Seven Things Your Agent Should Know About Your Mortgage Approval

Most experienced real-estate agents are aware about all the nitty-gritty’s of the mortgage loan approval process, but there are certain vital details that tend to get overlooked. Eventually, these can result in a delay or denial of the purchase. Some of the aspects that can undergo a change, and can impact your home loan financing are:

  • New regulation

  • Appraisal guidelines

  • Updated disclosures

  • Mortgage rate pricing-premiums

  • Credit score or bad credit rules

  • Rescission deadlines

  • HOA insurance requirements

  • Secondary approval layering

  • Property type

  • Title

  • Property flip rules

  • Others

Seven Important Things

The current-day lending environment is highly volatile and it is crucial for home-buyers to obtain a full mortgage loan approval that very clearly defines all the contingencies related to an individual home buyer’s situation. Ideally, these are the things you should be looking at before you spend time looking for new home with your real estate agent. These are the things your agent should always keep in view while you are being shown new properties, which will help in easy mortgage approval:

  • Property Type- High-Rise, Town House, Condo, Single Family Residence, Shoe House or Dome Home

  • Residence Type- Understanding whether you have to sell your 1st home before buying another
  • Mortgage Rates / Lock-in- Typically, mortgage rates have a 30-day lock-in period. If you are looking for a new mortgage rate, you will have to switch to a new mortgage lender

  • Headline News or Employment- This relates to income security, periods of unemployment and job changes

  • Title or Property Flip- If a property has been bought by an investor and then sold within 30-90 days of the purchase; it’s called a property flip. Some lenders have stringent rules around these kinds of transactions and will take this into consideration in the mortgage loan approval process

  • Homeowner’s Association Insurance- Certain lenders need that Condos & Town House communities have enough insurance & reserves coverage related to specific ratios on the units that are owner-occupied vs. rented ones

  • Appraisal Ordering Procedures- There are frequent changes to appraisal ordering guidelines as regulators implement numerous new consumer-protection laws created in an effort to prevent foreclosure epidemics in the future

Though there are a number of things that your agent will have to look into and keep in view, these 7 points are important to understand. And as a buyer, if you want easy mortgage approval, it becomes all the more important for you to be aware of these things too. Contact ResMac Home Loans for any other mortgage-related information you need.

 

Where Does My Earnest Money Go?

Many homeowners who want to buy property offer a certain amount of earnest money or hand money to the property sellers. Typically, earnest money is the deposit that a buyer pays to the seller so that the latter will hold the property he/she intends to buy. Depending on which state the deal is taking place in, the earnest money deposit check might be kept in escrow accounts that are non-interest-bearing. They will be held here till the related deals reach closure.

Generally, the earnest money check is applied to down payments for the property sale & closing costs requirements. A real estate earnest money deposit check & the manner in which it is applied is based on the purchase agreements that the deposit supports. Generally, real-estate purchase agreements have all the details noting what will happen to the earnest money deposit that the buyer has made, under different scenarios.

Earnest Money Amounts

In very hot markets, most real estate agents recommend that the earnest money deposits should be for 2-3% of the actual offer that is being made. In slower markets, the earnest money deposits that sellers ask can be significantly lower. Deposits of $10,000 and above come with bank & lender reporting requirements & are not really advisable. It must be understood that when you tie up a large amount of money in this manner, you will not be earning any interest on it.

Earnest Money Refunds

At times, property sellers & buyers make incorrect assumptions about these deposits. Some property sellers also mistakenly believe that if a sale fails, it automatically gives them a right to the earnest money check. Similarly, some buyers presume that even if the deal fails, they will get back all their earnest money. The fact is that in most real estate deals that fail, earnest money deposits that the buyers have made; end up with them, but the cancellation fees get deducted from the amount. Most property purchase agreements make note of when this money is refunded & to whom.

The Considerations

It goes without saying that when a real estate transaction fails, both the buyer and seller end up hotly disputing the earnest money deposits. Real estate experts always recommend that a property seller should not be permitted to hold the buyers’ earnest money deposit. The title company, real estate broker or settlement/escrow agent involved in the property sale holds these earnest money deposits. For more details about earnest money and mortgages, contact ResMac Home Loans.

 

Renting vs Buying A Home

When you are choosing between buying a home and renting, there are a number of things you will have to take into consideration. This debate is a never-ending one and some people will swear that buying a house makes more sense from the perspective of an investment, while there are some who will say that renting is the way to go. There are definitely some tax advantages to owning real estate and you can potentially earn equity/ pay off the mortgage note after a certain number of years. Let’s take a look at the benefits of both:

Benefits of Renting:

  • The costs of acquisition are lower- Unless you are able to qualify for a zero down mortgage loan & the closing costs are paid by the seller, typically, you will invest around 3.5-7% of the purchase-price for the down payment & closing costs if you have an FHA mortgage. In case of a conventional loan that figure will be in the 13%- 23% range, in comparison to the cost of around 1 to 3 months of a rent payment.

  • Lower Qualifying Standards- FHA & some government-insured mortgage programs have much more flexible qualifying guidelines in comparison to most conventional home loan programs. But when it comes to paperwork, property management companies and most landlords do not ask for much

  • Freedom To Move – When you choose to rent, it’s also much easier to move once the contract expires. If you are new to a community, or have a job that requires you to relocate frequently, renting is a much better option

  • Lower Maintenance & Cost – When you live in a rented place the property management company will fix anything that breaks etc within 48-hours or less. You also don’t have to pay any property taxes, carry homeowners insurance or worry about rising interest rates

Benefits of Owning:

  • Dependent on HOA and county rules, you can have pets without paying hefty deposits

  • Choose the color of your walls

  • Have peace of mind security

  • Enjoy certain tax benefits

  • Have stability

  • Property will appreciate

In addition to this, your net worth increases and there is potential for earned equity. And so, both these options have certain advantages. The choice you make will be dependent on your specific situation. Contact ResMac Home Loans for more detailed information.

 

Understanding the FHA Mortgage Insurance Premium (MIP)

* Disclaimer – all information in this article is accurate as of the date this article was written *

The FHA Mortgage Insurance Premium is an important part of every FHA loan.

There are actually two types of Mortgage Insurance Premiums associated with FHA loans:

1.  Up Front Mortgage Insurance Premium (UFMIP) – financed into the total loan amount at the initial time of funding

2.  Monthly Mortgage Insurance Premium – paid monthly along with Principal, Interest, Taxes and Insurance

Conventional loans that are higher than 80% Loan-to-Value also require mortgage insurance, but at a relatively higher rate than FHA Mortgage Insurance Premiums.

Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition.

Without FHA around to insure the lender against a loss if a default occurs, high LTV loan programs such as FHA would not exist.

Calculating FHA Mortgage Insurance Premiums:

Up Front Mortgage Insurance Premium (UFMIP)

UFMIP varies based on the term of the loan and Loan-to-Value.

For most FHA loans, the UFMIP is equal to 2.25%  of the Base FHA Loan amount (effective April 5, 2010).

For Example:

>> If John purchases a home for $100,000 with 3.5% down, his base FHA loan amount would be $96,500

>> The UFMIP of 2.25% is multiplied by $96,500, equaling $2,171

>> This amount is added to the base loan, for a total FHA loan of $98,671

Monthly Mortgage Insurance (MMI):

  • Equal to .55% of the loan amount divided by 12 – when the Loan-to-Value is greater than 95% and the term is greater than 15 years
  • Equal to .50% of the loan amount divided by 12 – when the Loan-to-Value is less than or equal to 95%, and the term is greater than 15 years
  • Equal to .25% of the loan amount divided by 12 – when the Loan-to-Value is between 80% – 90%, and the term is greater than 15 years
  • No MMI when the loan to value is less than 90% on a 15 year term

The Monthly Mortgage Insurance Premium is not a permanent part of the loan, and it will drop off over time.

For mortgages with terms greater than 15 years, the MMI will be canceled when the Loan-to-Value reaches 78%, as long as the borrower has been making payments for at least 5 years.

For mortgages with terms 15 years or less and a Loan -to-Value loan to value ratios 90% or greater, the MMI will be canceled when the loan to value reaches 78%.  *There is not a 5 year requirement like there is for longer term loans.

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Related Articles – Mortgage Approval Process:

First-Time Home Buyer Credit Checklist

For a first-time home buyer, the entire process of acquiring a new mortgage can be quite overwhelming. There are a hundred details to keep in mind, various guidelines and some unavoidable hurdles that you will encounter. Since there are so many considerations, take a look at these buying first home tips and list of Do’s & Don’ts you can follow right through the mortgage approval process and it might help in easing smoothening the path a bit:

 

DO:

  • Continue working at the job you are at

  • Keep all your accounts updated

  • Ensure that you make all your house/rent payments on schedule

  • Ensure that your insurance payments are current

  • Maintain a steady credit – bad credit negatively impacts a loan approval

  • Call Res Mac Home Loans if you need any questions answered

DON’T:

  • Make any major purchases such as a boat, car, home theatre, jet ski etc

  • Open any new credit cards

  • Apply for additional credit

  • Transfer balances from 1 bank account to any other

  • Take out loans for furniture

  • Pay off any collections or charge-off accounts

  • Close any of your credit cards

  • Max-out on credit cards

  • Consolidate your credit debt

Maintain Your Credit- worthiness

One of the most important buying first home tips is that when you are in the midst of applying for a new mortgage, your financial status should be stable till the point your loan gets funded & recorded. Any bad credit/ the inability to make the required down payment can put a damper on your home buying plans. Looking at your credit-worthiness and ensuring that it stays that way is the best way to eliminate some of the uncertainty surrounding the approval of your loan.

There could be instances where even certain minor changes can have a negative impact on your credit rating which could lead to your loan being denied. It’s also important that you get the smallest of doubts about the loan process cleared with your loan officer and maintain a simple buying first home guide. This will go a long way in making your loan approval successful. Speak with experts at ResMac Home Loans for any other information you need.

 

Making Sure Your Cash-To-Close Comes From The Proper Source

The loan closing process is very important and there are a number of aspects that have to fall into place. It is crucial that you provide all the proper asset documentation as well as information about the source of the funds. If you use the incorrect checking account for your down payment, there is a possibility of your loan being denied, even if all the final documents have been signed; and this can be a truly frustrating situation to be in.

Acceptable Sources

Seasoning of your down payment money is almost as important as its source. This is exactly why underwriters need a minimum of 2 months of bank or asset statements right at the start of the approval process. These are some of the acceptable sources of a down payment:

  • Bank Accounts- either savings or checking

  • Investment Accounts- mutual funds or money market

  • Retirement Funds- It’s important for you to keep in mind that when you borrow against a 401K plan, a repayment will be required. This will be calculated based on the Debt-to-Income Ratio

  • Gifts – It is possible for family members to gift the down payment funds (certain restrictions apply)

  • Trust/ Inheritance Funds

  • Life Insurance- Cash value & face amount

  • Government Grants- A number of state, county & city agencies offer certain special down-payment assistance programs

Things to Remember

As a borrower, it is important for you to make sure that your loan officer has been provided complete information about the down payment. This information should go to him very early in the process. This ensures all the required questions, documentation & explanations are reviewed or approved by the underwriter. A good rule to keep in mind that all the funds you are using for the down payment should be pre-approved by the underwriter right at the start of the approval process.

Very simply, if you forget to deposit the required money in your checking-account while you are heading to the closing appointment, it will not be acceptable to get any cashier’s check from a friend, for this purpose. Always make sure that your cash-to-close has come from the proper source. It will save you a lot of trouble and frustration during the closing process. Contact ResMac Home Loans for all mortgage-related information.

 

Talk the Talk – Know the Mortgage Lingo at Closing

Know the Mortgage Lingo at Closing

Most borrowers are completely at bay about the closing process- Sure they sign all the documents but when it comes to understanding what stage the process is in, they simply nod and smile through it all. You trust your real estate & mortgage team to do everything right, but its also important to understand the terminology that is being used. Here is some of the common lingo that is used at closing.

  • Docs Sent- Buyers are always very stressed out during the approval process and are eager to know whether they meet all the qualification requirements that have been laid-out by the lender. If you hear the term docs sent- it means you have made it and that the closing department has sent all the approved paperwork on to the closing agent- the title company or an attorney.

  • Docs Signed- This means the documents have been signed. This includes all the paperwork between the lender and borrower and will have details like the contracts and terms of the loan

  • Funded – It means that the funds have now been transferred from the lender to the concerned lending agent (with all the disclosures that are required). In the case of a home purchase, if the closing has taken place in the morning, the funds will be sent that same day. If the closing takes place in the afternoon, the fund transfer will take place the following day.

  • Recorded – This is related to the recording the deed transfers title or the legal ownership of that property to the buyer. The transaction will be recorded by the attorney or the title company, in the county register of the area where the property is located. This generally takes place soon after closing.

Gaining Clarity

It helps to understand the closing lingo as it gives you more clarity about what exactly is taking place and you will be feel a little less lost with the entire closing process. The more clarity you have, the more confident you will be while speaking with the different parties involved in the process. You can also contact ResMac Home Loans for more information about application approval and to understand what the modalities are.

 

How Do Mortgage Companies Value A Property That Has Not Been Built Yet?

It’s obviously easier to picture the process of estimating value on an existing property in a neighborhood that has a history of home sales, but the task of determining the value on new construction projects does pose some challenges.

Appraisals on homes that haven’t been built yet generally require the contractor and home buyer to supply more documentation in order to get a more accurate estimate of the property’s value.

The main purpose of this article is to give an overview of the appraisal process for a home buyer that is building a home vs purchasing standing inventory.

For some, building a new home can be both exciting and overwhelming.  Watching a project transform from idea to completed home with a front yard, white picket fence and a custom red front door is a rewarding experience.

Even if you are paying attention to all of the information from the beginning, there are still several details that have a tendency to catch even experienced builders off guard.

Game time decisions have to be made as cabinets and corners line up differently than the initial drawing could show, flooring doesn’t match the wall colors, or the sun hits a window the wrong way at dinner time.

While the last minute updates may cost you more money, they might also have an impact on the value of the property.

What Does An Appraiser Need For New Construction?

Plans –

The plans or construction drawings are usually done by your builder or architect. It lays out the floor plan of your home, sizes of rooms and square footage of your home.

They should include a floor plan layout, front elevation, real elevation & side elevations, mechanical and electrical details.

Specifications / Descriptions Of Material –

A “Spec” sheet has the type of construction materials you will be using. For example, whether your home will be built with standard 2 x 4’s or 2 x 6’s.

It also contains the type of insulation, roofing and exterior products that will be used in the construction, as well as floors, counter tops and appliances for the inside dressing.

Cost Breakdown –

The document that breaks down all of the costs associated with the construction, including land, building materials and labor.

A lender can generally provide you with blank forms for the spec and cost breakdown if your builder does not have them.

Plot Plan –

Shows where your home will sit on the site, any accessory buildings, well and septic locations, if applicable, and the finish grade elevations and direction of the drainage.

Once the lender has obtained the above information from you, they will forward a copy to the appraiser. It is the appraiser’s job to determine what the future value of the home will be once it is completed, per your plans, specs & cost breakdown.

Even though an appraiser will use the cost approach in the appraisal report, it is not the value that will ultimately be used by the lender.  The market approach to value, which uses existing sales of homes similar in size, quality, construction and location is the most common approach that lenders want for new construction.

The more complete and detailed your plans, specifications and cost breakdowns are, the more accurate your appraisal will be.

Once your home is complete, the appraiser will be asked to go out and inspect the home. They will report back to the lender what they have found, whether your home was completed according to the plans and specifications originally given, and if the value is the same as originally given in the report.

Sometimes the value has to be adjusted due to changes that were made during construction which may have affected the value of the home.

…..

Frequently Asked Questions:

Q:  Where can I obtain a set of plans?

Most builders have basic plans they work from, and make modifications specific to their clients’ needs. When building a custom home, it’s generally a good idea to work with a reputable architect.

Q:  Is there a form I can use for the list of specifications?

Yes, HUD has a generic form that most lenders use and it will give the appraiser most of the details they need to complete your appraisal. Anything not listed on this form can be added by you separately on an additional sheet.

Q:  Can I use my contract with the builder for the cost breakdown sheet?

In most cases, the lender will accept the contract, however, they will want the builder to provide a cost breakdown to ensure that the builder has accurately bid your home.

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Related Appraisal Articles:

HOA Hurdles to be Aware of When Looking at New Properties

A HOA can have a significant impact on your decision to purchase a new home in a Condominium Project or a Planned Unit Development (PUD). When you plan on moving into a new housing development or a condo, you are required to sign-off the required HOA agreement that specifies all the rules of that development. When you are purchasing a home, the HOA is something that gets a little sidelined.

Its only when you actually move into your new home and settle in comfortably that you realize, a number of rules and regulations laid out by the HOA can be very restrictive. You might find that there are a rules you might not be able to adhere to. These are 7 things you should watch out for in the HOA agreement:

  • Home Businesses- If you plan on the working from home – maybe run a daycare center or your law office, if the HOA does not permit any kind of commercial activity in your residence, you will be compelled to look for office space outside

  • Restrictions on Animals- Some homeowners associations have a restriction on the number of pets you can have in your home, as well as the kind of pets you can keep

  • Clothes Lines- This seems like a very unlikely one. If you prefer to sun-dry your clothes, you will have to ensure that the place you live in has no restrictions around having clothes lines strung in the yard.

  • Nighttime noise or Nuisance Rules- Regardless of the lifestyle you follow, if you live in a place where there are time restrictions on playing loud music, you will have to fall in line with the rules

  • Limitation on Leasing-out your Home- A number of HOA’s requires that the units on the premises be owner-occupied. If you have acquired that particular home specifically as an investment, this will pose a problem for you

  • Patio Prohibitions- Some HOA’s also prohibit you from using patios to store boxes and bikes and you might also be required to dispose of any dead plants

  • Carpeting- Hardwood floors tend to carry sounds and a number of HOA’s require that home owners carpet a certain percentage of their floors. You will have to ensure that the carpeting is in all the right places

It is up to you to decide whether the terms that have been laid out in the HOA work for you or not. But it is important that you be aware of these restrictions before you buy any property. For more information, contact ResMac Home Loans.

 

Assembling Your Home Buying Team – Knowing The Players

Choosing a Home-buying Team

Buying a first home can be a complex process and there are a number of steps involved. The good news is that there are many professionals who can help and guide you through the mortgage approval process. These are the different professionals who will play a role in the home buying process. But it has to be understood all of them will not be involved in every stage. Your home buying team may include:

  • Real estate professional

  • Housing counselor

  • Attorney

  • Lender

  • Escrow officer

  • Housing inspector

  • Title insurance officer

  • Insurance agent

  • Surveyor

  • Appraiser

Important Functions

These are the different professionals you may have to deal with in the mortgage approval process. There will always be situations in which you will need and seek some impartial advice. This is where a housing counselor comes into the picture. These counselors work with nonprofit organizations and can provide one-on-one counseling sessions as required. They may also be able to provide you with information about the process involved in buying a home online.

Getting the Right Advice

There are so many different professionals that you will be hiring & working with right through the home-buying process that you will definitely want someone to support you and provide you with some sound and impartial advice. The real-estate agent plays a very crucial role in the entire process and he/she is trained to sell properties. The person will provide you complete information about the type of properties that are available and will look for something that falls within your budget.

Legal and Insurance Professionals

If you are getting a mortgage loan, you will go to a lender, complete the application form and give the lender all the information and paperwork they require. The lender will then check all the documentation and decide whether you are a good credit-risk. In certain states, it is a legal requirement that the real estate contract be written by a lawyer.

Attorneys will also review the terms of the documents that are being signed or help in settling disputes, if any. In addition to all these professionals, the escrow officer, the Title Insurance Officer, the housing inspector, Appraiser, Surveyor and the Insurance Agent will have a role to play at some point of the mortgage approval process. You should get all the information you can from them and understand the scope of their job while you are buying a first home. Call ResMac Home Loans for knowing more about how to get the best home buying team.