Financial Planning

Tips To Avoid Mishaps on a Mortgage Application

Tip 1: Try not to move cash around.

During the loan application process, your First Home Mortgage loan experts will have to verify all the income and assets listed as part of your application. Moving these assets around can create a paper trail nightmare. The best advice is to leave everything where it is and discuss any changes you wish to make with First Home Mortgage Loan Officer.

Tip 2: Document large deposits.

Your First Home Mortgage Loan Officer will have to verify all sources of funds for the transaction. We’ll be looking at any large deposits into your asset accounts (checking, savings, money market, etc.). You should be prepared to document all sources — perhaps a copy of a paycheck, bonus check, money from the sale of an asset, etc.

Tip 3: Selling something?

If you’re selling a large asset, such as a car, antique, baseball card collection to come up with the cash for closing, please document the sale. Keep everything, including the check the buyer gives you, car title or a bill of sale. Sometimes you’ll even need to get a certified appraisal of the item. Talk to your First Home Mortgage Loan Officer if you have questions.

Tip 4: Document gifts appropriately

Large cash gifts from relatives are very common when purchasing a home. If you are anticipating receiving a cash gift from a relative toward the purchase of your home, please notify your First Home Mortgage Loan Officer. Also refer to the Gift Letter form found in the First Home Mortgage document library.

Tip 5: Save everything!

Become a paper hound. Keep all of your bank statements, pay stubs, tax returns, along with any W-2s, 1099s or K-1s and any other financial papers from the past two years in a handy place. If you sold a home in the past two years, have your (HUD-1) Settlement Sheet handy. Try to create a file where you can consolidate all of your financial paperwork for easy access. When in doubt, just pop it in the folder. You never know when you may have to produce an item that you did not expect.

Tip 6: Avoid new lines of credit

It is a good idea to avoid any new sources of credit as it will materially change your credit report. Additionally, if you’re planning to pay off major credit debt before closing, hold off until you’ve spoken to your First Home Mortgage Loan Officer. We may be able to pay off those debts at closing without affecting the application process.

Tip 7: Review your credit report

The best way to get a jump start on your mortgage application process is to know what your creditors are saying about you. Request a free credit review with your First Home Mortgage loan officer.

Tip 8: Tell us about a new job

Making a career move? Make sure your First Home Mortgage Loan Officer knows about it as soon as possible so that we can ensure all appropriate changes are made to the loan application.

Credit Scores & Credit Reports- Things That Hurt and Things That Help

Ever wondered exactly how the credit reports and credit scores could effect you? Here is a simplified breakdown of what can help you and hurt you regarding your credit.

Credit Score Model
• Scores are Somewhat Counter Intuitive
• 30% of your score is based on Balance to Limits
-Individually & Cumulatively
-Balances normally reported at month End.
• Closing Accounts could hurt credit scores
• Recent Negative Information could be Damaging
-Paying off 5 year old charge off becomes recent and could damage credit rating.

What Can Consumers Do?
• Keep balances low to credit limits
• Some credit issuers don’t issue limits
-Dispute all bureaus to get issuer to report
• Monthly accounts like American Express will demonstrate high balance over time
• Review person credit reports regularly

Annual Credit Reports
• New Federal law provides for annual credit reports
-www.annualcreditreports.com
-Available Annually, Quarterly

Rapid Re-Score
• Independent Credit Re-sellers can provide updated scores based on corrected information
• Most re-sellers part of NCRA or National Credit Reporting Association www.ncra.org
• Potential increases 20-100 points
• Cost ranges from $75 to several hundred dollars based on trade lines involved

Identity Theft
• Identity Theft is the fastest growing While Color Crime
• Can drive scores from 700+ to 580
• It is time consuming to resolve
• Cost incurred can be extensive
• Check your credit report regularly
• Be aware of inquires from Out of the Area
• Dispute with Grantor immediately and file a fraud alert , police report or fraud affidavit
• You may have to file suit to get the identify theft resolved

What about Inquiries
• You can shop for 45 days with a hard inquiry, Mortgage, Auto, etc
• Inquiries pulled from consumer do not count against you

Who else wants to know your Score?
• Employers view credit reports as inexpensive background checks
• Insurance Industry- if under financial stress you may be more prone to cause loss for insurance company- increase rates
• Mortgage Insurance Premiums can be impacted by scores, positively or negatively

Should I Lock or Float My Mortgage Interest Rate?

When shopping for a mortgage, what is the best time to float your rate and when should you lock it in? The answer to this question depends on two things:

1. Your objective – if you are buying a home, would your chances to qualify for the loan be jeopardized if interest rates rose? If you are refinancing, will the current interest rate save you a significant sum of money?

2. Your tolerance for risk – floating an interest rate can benefit a client in two ways. First, if rates were to fall, the client could lock a lower rate. Second, if a client chooses to wait until just before the closing date to lock the rate, often times the loan officer can give the client a small break on costs because the mortgage company doesn’t have to take on the risk of managing the lock. So, if you’re willing to risk the possibility of interest rates rising, it may pay off via a lower rate or lower costs. If you don’t like the idea of taking that risk – lock the rate.

What is a Rate Lock?

A rate lock is a pledge between lender and client that guarantees the loan at a specified interest rate. The lender and client have a window of time, usually 15, 30,45, or 60 days, to close the loan. The shorter the lock period, the better things look from a financial point of view. Locking a rate means the lender now has taken on the risk.

However, don’t confuse a rate quote with a rate lock. Just because a lender gives you a rate quote doesn’t mean you’ve locked in at that rate. This is a common mistake many prospective borrowers make. Make sure you are crystal clear as to whether you’re locked or not and, if you are locked, what the rate and terms are. Get it in writing.

What Does It Mean to Float?

Floating means you are willing to take the risk that interest rates will either not go up or that they will fall. If rates have been dropping, then you might want to take a chance that rates will be lower by the time you close your loan than they are today.

Here’s some practical wisdom from Bob Walters, chief economist, “Far too many people, who couldn’t have cared less about interest rates before, become obsessed with rates while they are in process with a mortgage company. The reality is that, while we’d all love to time the market perfectly, it’s extraordinarily difficult to do. If the loan, at the quoted rate, makes sense – lock it in. Leave the rate prognostication to the bond traders.”

Short Term Loans Now Available to First Time Borrowers

WASHINGTON (MarketWatch) — Federal Housing Administration-approved lenders can now provide short-term loans to first-time borrowers eligible for the $8,000 home buyer tax credit.

But under guidance issued by the Department of Housing and Urban Development late last week, the loans must be on top of — not instead of — the minimum 3.5% down payment normally required on FHA-insured loans.

Buyers can still receive down-payment assistance from their parents, employers, nonprofit groups and certain government entities. But other than that, the down payment must come from their own funds.
Thus, FHA borrowers relying on the lender to finance the tax credit will have to come up with their own money for the 3.5% down payment. But after that, they can use the proceeds from the short-term loans to increase their down payments, cover their closing costs or buy-down their mortgage rate.

HUD did not estimate how many FHA buyers would benefit from tax-credit advances, which cannot result in cash back to the borrowers, cannot exceed the total amount needed for the down payment and closing costs and may not be for more than the anticipated tax credit due the borrowers.

To prevent third-party down-payment assistance outfits from “buying” the tax credit refunds from borrowers, the rules state that the buyer’s down payment may not consist of any funds provided by the mortgagee, the seller or any other person that financially benefits from the transaction. That prohibition specifically includes third-party entities that are reimbursed, directly or indirectly, by anyone benefiting from the deal.

HUD didn’t want to do anything that would allow “these seller-funded schemes back in,” a senior HUD official said at a briefing on the program. The department also plans to monitor the purchase of tax-credit transactions closely, warning that missteps would result in referral to HUD’s Mortgage Review Board, the Federal Trade Commission or the appropriate state attorney general’s office for disciplinary action.

When Should I Begin Thinking About Long Term Care Insurance?

We are discussing the costs and benefits of long term care insurance this week. Did you know that 1 in 2 people will need some form of long term care insurance at some point? This type of insurance can be the difference between ending up at home rather than in a nursing home. If you have any other questions regarding whether you should be considering long term care insurance contact me at jim@jimbigelow.com or John at john.buchanan@countryfinancial.com.

How Will my Mortgage Lender Calculate my Income???

When you shop for a mortgage or other loan, one of the key factors a lender will take into consideration before granting approval is your debt-to-income ratio. This is the ratio between how much you owe each month on personal debt and how much you earn. This ratio calculates the percentage of debt you are carrying in relation to how much money you are making and gives lenders a good indication of how much additional debt you’ll be able to handle.

What documentation do I need to present to my lender when pre-qualifying for a home?

If you are a W-2 Wage earner you will need 30 days worth of pay stubs that will show YTD income and last 2 years W-2’s.

If you earn overtime at your current job then you must have consistently been receiving overtime for the past 2 years in order for a lender to count this into your gross monthly income. Overtime must continue. An average of the last 2 years W-2’s and current YTD income will be used to calculate income and overtime.

If you are self employed you need to be self employed for the past 2 years and provide the lender with last 2 years complete tax returns (all pages) If you have an s-corp., c-corp. or partnership then the last 2 years complete tax returns will be required to calculate income. Mortgage lenders look at adjusted gross income plus a few other line items to determine your actual monthly income. Mortgage lending does not go off gross receipts of a business but focus on the amount you actually pay taxes on for calculating gross monthly income.

If you receive child support, you must provide your filed divorce decree. 3 more years of receiving this income must remain for an underwriter to count this income as part as your monthly income. You must also provide 12 months canceled checks to prove that you have been receiving child support income.

If you are a 1099 employee then you are technically self employed because taxes are not taken out of your income. Therefore, just like a self employed individual you must provide last 2 years tax returns.

If you have a job gap over 30 days the your lender may require a letter of explanation be added to the file and if you are starting a new job then at least 30 days of paystubs are required OR your employer must provide an irrevocable contract for the underwriter to review and determine income.

Since income is a big factor in loan approval then I suggest having this information up front at the time of application so you know exactly how much income will be allowed or calculated for your mortgage loan.

Financial Planning

John Buchanan Jr.
Country Insurance & Financial Services
918-693-8820

Jim Bigelow Bigelow Group Realtors 918-640-4657
www.jimbigelow.com jim@jimbigelow.com
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