Category: ‘Mortgage Tips’

Lenders Only Look At Four Things Before Approving Your Home Loan.

April 20, 2015 Posted by Andre Hemmersbach

Getting a home loan is not as tough as rumor has it! The mortgage approval process simply boils down to the four basic items explained in the following few paragraphs. First time home buyers and even repeat purchasers need not be bewildered by the formulas and methods used by lenders, you just need someone to hold your hand and an expert that knows the home loan rules!

Lenders are looking for what I call the four “C”s and once you understand the concept of these basic requirements everything else starts to make sense.

  • Cash – Lenders look for “skin-in-the-game” as a way to make sure that you have a financial incentive to continue to make the mortgage payment when things get tough. The larger your down payment or equity the less they have to worry about the borrower walking away from the home loan. Minimum down payment requirements range from as little as 0% to as much as 35%

    You will need a home loan to enjoy this light filled room

    Get a home loan and then sit back and enjoy

  • Capacity – Another way of saying income. The lender wants to make sure that the borrowers have sufficient stable income to handle the mortgage, property taxes, insurance and other debts. Key words in the previous statement are SUFFICIENT and STABLE. Lenders will use a combination of pay stubs, W-2 and other documents and compare those to the only reliable source available in our financial system to prove their legitimacy….the IRS and your tax returns. The minimum requirements for income vary widely by program; lender and other factors so make sure you are working with someone that understands the rules.
  • Credit – Simply put – how have you handled other financial promises of repayment in the past? Nowadays it is easy for a lender to figure this out with a copy of your credit report and a number called a credit score. A credit score is numerical representation of your credit risk. Over 700 is good below 620 not so good. By the way there are easy ways to increase your credit score. (Call me to discuss)
  • Collateral – The property you wish to purchase. Lenders are looking for collateral (their security) to be in good shape and free of any health and safety issues. Why not a complete “fixer upper” see the cash bullet above. The lender wishes to protect a borrower from any unforeseen repairs that the borrower cannot afford. Besides the last thing a lender wants to do is to have to fix up a property after having to foreclose on a home loan.

I have been helping people finance their real estate for over 25 years. Whether you are a seasoned real estate investor or first time home buyer my experience and knowledge will insure that your home loan goes smoothly! I would be happy to meet with you for a free consultation to discuss your plans to purchase a home.

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Home Affordability Via Loan Rates

April 9, 2015 Posted by Andre Hemmersbach

Interest rates are the key factor in home affordability, not the home sales price. Home buyers mistakenly think that high real estate prices are keeping them from affording a mortgage payment, however, the biggest variable in home buyers affording a home are mortgage interest rates. (See chart below)

Given an annual income of $70,000 between a husband and wife, at the industry standard of 38% debt-to-income (DTI) ratio a couple could afford a mortgage loan of $525,700 at a rate of 3%. For every 1% increase in mortgage rates the borrower’s affordability drops another 10%. If rates were to merely raise 3% a borrower could not afford more than a home loan of $369,700.

Chart

Rate Affordability Chart

 

Please call me for a free consultation to see what size home loan you qualify for.

 

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Removing Mortgage Insurance

July 29, 2014 Posted by Andre Hemmersbach

If you secured a home loan with less than a 20 percent down payment, chances are your lender required you to purchase mortgage insurance (MI) to cover its exposure in case you default.

Once your equity position in the home reaches 20 percent however, you can in some cases, petition the lender to remove the MI. If you have an FHA-insured loan, premium payments to the government are required for a minimum of 5 years and the loan balance must be lower than 78% based on the original sales price of the property. FHA loans after June of 2013 are required to have MI for the life of the loan barring some limited exceptions.

Know your rights
By law, your lender must tell you at closing how many years and months it will take you to pay down your loan sufficiently to cancel the MI.

Most home buyers ask that MI be canceled once they pay their loan balance down to 80 percent of the home’s original appraised value. When the balance drop to 78 percent, their mortgage servicer is required to cancel mortgage insurance for them. Mortgage servicers also must give borrowers an annual statement that shows who to call for information about canceling MI.

The law does allow lenders to require MI of a high-risk borrower until the balance shrinks to 50 percent of the home’s value. You may fall into this high-risk category if you have missed mortgage payments, so make sure your payments are up to date before asking your lender to drop the MI. Lenders may require a higher equity percentage if the property has been converted to rental use.

With equity of 20 percent or greater, you have a good case to rid yourself of mortgage insurance. If you can’t persuade your lender to drop the MI, consider refinancing. If your home value has increased enough, the new lender won’t require MI. Make sure, however, that your refinance costs don’t exceed the money you save by eliminating MI.
Here are steps you can take to get out from under mortgage insurance even sooner or strengthen your negotiating position:
•Get a new appraisal: Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding if you meet the 20 percent equity threshold. The cost of an appraisal generally runs from $300 to $500.
•Prepay on your loan: Even $50 a month can mean a dramatic drop in your loan balance over time.
•Remodel: Add a room or a pool to increase your home’s market value. Then ask the lender to recalculate your loan-to-value ratio using the new value figure.

I would be happy to help review your options.

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Low Inventory Levels Help Sellers, Increase Prices

April 25, 2014 Posted by Andre Hemmersbach

Inventory levels of homes for sale in the Greater South Bay area are still at extremely low levels (see chart). Basic economic principals state that as supply dwindles prices will increase and will continue higher until buyers refuse to buy at the elevated levels and then supply increases and prices drop.

Property Inventory vs Sales Price

Greater South Bay Inventory vs Median Sales Price

Because foreclosures are currently at seven year lows, inventory during the spring and summer selling season is only expected to increase slightly.  As more buyers enter into an already saturated market, prices will most likely continue to increase. Some properties are selling within 3 days of being listed and typically at higher than the listed price. “Days On The Market” is a measure of how many days a property is for sale before going under contract (into escrow) and is a great indicator of how “hot” the real estate market is (See Chart). The less time it takes to sell the average property indicates a “Sellers’ Market” versus taking a long time to sell a property a “Buyers’ Market”

Tired of losing out to other offers? Call me to discuss a strategy to have your next offer look more competitive!

 

Days On The Market VS Median Sales Price

Greater South Bay Days on the Mkt vs Median Sales Price

 

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Down payment sources

March 20, 2014 Posted by Andre Hemmersbach

The biggest issue facing most borrowers in this market is still saving the down payment and closing costs! I thought I would list a number of resources that are helpful to would be purchasers that are a little short on cash.

  • If you work for a company that has a 401K plan, check with your administrator to find out if you can borrow against your vested balance. Many plans allow for a loan up to 50% of your vested balance or $50,000 for a purchase of a home. Best part about this loan is that most of the time the payments will not count against your qualification ratios.
  • Call your HR department or boss to see if your employer has a company program that will do an employer loan for the purchase of your home. This debt does count against you but I have helped borrowers whose employer had incredible rates of interest for such loans.

    Your Backyard

    Your Next BBQ

  • Cash in a Roth IRA for $10,000. Currently the tax rules allow you to pull up to $10,000 without penalties for the purchase of your first home. (you still need to pay regular income tax on the amount you pull and check with your CPA).
  • Sell stocks or better yet, borrow against stocks or securities you own.
  • Check with Non-profits or your church to see if they have any special down payment assistance programs.
  • Sell or refinance a boat, car or RV.
  • Get a gift from any family member or members (some programs allow for 100% gift funds).
  • Find a co-signer or partner with someone with cash and purchase the property together (you can do an equity share agreement that splits the property price appreciation at the time of sale).
  • If you are a veteran, you do not need a down payment as financing is available at 100% of the purchase price.
  • Look for a seller that will carry a second (usually will not work in a seller’s market)
  • If you have already saved around 3.5% of the sales price for a down payment there are programs available that allow the lender to pay all your closing costs.

Call me I would be happy to discuss your particular situation.

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