. When you plan on maintaining multiple properties, you will also have to factor in all the additional expenses such as:

  • Mortgage payments

  • Higher property taxes

  • Hazard insurance

  • Unexpected repairs

  • Others

Can You Rent Your Current Property?

There are different possibilities in this scenario as well:

If you do not qualify to carry mortgages on both the houses, you might have to rent the first property to offset your mortgage payment. In this scenario, the lender will then generally count only 75% of the total monthly rent that you will receive.

There is another aspect which has to be taken into consideration. Most lenders have a reserve requirement & equity ratio, and this can be a big hurdle in your path. In some cases, if you plan on renting out your existing home, you are required to have a minimum of 25% of equity to offset the payment with the rent that you will receive.

Without that large amount of equity, you’ll need a significant amount of money in the bank and will have to qualify for mortgage payments on both homes. If you do not qualify for both the mortgage payments, you will obviously have to sell the current house before you buy the new one. For more information about how the process works, contact ResMac Home Loans today.

 

Ten Things You Can Do To Protect Your Identity

Facts About Identity Theft:

It’s estimated that there were 10 million victims of identity theft in 2008, and 1 in every 10 U.S. consumers have reported having their identity stolen.

The U.S. Department of Justice reported in 2005 that 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised).

And, the U.S. DOJ also reported that those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000.

What Is Identity Theft?

According to the United States Department of Justice, identity theft and identity fraud “are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”

Such personal information may include your name, address, driver’s license number, Social Security number, date of birth, credit card number or banking information.

Victims of identity theft can spend months trying to restore their good name. And most victims do not realize it has happened until they get denied for a mortgage or a credit card.

Ten Ways to Protect Your Identity:

1.  Dumpster Diving –

Avoid “dumpster diving” by shredding all papers that contain any personal information.

Criminals sift through trash looking for the following:

-Bank Statements
-ATM Receipts
-Canceled Checks
-Credit Card Statements
-Credit Card Purchase Receipts
-Credit Card Solicitations (unopened “pre-approval” solicitations)
-Pay Stubs
-Tax Documents
-Utility Bills
-Expired Identification Cards (Drivers License, Passports…)
-Expired Credit Cards
-Medical Statements
-Insurance Documents

2. Personal Info / Phone Calls -

Never provide personal information, including your Social Security number, passwords or account numbers over the phone or internet if you did not initiate the call.

If you are asked for any type of personal information, before giving any information, ask the caller for their name, telephone number and the organization that they are representing.

You should then call the company using the customer service number the company provides with your account statement. Do NOT call the number you were given by the caller.

To reduce the number of solicitations you receive, you can sign up at the do not call registry:

web: http://www.donotcall.gov
call: (888) 382-1222

3. Look Over Your Shoulder –

Avoid “Skimming and shoulder surfing” (Never let your credit card out of your sight).

Pay with cash. Try never to let your credit card out of your sight to avoid a fraud scheme known as “skimming”.

According to Wikipedia:

“Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an “inside job” by a dishonest employee of a legitimate merchant. The thief can procure a victim’s credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ credit card numbers.”

Be aware of people “shoulder surfing”. This is when they are looking over your shoulder or standing too close trying to obtain your PIN number when making purchases with your debit card. They may also be listening for your credit card number.

4. Secure Your Mail –

Always mail your outgoing bill payments and checks from the post office or a neighborhood blue postal box and never from home.

Pick up your incoming mail as soon as it is delivered. The longer it sits the better chance a criminal has of stealing it.

-Get a P.O. Box.
-Lock Your Mail Box

Contact your creditors if a bill doesn’t arrive when expected or includes charges you don’t recognize. It may indicate that it was stolen.

5. Read Credit Card Statements -

Review account statements to make sure you recognize the purchases listed before paying the bill.

If your credit card holder offers electronic account access, take advantage and periodically review the activity that is posted to your account.

The quicker you spot any unauthorized activity, the sooner you can notify the creditor.

6. Monitor Credit Report -

Review your credit report at least once a year to look for suspicious activity. If you do spot something, alert your card company or the creditor immediately.

7. Email Links –

Never click on a link provided in an email if you believe it to be fraudulent.

Keep in mind, no financial institution will ask you to verify your information via email.

Criminals may link you to phony “official-looking” web site to confirm your personal information. This is known as “phishing”.

According to Wikipedia:

“Phishing” is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.

8. Opt Out –

Opt out of credit card solicitations. (Take your name off marketers’ hit lists)

You can opt out of credit card solicitations by calling 1-888-567-8688 to have your name removed from direct marketing lists.

You can do this online at OptOutPrescreen.com, which is the official consumer credit reporting industry opt-out website for the three credit companies:

Experian
Equifax
Trans Union

9. Safeguard Your Social Security Number -

Protect your Social Security number.

Never carry your Social Security card or anything else with your social security number on it in your wallet or purse, along with your driver’s license.

Do not put your Social Security number or driver’s license number on any checks you may write.

Only give out your Social Security number when absolutely necessary.

10. Read Privacy Policies –

Find out what company privacy policies are (know who you are dealing with).

When being asked for your Social Security number or driver’s license number, find out what the company’s privacy policy is.

Inquire as to why it is being asked for.

Ask who has access to your number.

Ask if you can arrange for them not to share your information with anyone else.

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Related Credit / Identity Articles:

Is There A Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open?

While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.

Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.

However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.

A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.

Credit Trade Line / Approval Bullets:

  • Banks usually won’t count a trade line that is less than 12 months old.
  • The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
  • Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.

Exceptions to Trade Line Rules:

Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:

Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’

Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.

Another exception to this rule is if you have no FICO score, and no negative trade lines.

In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.

Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors.  A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.

*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof.  Lenders will need canceled checks and / or copies of bank statements to start out with.

Since not all companies report to credit bureaus, it’s possible to get a complimentary credit report at AnnualCreditReport.com to verify your total reported trade lines.

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Related Credit / Identity Articles:

Alternate Sources For Establishing Credit

While the basic Rule-of-Thumb for acceptable credit history is a minimum of four trade lines documented on a credit report, there are alternative methods of building a credit picture that an underwriter can use to make a decision for a loan approval.

For potential home buyers with little or no credit history, keeping records for 12 months of paying bills on time is essential for mortgage loan approval. In fact, loan officers will appreciate receiving proof that you have paid a variety of accounts regularly and on time. Even if you do not have a credit history, or your credit report isn’t as good as it could be, this may enable you to get a mortgage.

The industry term for this is “thin credit.”

Some loan types, namely FHA and USDA, will accept alternative credit sources in order to establish proof of financial responsibility.

Alternative credit is unreported to the bureaus, but will still be verified and can be instrumental in a home loan approval.

Those with thin credit don’t usually have bad credit, but have just not had an opportunity to build enough traditional credit, such as bank/store credit cards, auto loans, etc.

Alternative Sources for Building Credit:

  • Rental History – Canceled checks and letter from property management company
  • Medical Bills – 12 months of statements from medical billing company showing paid as agreed
  • Utilities – power, gas, water, cable, cell phone
  • Auto Insurance
  • Health / Life Insurance – as long as it’s not auto-deducted from pay check

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What’s The Difference Between A Primary Residence, Second Home and Investment Property?

When you are applying for a mortgage loan, your “occupancy type” becomes a major factor in the actual amount of the down payment that is required, the loan program available & the mortgage interest rate. Whether you are buying, doing a term or rate financing/ taking equity out of the property via cash-out refinance- the underwriter will always take the “occupancy type” into consideration.

Types of Occupancy

There are 3 types of occupancy:

  • Owner Occupied or Primary Residence – As per the HUD, a primary residence is essentially a property which a borrower will occupy for a larger part of the calendar year. At least 1 borrower has to occupy that property & sign the security instrument as well as the mortgage-note for that property to be considered as “owner-occupied”

  • Second Home – In order to qualify as a 2nd home, typically, that property should be a minimum of 50 miles from your primary residence. The real-estate should not be acquired for rental investment purposes

  • Investment Property- This type of property is not occupied by the owner and is used only as source of rental income

Down Payment Requirements

The down payment that you make will be dependent on the type.

  • Primary Residence – Purchases for VA & USDA can go upto 100% financing, while the FHA requires 3.5 percent of the purchase price as down-payment. Conventional financing might require the down payment to be in the 5% – 25% range, based on the credit score, property type, county and the loan amount

  • Second Home – An average 10 percent of a down-payment is required for a purchase, and 25 percent equity for any refinance

  • Investment Property – The down payment requirement can be the 20-25% range based in the total number of units. When you are doing a cash-out refinance on any investment property for 2-4 units, the required loan-to-value will have to be 70percent /lower to qualify.

Note- For any kind of high-balance loan amount the mentioned LTV- Loan-to-Value requirements will undergo a change. Certain credit score requirements will also be applicable. To understand more about how the property type affects your down payment, contact ResMac Home Loans today.

What’s My Debt-to-Income (DTI) Ratio?

Debt-to-Income (DTI) is one of the many new mortgage related terms many First-Time Home Buyers will get used to hearing.

DTI is a component of the mortgage approval process that measures a borrower’s Gross Monthly Income compared to their credit payments and other monthly liabilities.

Debt-to-Income Ratios are designed to give guidance on acceptable levels of debt allowed by particular lenders or programs.

There are actually two different Debt-to-Income Ratios that underwriters will review in order to determine if a borrower’s monthly income is sufficient to cover the responsibility of a mortgage according to the particular lender / mortgage program guidelines.

Most loan programs allow for a Total DTI of 43% and a Housing DTI of 31%.

Two Types of DTI Ratios:

a) Front End or Housing Ratio:

  • Should be 28-31% of your gross income
  • Divide the estimated monthly mortgage payment by the gross monthly income

b)  Back End or Total Debt Ratio:

  • Should be less than 43% of your gross monthly income
  • Divide the estimated house payment plus all consumer debt by the gross monthly income

Remember, the DTI Ratios are based on gross income before taxes.  Lenders also prefer to use W2’s or tax returns to verify income and employment.

However, the adjusted gross income is used to calculate DTI for self-employed borrowers on most loan programs.  Since there is room for interpretation on these guidelines, it’s important to review your personal income / employment scenario in detail with your trusted mortgage professional to make sure everything fits within the guidelines.

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Calculating Loan-to-Value (LTV)

Understanding the definition of Loan-to-Value (LTV), and how it impacts a mortgage approval, will help you determine what type of loan amount and program you may qualify for.

Since the LTV Ratio is a major component of getting approved for a new mortgage, it’s a good idea to learn the simple math of calculating the amount of equity you may need, or down payment to budget for in order to qualify for a particular loan program.

The LTV Ratio is calculated as follows:

Mortgage Amount divided by Appraised Value of Property = Loan-to-Value Ratio

*On a purchase transaction for a residential property, the LTV is calculated using the lesser of either the purchase price or appraised value.

For Example:

Sally qualifies for a 96.5% Loan-to-Value FHA program, which means she’ll have to bring in 3.5% as a down payment.

If the purchase price is $100,000, then a 96.5% LTV would = $96,500 loan amount. And, the 3.5% down payment would be $3,500.

$96,500 (Mortgage Amount) / $100,000 (Purchase Price) = .965 or 96.5%

In addition to determining what mortgage programs are available, LTV also is a key factor in the amount of mortgage insurance required to protect the lender from default.

On a conventional loan, mortgage insurance is usually required if you have an LTV over 80% (one loan is more than 80% of the home’s appraised value). On that point, if you are currently paying mortgage insurance and think that your LTV is less than 80%, then it may be time to refinance, or call your lender to restructure the payment.

…..

Frequently Asked LTV Questions:

Q:  Why do the lenders care about Loan to Value?

Lenders care about the LTV because it helps determine the exposure and risk they have in lending on a certain property. Statistics show that borrowers with a lower LTV are less likely to default on their mortgage.  Also, with a lower LTV the lender will lose less money in case of a foreclosure.

Q:  Can I drop my mortgage insurance on an FHA loan?

The mortgage insurance on an FHA loan is structured differently than a conventional loan. On a 30 year fixed FHA loan, the monthly mortgage insurance can be removed after five years, as well as when the borrower’s loan is 78% LTV.

Q:  What does CLTV stand for?

CLTV stands for Combined Loan To Value. The CLTV calculation is as follows:
(1st Mortgage Amount + 2nd mortgage amount) / Appraised Value of Property = CLTV

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Common Documents Required For A Mortgage Pre-Approval

Today, a number of lenders are quoting 10-minute mortgage pre-qualifications online or over the phone. But only a mortgage approval that has been issued by an underwriter holds weightage, as the person has the opportunity to thoroughly review all the required documents.

The lending guidelines are constantly changing, the government is pulling in the reins on regulations and there is a lot of volatility in mortgage rates. With all these factors in view, most real estate agents require first-time home buyers to have a pre-qualification letter, before they actually show them any new homes.

How a Pre-Approval Helps You

The pre-approval letters helps you in 3 ways:

  • You will know the mortgage amount you qualify for

  • You get a general estimate of what total housing payment will be

  • When you submit a pre-approval letter along with your purchase offer, the seller is more confident that you will be able to meet your end of that agreement

The Documentation

In order to get the pre-approval letter, you are required to fill out a loan application form and submit a few documents, which will be reviewed by the underwriter and/or the loan officer. The common documents that you will have to submit are:

Income / Assets for Wage Earner:

  • Last 2 years W2s & Tax Returns

  • 2 most-recent Pay Stubs

  • 2 most-recent Bank Statements, Liquid Assets, 401(K), Investment Accounts

Income / Assets for the Self-Employed:

  • Last 2 years Tax Returns – Business & Personal

  • Last Quarter’s P and L Statement

Letter of Explanation For:

  • Employment Gap/New Line of Work

  • Late Payments / Bankruptcy on Credit Report /Judgments

Other:

  • Bankruptcy Discharge

  • Any Child Support Documentation

  • Mortgage Payment Coupons (If you own other Real Estate)

  • Lease Agreements (If you own any other Rental Properties)

Be Well-Prepared

The Q&A sessions can sometimes end up being more than just a qualification process and you should have all the right questions & answers ready. In any case, once you have identified a trustworthy loan officer who can meet your expectations, you will need to have all these documents ready. The loan approval process can be very complex and being well-prepared, helps in taking away some of the strain. For more information about the kind of documents you require, contact ResMac Home Loans today.

 

Top 8 Things To Ask Your Lender During The Application Process

The mortgage approval process is a very complicated one. But asking the right questions and getting satisfactory answers is important. Failing to do so in the course of the mortgage pre-qualification stage can end up hurting or frustrating you, because all your expectations were not met. Here is a list of 8 priority questions you should ask your lender during the application process:

What are the documents I will have to keep ready to ensure that I get full mortgage approval?

An experienced mortgage professional can identify all the different challenges that a buyer may face, just by asking all the right questions in the course of the interview and initial application process. Some of the things that your mortgage professional will need to know are:

  • Residence history

  • Credit obligations

  • Marital status

  • Down payment seasoning

  • Employment & Income verification

  • Others

The questions you should be asking are:

How long will the entire process take?

A number of factors have to be taken into consideration in the overall time-line and this is exactly why communication is important. As long as all the questions are addressed in time and the documents are in order, your loan officer will be able to provide you with a time estimate for processing and closure of your mortgage.

Does the payment include taxes and insurance?

Getting the answer to this one will help you understand the impact to the total monthly payment as well as the total amount you have to bring to the mortgage closing.

Are there any chances of my payment increasing post closure?

In the current economic landscape, most homeowners opt for the fixed-rate loans and their loan payment stays the same over the life of that loan. However, if taxes & insurance have been included in the payment, then any changes to these will also increase the home loan payments.

In addition to these questions, you should also ask your loan officer:

  • How to lock-in your interest rate

  • The duration for which the rate will be locked

  • How your credit score impacts your interest rate

  • The amount you will need for closing

Expert and Professional Assitance

Once you get the answers to these 8 basic questions, you will feel a little more confident about finding a lender who will be cater to your specific requirements. The more clarity you have about this entire process, the smoother the approval process will be. We can provide you with complete guidance and assistance with the mortgage loan application process- contact ResMac Home Loans today.

 

Top Mortgage Terms To Know

If you scan any mortgage website, you will find a detailed glossary that contains literally hundreds of lending and real estate-related terms. These are a few of the top terms that you will hear a number of times right through the approval & home buying process. Once you understand all the industry jargon that professionals in the field use and you have a good home buying team, you will be a little more confident while discussing various topics and that are crucial to your transaction.

Mortgage-Related Terms

  • Amortization Schedule: The payments schedule that show the amount that has been applied to the principal-amount & the interest through the payoff

  • Adjustable Rate Mortgage (ARM): The ARM is related to a certain financial index & might adjust post a fixed period of time

  • Annual Percentage Rate (APR): The rate of interest which is inclusive of loan-related fees. This helps in determining the entire cost of borrowing the loan.

  • Buy-down: The up-front fee that the borrower pays to reduce the mortgage rate & the monthly payment

  • Combined Loan-to-Value (CLTV): All the mortgage obligations on a specific property in comparison to the current fair market value

  • Delinquency: Late payments on the borrower’s monthly liability

  • Disclosure: The documents that the lender, buyer & seller sign during the real estate purchase/ mortgage transaction

  • Discount Point: The amount that is paid to reduce an interest rate

  • Fixed Rate Mortgage: The mortgage in which the interest rate does not change through the term of the note

  • Good Faith Estimate (GFE): The mortgage broker/lender has to provide a GFE to the customer. It is an itemized list of all the costs & fees related to the loan and has to be provided within 3 business days of the loan application date

  • Gross Income: The total taxable-income that is verified by the lender via tax returns & W2’s

  • Home Equity Line of Credit (HELOC): The line of credit that is secured by real estate

  • Joint Liability: When multiple people apply for & secure a mortgage

These are just some of the terms you will come across while your loan is being processed and closed. You will also hear real estate terms like Acceptance, Contingency, Due-Diligence, Deed of Trust, Earnest Money, Escrow, Equity and a lot more. Reading a little about all these terms will help you gain a firmer footing when you are applying for and waiting for your mortgage loan to get approved. For more information, contact ResMac Home Loans today.