TOTAL DEBT CANNOT BE TOO EXCESSIVE

When a loan officer runs your information to get you pre-approved, one of the first things they get from your credit report are your total debts and anything else you are obligated to pay each month.  They then factor this with your proposed monthly PITI payment (Principle, Interest, Taxes, Insurance) to get what is known as the “Debt-To-Income” ratio.  This ratio represents how much you will be paying each month compared to how much money you actually bring in.  Your total payments (including credit cards, student loans, car payments etc.) should not exceed more than thirty-six percent of your income.

APPRAISAL

When you get a loan, the note itself is secured by the actual property you buy.  This means that if you don’t pay your mortgage the bank can foreclose on you.  In order to insure that the house is actually worth what you paid, the bank will order an accurate appraisal, which insures to them that they can again sell the property for the same price if this happens.

RESERVES

Lenders will often look at how much money you have in your bank account at the time you are requesting a home loan.  This shows to them that you can still afford to make a payment if you end up losing your job or not making any money in a particular month.  Reserves can include retirement funds or even a 401k savings plan.

PMI

PMI, which is Private Mortgage Insurance, protects the lender in case you default.  This means that a portion of your monthly payment will go directly to the bank as insurance.  In essence it really doesn’t help you at all, and you can’t ever get it back.  Luckily, though, PMI goes away when you reach 20% of your total principle.  (PMI is not included in your loan if you put at least 20% down)

DOWN PAYMENT

You can’t make a down payment for a home loan with someone else’s money, a credit card, or another loan.  If you are interested in doing an FHA loan, you are guaranteed to pay at least 3.5% of the sales price as a down payment.  So if you are looking to get a mortgage for $100,000 you can expect to need at least $3500 to close.  That being said, there are also other closing costs that you can expect to bring as well.  The point being, don’t expect to get a mortgage for free these days, because it just isn’t going to happen.

GOOD OVERALL CREDIT (FICO SCORE)

As mentioned earlier, the most important thing to consider when getting pre-approved for a loan is your credit score.  A high FICO score will entitle you to the lowest rates, a mid level score will entitle you to average rates and a poor score will disqualify you from getting a mortgage at all in many cases.  Don’t worry though, as credit repair specialists can help you out to get your score up in most cases.

Lenders will verify everything aforementioned, including a re-verification of your employment before they allow you to close.  It all may seem a little excessive, but it’s just what happens and there is no way around it unless you have the capability to pay for the whole house in cash.

So, if you have any questions about getting pre-approved or need information about getting your credit score up legitimately, don’t hesitate to CONTACT US and we will get back to you as soon as possible.  If you would like us to review your situation just fill out our QUICK LOAN APPLICATION.

Fortunately, though, there may be new life being breathed into the program as we speak.  Just earlier this week, Shelley Moore Capito (R-W.Va) introduced a new bill that would keep the Rural Housing loan guarantee program afloat, at least for a little while.  Capito, who is the Ranking Republican Member of the House Financial Services Subcommittee on Housing and Community Opportunity, introduced the legislation (called H.R. 5003, The Rural Housing Improvement Act) to the House Financial Services Committee on Wednesday.  The bill is being introduced in an effort to ensure that responsible families in rural communities continue to have access to the credit market to finance their homes.

“I have received hundreds of letters, emails and calls from my constituents, including home buyers and sellers, who are concerned that the 502 loan guarantee program will soon run out of funds,” said Capito.  “My legislation would continue to assist thousands of responsible, low to moderate income (people) who otherwise wouldn’t have access to home ownership.” See the official press release here.

There is no word as of yet how the bill was recieved, but we will definitely keep you posted as soon as we hear anything.  Let’s hope these loans stay available to the consumers!  What do YOU think?

If you have any questions about the USDA RD Loan (or just want to talk about mortgages with someone) don’t hesitate to CONTACT US and we will get back to you asap!

Fortunately though, there is a new program available from the United States Department of Agriculture that offers 100% financing for people that live (or are looking to live) in rural areas.

Why would they do this?  Is it too good to be true?  Well, long story short, the government offers the option of “zero money down” so that people who live in rural areas (who may have always been renters) can finally have access to affordable mortgages. Consequently, this type of loan is often the best scenario for people who live in the country and want to find a place they can call home. 

Another amazing feature of this loan is that 100% of repairs that need to be made to the property can actually be finance into the loan based on “after repair value.”  What this means is that the USDA Rural Development Loan can also be considered a renovation loan as well.  Because of all these qualities, these loans are quite possibly the best option on the market today. 

So you may be asking, what features does this type of financing entail?  What can I do to make this work for ME?  Well, here are some of the benefits of the USDA Rural Development Loan:

- NOT ONLY FOR FIRST TIME HOME BUYERS - This isn’t like the tax credit!

- LOW INTEREST RATES – Just because you are getting a good deal doesn’t mean you will pay more over the long run.  Rates on these loans are generally better than VA and similar to FHA.

- NO PMI (MORTGAGE INSURANCE) - This makes your monthly payment even lower.

- NO LIMIT ON PURCHASE PRICE - Buy what you want!  (Property must still be reasonable for your income)

- NO MINIMUM FICO SCORE- People that have zero credit history may even qualify.  Those with a credit histoty should have a reasonably good score.  Call for more details.

- SELLER CONCESSIONS UP TO 6% - What this means is that the person selling the house can pay for all or some of your closing costs, which saves you even more money.

- NO CASH RESERVES REQUIRED - Most loan programs require you to have a certain amount of money saved up before you can purchase a home.  This is not the case with the USDA Rural Development Loan.

- 100% FINANCING!!! - NO DOWN PAYMENT IS REQUIRED.  That’s right. NO DOWN PAYMENT.

So next is the issue of actually qualifying for the loan.  Here’s what you need to do, and some of the main requirements involved:

 - You must be a legal US citizen or legal permanent resident.

 - Your income must qualify for the house or property you desire.  As a point of reference, your mortgage payment should not exceed 29% of your gross monthly income.

 - The property must be used as a residence (no farms or commerical deals).

 - You can’t already own a suitable residence in the same area as your proposed new property.

 - Your total family income should not be more than 115% of the median United States income.

Probably the biggest requirement for this type of loan is that the property MUST be in a qualified rural area.  What constitutes a qualified rural area? Well, mostly this has to do with Income and Population Density restrictions, but you may be surprised to find out just how many areas around Dallas and Fort Worth in fact qualify.  As always, you can call or CONTACT US and we will review your situation and see if you (or a house you desire) qualifies.  (free of charge too!) 

Well, the reason for this is Private Mortgage Insurance, or PMI, and if it ends up that you are unable to make a down payment of at least 20% of the sale price, you’ll be required to obtain private mortgage insurance from your lender. But what is PMI, and why are you paying for it?

In the most basic sense, PMI protects the lender in the event that you default on your mortgage. Unfortunately though, it doesn’t protect you from anything. How much you will pay in PMI charges will vary depending on the size of your loan, the size of your down payment, and even the lender you use. Generally, the charge is equal to about one-half of one percent.

For example, let’s say you bought a home for $100,000 and were only able to put down a total of ten% ($10,000).  The loan amount would be $90,000 and the lender would calculate you monthly PMI by multiplying $90,000 by 0.005.  The end result would be an annual PMI charge of $450, which would add an additional $38 (approximately) to your monthly bill. But that’s enough math.  Let’s talk about how long you actually have to pay for PMI.  This is where the 20% comes in.

Luckily for you, PMI isn’t charged forever.  In most all cases, PMI is automatically dropped from your loan once you have paid down you principle balance by 20%. If you’re close to reaching this figure, it is worth calling your loan servicer and making sure your PMI is removed at this point. Also, luckily for you, if your home appreciates to the point where  your equity is over twenty percent, you can have the PMI charges dropped too. Obviously you will need a new appraisal to get this accomplished (which will run you a few hundred dollars) but you will quickly make that back by having your monthly payment reduced, if you do in fact proved that your home’s value has increased.

You should also be aware that, while the interest you pay on your mortgage is usually tax-deductible, PMI is not.

So what happens if you simply cannot afford to put 20% down on your mortgage and you really just don’t want to pay PMI? Well, fortunately there are a couple of options at your disposal.

TIPS FOR AVOIDING PMI

The main way to avoid paying for PMI to take out an “80-10-10″ loan, which involves getting two mortgages rolled into one.  The main loan would be 80% of the total sales price, the second mortgage would be 10%, and the last 10% would be your down payment.  It is likely that your second mortgage would have a slightly higher interest rate, but since the amount you are borrowing is much less, it would still be lower than paying one single mortgage with PMI.  You also could see additional savings because all of your interest would be tax deductible.  Yay!

Another way to get around paying for PMI is to take out a loan with a higher interest rate. Most lenders will agree to waive this charge if you pay the higher rate until your equity gets to 20%.  Once you reach that mark, your interest rate would be lowered.

The rate increase you would see will typically range anywhere from 0.5 to 1 percentage point.  Usually the higher your down payment, the lower the increase.  Again, the advantage to doing this is that the added interest is tax-deductible.

So in conclusion, PMI is just one of those things you are probably going to have to deal with if you are taking out a home loan and don’t have enough cash on hand to make a down payment of at least 20%. But don’t worry, probably anyone you know that has a house has had to deal with it.  And like I said, it automatically goes away when you pay down your mortgage enough.

As always, if you have any questions about PMI, don’t hesitate to CONTACT US and we will get back to you as soon as possible!

- Pate

If you would like us to review your situation and give you an estimate of what closing costs you may encounter, please feel free to contact us.  If not, feel free to read the rest of the article!

Continued: Some of these closing costs are charged by the mortgage company itself, while others are payable to various parties. Here’s a little breakdown on some of the fees you may be charged, and who’s getting your money.

One of the first fees you’re going to run into is the Application Fee. This is charged when you fill out your initial application (the 1003) and is non-refundable. This covers the costs your lender pays in regard to paperwork, or maybe even your credit report when you got pre-approved.

Next is the Loan Origination Fee, which is charged by the lender to cover all the costs that are associated with processing your loan. This also covers their administrative costs. This fee is generally charged to you in the form of “points”, where one point equals one % of the amount you are planning on borrowing.  So for example, if you are borrowing $150,000, one point is equal to $1,500.

There is actually a symbiotic relationship between “points” and the interest rate you obtain.  It is possible to find a loan that charges little or no points, but you will see this reflected to you in a higher interest rate.  You can also obtain a lower interest rate by paying extra points up front.

One fee that you will regularly encounter (and which is actually usually optional) is the home inspection fee. In the beginning phases of obtaining a home loan you will be advised to get an inspection for your new house, and it is a very smart move.  Mortgages are often stopped dead in their tracks if you get as far as the appraisal and it turns out your foundation is destroyed, or if termites have infested the property.

Next on the list is the appraisal fee.  Depending on what type of loan you are getting, your lender will more than likely require a new appraisal of the house before they fund your mortgage.  This is done because the bank wants to make absolutely certain that the house you are buying is worth the amount you are paying for it. This fee is usually anywhere from $300-$500.

Some more of your closing costs will come from paying a premium for Private Mortgage Insurance (PMI). Mortgage insurance is paid to protect the lender in case you default on your loan, and if your down payment is less than twenty percent of the purchase price, you will be required to pay this premium no matter what.  For closing, you will have to prepay a portion of this when you sign the final documents. The good news is, though, once you reach 20% of the value, the Mortgage Insurance is removed from your monthly payment automatically, saving you money!

Prepaid “per diem” interest is another fee you will encounter at closing.  You’ll have to pay this to cover the amount of interest that accrues from the time your mortgage is funded until you make your first payment.

The last few random fees you will see can be things such as messenger, recording, and notary fees. These are all commonplace and not at all unusual.

In conclusion, while all these costs may seem a little daunting, it is worth noting that they will be all listed out for you in an organized fashion when you get to your closing and are ready to sign.  A good loan officer will notify and explain to you about all these costs beforehand, so you should have a good idea of how much money to bring to closing, and what all your cash is going towards. Soon enough you will be done with the paperwork and ready to move into your new home!

If you have any questions about closing costs, don’t hesitate to CONTACT US and we can explain it to you in even better detail!