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Home Mortgages

Home Mortgages. Qualifications and the Home Mortgage Process By: Andrew Hunt. Learning Objectives. 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

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Home Mortgages

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  1. Home Mortgages Qualifications and the Home Mortgage Process By: Andrew Hunt

  2. Learning Objectives • 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

  3. What we won’t cover • Details on mortgage types and options • The secondary mortgage market (the business side of mortgages) • The subprime mortgage market

  4. Home Mortgage Process – Selecting a Lender

  5. 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

  6. Home Mortgage Process –Getting Pre-Approval

  7. Getting Pre 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

  8. Getting Pre Approval • Information required for pre approval • Relevant financial and work information • Income Items • Asset Items • Credit Items • Details can be found @ http://www.realestateabc.com/loanguide/things2.htm

  9. Home Mortgage Process –Picking the House

  10. Home Mortgage Process – Getting Quotes

  11. Getting Quotes • 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

  12. 28/36 Ratios • 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

  13. Loan to Value (LTV) Ratio • 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

  14. Mortgage Insurance • Compensates the lender in the event of loss due to default • Applies when down payment < 20% • Public and Private mortgage insurance

  15. Mortgage Insurance - Public • 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

  16. Mortgage Insurance - Private • 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

  17. Home Mortgage Process –Lender Approval

  18. 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

  19. Scams in Mortgages • 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

  20. Suggestions for a Smooth Mortgage • 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

  21. The Cost of a Mortgage • Consider a $100,000 loan at 5% Total Interest Monthly Payment 30 year Loan $93,255.78 $536.82 $790.79 15 year Loan $42,342.85 10 year Loan $27,278.62 $1,060.66 Shortening the period reduces the rate

  22. Review • 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

  23. Questions?

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