Mortgage Info

Mortgage Info and Programs
There are four major factors that impact what type of loan program a buyer can qualify for:

Credit History:
A prospective homebuyer’s credit has a major impact on how mortgage loans are structured and priced (rate). As a point of reference, many lenders base loan programs according to minimum FICO scores. There are three credit bureaus that companies report information about you to. A credit report containing information about you from all three of these bureaus is called a tri-merged credit report. A tri-merged credit report typically costs $15 and features a score from each bureau. Many lenders disregard the highest and lowest of these three and base their assessment of your credit by your middle FICO score. These scores range between 300 and 850. The higher the score, theoretically the less risk there is for lenders. Therefore, the best rates and best programs are generally more readily available to homebuyers with higher scores. Below you will find a general reference for FICO scores.

Above 720 Exceptional
680-720 Above Average
620-680 Average
580-620 Below Average
Below 580 Below 580
Throughout this information packet, you will find references to minimum FICO scores. If you do not know what your scores may be, I will be happy to look at your single bureau credit report for FREE.

Bottom Line: The higher your score, the better it is for you!

Job History and Income:
Many lenders look for at least a 2-year history of employment with the same company or at least in the same field of work. The more stable your employment history is, the more stable your ability to make your payments should be. Therefore, there is less risk for the lender. In addition to job history, lenders want to be able to verify your income. Income is verified by providing W-2 statements and/or tax returns for the past 2 years. The thought here is that if you really make how much money you say, then the lender should be able to verify it with your employer and/or the IRS.
Bottom Line: If your employment history is stable and your income is verifiable, the better it is for you!

Down Payment:
This one is very easy. The more you put down, the less risk there is for the lender. The most important thing to know about a down payment is this: in most cases, it needs to be seasoned. Seasoned means that the money has been in an account with your name on it for at least three months and/or you can demonstrate that you were able to save this money through some verifiable means. What lenders are looking for here is this: lenders do not want you borrowing money for your down payment. Your down payment also impacts if you pay mortgage insurance (PMI/MIP). Mortgage insurance is very simple to explain. If you buy a $100,000 house and put 3% down, your loan will be for $97,000. Let’s pretend for a moment. You stop making payments, and the lender forecloses on your house. When the lender takes the house back, it is in poor condition. Now the lender sells your old house for $80,000. The lender lost $17,000 plus costs from your foreclosure. Mortgage insurance pays the lender what they lost. The advent of mortgage insurance has allowed lenders to now feature many loan programs with little or no down payment. The amount of mortgage insurance varies from program to program and depends on the percentage of your down payment.

Bottom Line: The more you can put down, the better it is for you!

Assets and Reserves:
Lenders take into account how much money you have. This money could be in a bank account, 401k, brokerage account, IRA, net worth of a business, equity in other real estate, or any other asset. The more money that a prospective homebuyer has, the less likely they will be to fall behind in payments (in theory). The term reserves means this: if you have $8000 in total liquid assets (money in the bank, 401k, IRAÂ…) and you need $5000 to close on your new house, you will have $3000 left over for reserves. If your new payment is $1000 per month and you have $3000 in reserves, lenders say that you have 3 months of liquid reserves.

Bottom Line: The more months of liquid reserves you have, the better it is for you!

Now, let’s note a few things. If all four of these factors were written in stone and each were required to get a home loan, new subdivisions would be much smaller. These factors are presented to you to give you an idea of how lenders look at you to determine how risky you are. Look at the bottom line. If all of those bottom lines are in your favor, you can get the best deal! If none of those bottom lines are in your favor, you most likely cannot get a home loan immediately. If some of them are in your favor, then you are like most of us, and there are always programs for most of us. Regardless of your standing with these four factors, with the help of a knowledgeable professional, anyone can be put on the path to HOMEOWNERSHIP!