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?