What Is A Qualified Mortgage?

 

Do you know what a qualfied mortgage means in the Fort Myers and Cape Coral areas?

As this video explains,  Federal laws put into effect in 2014 and  supervised by the Consumer Financial Protection Bureau define lending practices and loan terms for a new category called “Qualified Mortgages.”

They provide stable loan features for consumers and improve legal protection for lenders who follow the guidelines.

These guidelines require lenders to assess each borrower’s ability to repay their mortgage loan to ensure the borrower’s monthly DEBT – including mortgage – be no higher than 43% of their monthly gross INCOME.

The laws also define unacceptable loan terms:

  • interest-only loans
  • terms over 30 years
  • negative-amortization loans that increase principal over time
  • most balloon loans

These terms do not meet the Qualified Mortgage guidelines.

The laws aim to provide consumers with objective guidance  about reasonable debt from the CFPB and in return, to grant lenders who follow that guidance with higher levels of protection from lawsuits.

Ask your lender about Qualified Mortgage options for your home purchase.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: Loan Officers, Underwriters, and Mortgage Brokers – Who’s Who?

Loan Officers, Underwriters, and Mortgage Brokers – Who’s Who?

Buying a home in the Cape Coral or Fort Myers area soon?

The world of real estate has many different types of professionals.  If you are a buyer looking to purchase a piece of property with financing, an area that can get a little confusing involves the professionals within the mortgage lending landscape.

According the National Association of Realtors, over 80% of buyers require some level of financing to be able to buy a home.  Ironically, while ensuring you are qualified for a loan to buy a house is the recommended first step in the home buying process, many buyers start by contacting a real estate agent.  When the need for pre-qualification comes up, buyers will usually do one of two things:  Go to their bank or use the Realtor’s recommendation.

Either option can lead to exceptional results and an outstanding buying process, however, buyers often do not realize that there are different providers in the mortgage space and who they choose can impact the loans offered and how much they pay for their home in the long run.  To help you understand your options, we have outlined several key players you may come in contact with or hear about throughout the process.

Loan Officers

Per the Bureau of Labor Statistics, Loan Officers evaluate, authorize, or recommend approval of loan applications for people and businesses.  Most Loan Officers are employed by commercial banks, credit unions, and related financial institutions.  This means that while they may have access to different types of loans available through their lending institution, they can only fit you to a loan offered by their employer.

To qualify for loan, a Loan Officer may need you to have an existing account with their bank or lending intuition and to meet stringent requirements that match their employer’s tolerance of risk.  Since the 2008 mortgage crisis in the United States, some banks have exited the mortgage business while others have adopted conservative loan requirements.

When deciding on a Loan Officer, you need to research the reputation of their employer, after all they will likely service your mortgage long-term.  You also need make sure you can communicate and get along well with your Loan Officer.    If you don’t hit it off, try visiting another branch of the same lending institution, they will have access to the same loan programs.

Loan Officers will typically take your application and gather all necessary documentation related to your loan.  This package is then submitted to other departments such as processing and then underwriting where approval decisions are made.  Loan Officers are paid either hourly or a salary by their employer and may receive bonuses for number of loans applications or dollar amount of the loans.

Mortgage Brokers

Think of a Mortgage Broker as an independent consultant.  They may work with a mortgage brokerage company or their own a mortgage brokerage.  They are not lenders and in the majority of cases they will not service your mortgage loan.  Instead, they have relationships with a diverse collection of lenders and will find a loan to meet your needs.  The source of funding may include banks, wholesale mortgage lenders, equity funds, and even private lenders.

Mortgage Brokers will assess your loan needs then “shop the market” for the best loan available.  There are strict regulations in place to help ensure that your broker provides the best loan for your needs rather than a loan that pays them the most.

Depending on the size of the team, a mortgage broker may have in-house loan processors or may outsource this function.  Ultimately, a mortgage broker who wants to be successful will ensure clients have the best loan experience possible, regardless of how their back-office functions are arranged.

A well-established mortgage broker has great relationships with their lenders and the underwriting teams and has a high rate of closing loans in a reasonable amount of time.  They are paid by the lender typically as a flat fee or percentage of the mortgage amount.  Newer industry regulations prevent mortgage brokers from being paid or bonused based on the interest rate of a loan.

Mortgage Underwriters

A Mortgage Underwriter may work for a bank, lending company, or private fund.  They are the decision makers who review all the documentation submitted for a loan and decide if all requirements have been met and if the loan applicant is qualified for the loan.

They represent the lender and are responsible for analyzing the loan package and determining if the lender will take on the risk associated with approving a loan.  They examine criteria such as the applicant’s credit rating and history, the applicant’s perceived capacity for repaying the loan, and the value of home being purchased in terms of loan collateral.

When a loan is delayed or “falls through” many people think this is done by their Loan Officer or Mortgage Broker.  Certainly, failure to properly match applicants with loan requirements or to submit critical documentation can impact the viability of a loan.  However, the ultimate decision on approving or declining a loan falls with the Mortgage Underwriter.  While most properly submitted loans are approved, sometime changes in underwriting requirements can “kill” a loan and stop a real estate transaction.

Mortgage Underwriters are employed by banks and lending institutions and go through extensive training to evaluate loan applications.  While they must be mindful of risk, Mortgage Underwriters do not aim to decline loans.  On the contrary, their paycheck and job security depend on approving as many healthy loans as possible.

Know Who Guards the Money!

When it comes time to buy a home or refinance your current home, be mindful of the service providers available to you.  In some instances, the Loan Officer at your bank may have the best rates and terms for you.  In other situations, your best bet may be to consult with a Mortgage Broker with access to dozens (maybe hundreds) of lenders who may offer better rates and terms.

Whomever you choose, be certain to submit all necessary documentation carefully so that the Mortgage Underwriter can clearly see that you meet all requirements and easily approve your home loan.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: Title Insurance Explained Visually.

What Does Ability To Repay Mean?

 

Looking to secure a home loan in the Fort Myers or Cape Coral areas and curious about the “Ability to Repay” rules?

In a nutshell, as this video shows, new laws require lenders to make a good-faith assessment of a borrower’s capacity to pay back their loan over time.

It’s a longer-term view that goes beyond immediate income, debt and credit rating.

These new Federal laws- supervised by the CFPB – require lenders to ask more questions –

about income, assets, employment, credit history, and monthly expenses –

as they relate to the proposed loan.

For example, a lender offering a mortgage with a low initial rate must try to assess how a borrower will handle the later, higher rate as well.

If you’re applying to borrow ask whether the program you’re considering is a Qualified Mortgage

Ability-to-repay rules are built in to loans that meet Qualified Mortgage guidelines.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: 5 Tips If A Storm Damages Your Home

What Is An Escrow Account? Do I Need One?

 

Shopping lenders for your Cape Coral or Fort Myers new home purchase? Have you come across the term “Escrow Account” and wondered what it means or if you even need one?

As we show you in this video, an escrow account is an account, established by your lender, to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner’s insurance mortgage insurance (if applicable), and property taxes.

Escrow accounts are a good idea because they assure money will always be available for these payments.

If you use an escrow account to pay property tax or homeowner’s insurance make sure you are not penalized for late payments since it is the lender’s responsibility to make those payments.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: What Should I Know Before Investing In Real Estate?

What Is The Debt-To-Income Ratio (DTI)?

 

Starting the home buying process in the Fort Myers or Cape Coral areas? One term you may hear your lender use is “DTI” or Debt-To-Income Ratio.

Measuring your existing debts against your existing income is one part of a lender’s required assessment of your ability to repay a loan.

Like the video says:  debts are existing financial commitments like a car payment for example, whereas a grocery bill is not.

To calculate your debt-to-income ratio add up your monthly debt payments and divide them by your GROSS monthly income. (Gross income is generally the amount of money you earn BEFORE taxes and other deductions.)

The Federally-established debt-to-income target is a maximum of 43% for Qualified Mortgages.

If your ratio is higher there may be other loans available  – however, there may also be additional questions to establish your ability to repay, and the rates may be different than those available for Qualified Mortgages.

Studies suggest that a high debt-to-income ratio puts a homeowner at greater risk of challenges making monthly payments. So consider your situation and risks carefully before exceeding that suggested ratio.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: Should I Sell My Home?

What Is A Mortgage?

 

Are you looking for a mortgage to buy a home in the Fort Myers or Cape Coral area?

The original phrase “mort gage” translates as “death pledge”! But as this video explains, a mortgage is a loan obtained to purchase real estate.

The “mortgage” itself is a lien – a legal claim on the home or property that secures the promise to pay the debt.

All mortgages have two features in common: principal and interest.

The principal is the amount you are borrowing which is “secured” by the lender’s claim on the property.

The interest, usually stated as the percentage rate is the additional amount paid for borrowing. Mortgage interest is ‘compounded’ – interest on interest, over time.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: What Is A Counter Offer?

How Large A Down Payment Do I Need?

 

In the process of looking for a home in the Fort Myers or Cape Coral areas and wondering how large a down payment you may need?

There are mortgage options now available that only require a down payment of 5% or less of the purchase price. You’ll see some pictures in this video to help you remember later – the larger the down payment, the less you have to borrow and the more equity you’ll have.

Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan.

When considering the size of your down payment consider that you’ll also need money for closing costs moving expenses, and – possibly – repairs and decorating.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: What Is Loan To Value (LTV) And How Does It Affect The Size Of My Loan?

What Is Loan To Value (LTV) And How Does It Affect The Size Of My Loan?

 

Are you purchasing a home in Fort Myers or Cape Coral? Have you heard of the term “LTV” and wonder what it means?

While this video simplifies things to help you remember, the loan to value ratio or “LTV” is the amount of money you borrow compared with the price or appraised value of the home you are purchasing.

Each loan has a specific LTV limit. For example: With a 75% LTV loan on a home priced at $100,000 you could borrow up to $75,000 (75% of $100,000) and would have to pay $25000 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds.

So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policies.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: How Does Purchasing A Home Compare With Renting?

How Does The Interest Rate Factor In Securing A Mortgage Loan?

 

If you are buying a home with a loan in the Fort Myers or Cape Coral areas, understanding the impact of your interest rate is important.

As you’ll see in the video, a lower interest rate allows you to borrow more money than a high rate with the some monthly payment.

Interest rates can fluctuate as you shop for a loan so ask lenders if they offer a rate “lock-in” which guarantees a specific interest rate for a certain period of time.

Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the mortgage interest rate because it also includes the cost of points, mortgage insurance and other fees that maybe included in the loan.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: Are There Special Mortgages For First Time Homebuyers?

Are There Special Mortgages For First-Time Homebuyers?

 

Thinking about buying a home for the first time in the Fort Myers or Cape Coral areas?

Yes. Like the video shows, lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past.

Lenders may now be able to help borrowers who don’t have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or who have experienced income irregularities.

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: What Steps Need To Be Taken To Secure A Loan?