Home MortgagesQualifications and the Home Mortgage
ProcessBy: Andrew Hunt
Understand the consumer mortgage process
Know what lenders offer mortgages Know how a lender evaluates the applicants
themselves Know what private and public mortgage
insurance is Be aware of some mortgage scams
Learning Objectives
Details on mortgage types and options The secondary mortgage market (the
business side of mortgages) The subprime mortgage market
What we won’t cover
Selecting a Lender
Getting Pre-Approval
Picking the House
Getting Quotes
Lender Approval
Home Mortgage Process – Selecting a Lender
Three general types of mortgage originators◦ Portfolio loans◦ Mortgage Bankers◦ Wholesale lenders operating through broker
Large institutions may originate more than one type of loan
Size and reputation may mean more than the lowest rate
Selecting a Lender -
Home Mortgage Process –Getting Pre-Approval
Selecting a Lender
Getting Pre-Approval
Picking the House
Getting Quotes
Lender Approval
Pre-Qualification vs Pre-Approval Know your FICO score FICO ramifications of pre approval Lender determines maximum they would
lend Signals to sellers that you’re serious Can save time during closing
Getting Pre Approval
Information required for pre approval Relevant financial and work information
◦ Income Items◦ Asset Items◦ Credit Items
Details can be found @
Getting Pre Approval
http://www.realestateabc.com/loanguide/things2.htm
Home Mortgage Process –Picking the House
Selecting a Lender
Getting Pre-Approval
Picking the House
Getting Quotes
Lender Approval
Home Mortgage Process – Getting Quotes
Selecting a Lender
Getting Pre-Approval
Picking the House
Getting Quotes
Lender Approval
Simpler process with pre approval
Still room for negotiation and more details to cover
Lender can still refuse to make a loan even if buyer has a pre approval letter
Getting Quotes
Simple ratios used to determine mortgage amounts as percent of income
No more than 28% of income on monthly house payment
No more than 36% of income on all recurring debt payments
FHA limits are 31/43 28/36 Ratios becoming common again after
housing bubble burst
28/36 Ratios
Simple ratio of loan value to the assessed value of the collateral
Basically a measure of risk in the event of foreclosure
Factors involved include the down payment and mortgage insurance
Loan to Value (LTV) Ratio
Compensates the lender in the event of loss due to default
Applies when down payment < 20% Public and Private mortgage insurance
Mortgage Insurance
Public Mortgage Insurance from the Federal Housing Commission
Lasts for the life of the loan Higher in cost than private insurance Eligible with poor credit history
Mortgage Insurance - Public
Private Mortgage Insurance Must qualify Can be canceled as equity is built thanks to
Homeowner protection act of 1998 Lower in cost than public insurance
Mortgage Insurance - Private
Home Mortgage Process –Lender Approval
Selecting a Lender
Getting Pre-Approval
Picking the House
Getting Quotes
Lender Approval
Commitment Letter – Commits lender to make the loan
Applicant can still back out Commitment only lasts for a specified
period of time Fine print and rules changes may invalidate
offers
Lender Approval
Lock in loss◦ Get signed paperwork
Losing paperwork to delay the process◦ Talk to a supervisor◦ Complain to state regulators◦ Consider talking to an attorney
Rate too good to be true◦ May be high hidden fees or a teaser rate that
doesn’t last Mortgage broker paid twice
◦ Review paperwork carefully
Scams in Mortgages
Deal with reputable and stable lenders◦ Ask friends and local realtors
Keep an eye on your credit score Get paperwork in on time Know the market in your area
◦ Shop around Prepare a detailed financial biography
◦ Lenders will tell you the specific documents they require
Have enough cash to cover closing fees
Suggestions for a Smooth Mortgage
Consider a $100,000 loan at 5%
The Cost of a Mortgage
30 year Loan
15 year Loan
10 year Loan
Total Interest Monthly Payment
$93,255.78
$42,342.85
$27,278.62
$536.82
$790.79
$1,060.66
Shortening the period reduces the rate
General process of home mortgages Types of lenders Metrics that lenders use to judge applicants Types of insurance and the necessity of it Basic mortgage scams Costs of a mortgage
Review
Questions?
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