Here are Mortgage DOs and DON’Ts to follow during your loan process.
Keep All Records in Good Order.
- Availability– Keep your financial records close at hand in case updates are requested.
- Income– Be aware that underwriters typically verify your income and tax documents through your employer(s), CPA, and/or IRS tax transcripts. Hold onto new paystubs as received.
- Assets– Continue saving incoming account statements. Keep all numbered pages of each statement. Ex. 8 of 8.
- Gifts– If you’re receiving any gift money from relatives, they’ll need to sign a gift letter (we’ll provide) and an account statement evidencing the source, which must be “seasoned” funds.
- Current Residence– If you’re renting, continue paying your rent on time and save proof of payment. If you’re selling your current residence, be prepared to show your HUD-1 Settlement Statement. If you’ll be renting your home, you may need to show sufficient equity, a lease and receipt of the first month’s rent and security deposit.
Keep your credit shining. Continue making payments on time. Your credit report may be pulled again, and any negative change to your score could cause you to lose your approval and your home.
Understand that things have changed. Underwriters require more documentation than in the past. Even if requests seem silly, intrusive or unnecessary, please remember that if they didn’t need it, they wouldn’t ask.
Apply for new credit. Changes in credit can cause delays, change the terms of your financing or even prevent closing. If you must open a new account (or even borrow against retirement funds), please consult with us first.
Change jobs during the process. Probationary periods, career or even status changes (such as from a salaried to a commissioned position, leave of absence or new bonus structure) can be subject to very strict rules.
Make undocumented deposits. Primarily large but sometimes even small deposits must be sourced unless they are identified. Make copies of checks and deposit slips. Keep your deposits separate and small. Avoid depositing cash.
Wait to liquidate funds from stock or retirement accounts. If you need to sell investments, do it now and document the transaction. Don’t take the risk that the market could move against you leaving you short of funds to close.
Ever be afraid to ask questions. If you’re uncertain about what you need or what you should do, I’m here to help you through the process, even long before you intend to buy.
Know what factors influence the actual rate for your loan.
Securing the lowest possible rate has less to do with scouring ads and more to do with the particulars of your transaction. Lenders typically pick the best scenario as the basis for advertisements. Unfortunately, best-case doesn’t apply to every loan.
Here are some factors that impact the interest rate for a specific loan:
Loan Level Price Adjustments (LLPAs) – Offered rates are based on LLPAs or risk factors. A high loan to value ratio (LTV) or low credit score, for example, carries higher risk and, therefore, a higher price.
Loan Type – An adjustable rate mortgage (ARM) can provide a lower starting rate vs. a fixed rate loan.
Loan Terms – Shorter terms equal lower rates as equity builds more quickly, reducing the lender’s risk.
Combined Factors – The combination of certain factors work together to impact final pricing. For instance, as credit scores improve, the rate differential for LTV changes are less pronounced.
Securing a good interest rate requires balancing the different factors for your particular scenario. Fortunately, we excel at balancing acts. Let’s work together to discover the options for you.
What is preventing you from getting that dream home you’ve been watching for the past month? Is your credit score low? Do you not have a down payment? A USDA loan may be the difference you’ve been needing.
USDA loans are guaranteed by the Rural Development Wing of the Department of Agriculture. These loans target low to moderate income families in rural areas to help them achieve their home buying goals. Some of the benefits include:
- No down payment
- Lower credit score requirements
- Verified gift funds for closing costs
- Seller paid closing costs
- Income restrictions are based on where you live
- Bankruptcy doesn’t affect you after three years
- Convenient eligibility map to see if your home’s location qualifies
USDA benefits are focused on helping rural families purchase their home. USDA and Veteran loans are the only loans to offer no down payment. This saves you thousands of dollars in upfront costs to buy a home compared to other loan programs such as FHA Loan or Conventional. Lower credit score requirements help those with less than perfect credit still purchase a new home. Closing costs are an expense we rarely think about until the process begins. USDA loans let you get a verified gift from an immediate relative, or your realtor can negotiate the seller to pay up to 6% of your loan amount towards closing costs. This reduces the amount of money needed to close your loan.
To guarantee a no down payment loan, USDA adds an upfront fee of 1% and an annual mortgage insurance of 0.35%. These charges help sustain the program for future home buyers and can be wrapped into the loan, so you don’t have to pay it out of pocket.
What makes USA Mortgage the go-to lender for your USDA loan? We have been the #1 USDA lender in Missouri for five years straight. We’ve done this by accepting lower credit scores, keeping our rates aggressive, and offering lower lender fees than other lenders. We use this to provide a better financial experience for our clients.
A simple phone call to one of our Mortgage Loan Officers could be the difference between no home and a new home. We would be glad to discuss your unique situation and cater a program for your needs.
Be sure to check out our blog for more information to help you navigate the home buying process!
Preparing in Advance Will Save You Time and Trouble Once You’ve Started Making Offers.
Provide Your Last two paystubs along with your W2s and Federal tax returns for the last two years (include all schedules). State returns are not needed. If you are self-employed, ask me for the additional documentation requirements. If you receive bonus or commission or have changed your job or position, let’s talk.
Combine all the funds needed to close into one account at least two months prior to your mortgage application. Be sure to document any other deposits here as each could be scrutinized.
Save all pages of your asset statements, even if some are blank or are just advertisements.
Make copies of checks and deposit slips to prove they are not borrowed money. Deposit checks individually. Don’t deposit cash without clear proof of the source.
If you are going to sell stocks, bonds, investments or borrow against a retirement account, do it now. Cashing out now may cost you a few dollars in additional gains, but it also protects against losses.
- If you have sold recently or will be selling a current residence, provide a copy of the HUD-1 or Closing Disclosure/Settlement Statement.
- If you own and are not selling, you’ll need to qualify for both homes or meet the requirements for renting the current
- If you are renting, show 12 months of canceled checks demonstration timely payments and/or written verification from your management company. Ideally, pay your rent on the same day each month on or prior to its due date.
- If you live with family, you may need a letter stating that you live rent-free
Check your credit reports at www.annualcreditreport.com. Identify any erroneous info now and consult with us for the correct action to take. If you co-signed a loan or are being reimbursed for a loan that’s in your name, you’ll need at least six months of checks to exclude it. Avoid new credit or inquiries. These can lower your score and increase your rate.
Ideally, you’ll have two years or more with your current employer. Consult with us before changing employers, position or method of compensation. For example, don’t switch from salary to commissions.
Rate Locks: Why do longer ones cost more?
It’s all about risk. Between the times you make application and close your Home loan, interest rates will do what they always do – change. At times, the rate of change is exceptionally volatile, even from one minute to the next. “Locking in” your interest rate protects you from the risk of rising mortgage rates. It’s just like purchasing an insurance policy.
The risk is not a one-way street, though. Protecting yourself from rising mortgage rates means you transfer that risk to the lender. In turn, lenders must purchase “hedges” to provide protection. These are financial instruments such as U.S. Treasury Bonds whose values move in the opposite direction of rates. A hedge can be expensive, and just like other forms of insurance, longer policy periods cost more. As a result, longer locks have a higher cost, which they are reflected in the cost of your loan.
Risk varies based on the type of loan. Before you decide whether to avoid or pay the premium for a longer Mortgage rate lock, take into account the kind of loans you’re considering. Different loan types may have less volatility in the rate from week-to-week. For example, an adjustable rate loan may be tied to a slow moving index rather than the day-to-day market.
No one knows with absolute certainty what interest rates will do during your application and approval process. One thing is certain: Your loan has to be locked before it can close. For many, the decision is better made based on personal comfort rather than skill in predicting the markets. If you will be most comfortable knowing you are safely locked in, then a longer lock may be less stressful than taking your chances on getting a better rate later.
Either way, we’re here and Our Mortgage loan officers are happy help.
VA Loans are mortgage loans geared specifically for active duty members and Veterans of our nation’s armed forces. In order to be eligible, you must have served a designated amount of time in the Military or in some cases surviving spouses of Veterans are eligible as well.
It is important to understand the difference between eligibility and qualification. A civilian is not eligible for the VA Mortgage Loan. A Veteran or Active duty member is eligible for the program based on their military service. From there they will still have to meet the credit and income requirements of the VA Loan Program to qualify for the purchase of a home.
The good thing about the VA Loan is that in many cases the income and credit requirements are less strict than other home loan programs. For example, here are some attractive items offered that help a potential buyer qualify for the VA home loan easier as long as they already hit the service time threshold:
- Lower required credit scores than on typical conventional loans
- Higher debt to income ratios are accepted than on typical conventional loans
- No down payment required
Now, in order to offer a no down payment loan, the VA does collect a “funding fee.” The funding fee helps sustain the program into the future so the program will continue to be available to other military members and veterans. The Funding Fee is typically included in your initial loan amount so it is not something the buyer would have to pay out of pocket.
At this point, the only other items that the buyer could be on the hook for would be closing costs and prepaid items. As long as your home loan offer is structured correctly, the seller can pay those costs for you. It is important to know that all mortgage loan programs have closing costs and prepaid items, so if we want to limit money out of the buyer’s pocket, then we need to negotiate for the seller to pay for them.
The part of the transaction that is a little bit more strict than conventional loans is that the VA requires any home that you purchase to be in “move-in ready” condition. The VA Loan program is not a program designed for someone to buy a “fixer-upper.” As part of the appraisal process to get the value of a property that a buyer is looking to purchase, the appraiser will also check to make sure all items are functioning properly, there is no damage to the home, and all building codes are being met.
While this may be viewed as a hang-up, a knowledgeable realtor should be able to show you homes that generally meet the VA guidelines upfront. If the appraiser does note any deficiencies on the property, there is still the opportunity to make corrections to those issues.
This is just a very short over here, but the main draw of this program is to help our active duty military personnel and veterans become home owners with as little money out of pocket as possible. For more details, reach out to us!
Interest Rates are Heating Up!
With the improving economy and expectations the Fed will soon change its monetary policy, mortgage rates are on the rise.
Is there an upside to higher rates? Sure. The same economic changes that bring higher mortgage interest rates bring higher home values, too!
Before, you enjoyed a low mortgage rate but no appreciation in home value.
Now, you pay a slightly higher interest rate expense while earning what could be thousands more through rising values.
Which do you think is better?
Want to take action before it gets any hotter?
Reach out and we’ll be happy to help!
If you are a first-time homebuyer with limited amounts of funds to put towards your purchase, or if you have had credit problems in the past, you may find that an FHA loan gives you the freedom and flexibility you need to get into a house and start making it a home for your family.
If you are looking to buy your first home, then you owe it to yourself to check out the loans offered by the Federal Housing Administration (FHA). These loans can offer significant benefits designed to help you achieve the dream of owning your own home. Designed with first-time homebuyers in mind, the FHA has designed these loans not only to be competitive in the mortgage marketplace, but also easier for you to qualify for if you are having problems getting a loan from a typical mortgage lender on terms you can live with.
FHA fixed / adjustable rate
The FHA offers several types of loans; these include traditional fixed rate loans as well as adjustable rate loans. One of the benefits of a FHA adjustable rate mortgage is they guarantee the interest rate on your loan will only change at most by one or two percentage points – no sudden surprises and massive jumps that may knock you off balance financially.
FHA Purchase/Rehabilitation loan
They also offer a type of loan known as a purchase/rehabilitation loan that allows you to buy a home that needs a lot of work done to it. The loan combines the purchase price of the home plus the cost of doing the repairs to the home. No more having to take out a mortgage loan and then worrying about where you will find the money to fix the house up to make it your dream home. In fact, by doing a lot of the work yourself many home buyers find they can easily afford to get more home than they could buying one that is ready to move into.
Another big benefit of FHA loans is that they typically don’t require as large of a down payment as a conventional mortgage loan would. They also offer loans to those whose credit may otherwise disqualify them for a convention mortgage. In addition, the interest on an FHA loan is typically lower for those with less than perfect credit than it would be through a conventional loan program.
FHA Loan-approved lenders
It is important to know that the FHA itself does not lend you the money for the home and it does not set the interest rates on the loans. The FHA is actually insuring the loan you are getting from a traditional lender.
They are guaranteeing if you default, they will pay for your loan. FHA-approved lenders therefore typically offer loans with better interest rates and less of a down payment because they are guaranteed they will get their money back no matter what may happen in the future.
One easy way for most people to understand how the FHA works is by thinking back to when they were in college. If you took out a student loan while in college it was guaranteed by the federal government that they would step in and repay it should you default on the loan. As such, interest rates were typically low and standard across the board and the loans were available to everyone regardless of their credit history. The same holds true with FHA backed loans, except there is no guarantee on interest – it is up to you to still make sure you are getting the best deal out there.
Rising Mortgage Rates and Affordability:
How Much Can You Finance with $960/Month?
As rates rise, affordability dwindles. If you want more home for the same monthly payment, acting before mortgage rates rise further may be a direct path to success.
Each example here shows the principal and interest payment for a 30-year, fixed-rate loan.
1- Loan of $180,000
Interest rate: 5.00% / 5.27% APR
Payment = $966
2- Loan of $200,000
Interest rate: 4.00% / 4.25% APR
Payment = $955
3- Loan of $160,000
Interest rate: 6.00% / 6.29% APR
Payment = $959
It’s pretty amazing that a rate increase of just 2% can impact affordability by as much as $40,000. Mortgage Rates have been artificially low for some time now due to Fed intervention. As this stimulus is removed, the usual result is for rates to rise. Home Loan Rates have already started rising just in expectation of a change in Fed policy.
There are many different loan options for first time home buyers and USA Mortgage continues to find the right programs and opportunities for their clients. Below are some of the many options available:
1. MHDC Gift Money:
MHDC (Missouri Housing Development Commission) offers up to 4.5% gift money towards down-payment and closing cost for qualified first time home buyers. This is an amazing option for prospects who don’t have sufficient funds for closing or down-payment.
2. USDA Loans:
USDA isn’t a first time home buyer program but it’s a great option for someone trying to buy homes in qualified locations. Offering NO MONEY down home loan with very low interest rates and monthly funding fee, makes it a great option in our list.
3. Conventional Home Ready or Home Possible:
Both these options offer down-payments as low as 3% with lower monthly PMI. They are a great option for clients how want to put down less money but still be able to get a great loan.
4. FHA Loans:
FHA isn’t limited to first time home buyers but it does offer so many options and solutions for first time homebuyers which makes it to the top of our list. FHA loans typically tolerate lower credit scores and higher debt to incomes and are great alternatives to many other programs. The also offer very competitive rates with a reasonable monthly mortgage insurance.
Please call or email our office and talk to one of our loan officers for more information.