THE LOAN PROCESS

Should I Choose a Mortgage Broker or Mortgage Banker?

When it comes to getting a mortgage loan, you should know the difference between a mortgage broker and a mortgage banker. It’s understandable to confuse these since both will yield the same outcome: a new home. But for the application process, it will help if you understand they ways they differ.

What is a Mortgage Broker?

A mortgage broker is a person or firm that is an independent agent for the mortgage loan borrower as well as the lender. Your mortgage broker will stand as coordinator between you and the lending institution; which may be a bank, trust company, credit union, mortgage corporation, finance company or even an individual investor. You partner with a mortgage broker to review your financial circumstance and lead you to the lender who has the right loan program for you. From application to closing, your mortgage broker works with you: presenting your loan application to a number of lenders, and walking you with the chosen lender through to the closing of your loan. The broker is accountable to you, not the bank. The broker is given a commission most often from the lender at closing.

What is a Mortgage Banker?

The main difference between a mortgage broker and a mortgage banker is that a loan officer works on behalf of a lending institution (a bank, credit union, or others) to promote and process loans solely from that institution. Although a loan officer may market a variety of loans, they are all programs from that one lender.

A mortgage banker represents you to the bank or other lending institution and is accountable to that bank. Loan officers are given a commission or salary for their services by their employers.

KNOW YOUR CREDIT SCORE

When you give us permission, we will obtain your credit report and scores. The middle score is the one the lender will use for qualification. When two or more are applying together, the lowest of the middle score is used.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score “FICO”, TransUnion calls its score “Beacon” and Equifax uses “Empirica.” While each of the models considers a range of data available in your credit report, each agency uses the following to determine a credit score:

Credit History – Have you had credit for years, or for a short time?
Late Payments – Do you have a history of late payments?
Balances on your Credit Cards – How many accounts? How much do you owe?
Inquiries on Your Credit – How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my credit score?

Is it possible to raise your credit score? Some companies promise quick fixes, but they can’t do anything different than what you can do — for free. You should, of course, appeal for the credit agency to remove any incorrect reporting on your credit report; this is really the only way to quickly improve your credit score.

In order to raise your score, you’ve got to get the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO credit score, sells scores on myFICO.com. It’s inexpensive to get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from all three credit reporting agencies when you visit annualcreditreport.com These reports do not include a free credit score, but it’s very inexpensive to get one at the same time.

Armed with this information, you will be a more informed consumer and you’ll be better positioned to obtain the most favorable mortgage.

Want to know more about credit scores? Give us a call: 954.920.9799 ext 120.

KNOW YOUR DEBT TO INCOME RATIO

Your debt-to-income ratio is your monthly debt payments (mortgage principal and interest, taxes and insurance along with any debts on your credit report and any spousal or child support) divided by your gross monthly income. This number is one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed.

To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out. For example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2,000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6,000, then your debt-to-income ratio is 33 percent. ($2,000 is 33% of $6,000.)

Currently, lenders look for a ratio of no higher than 43%, though it’s possible that higher ratios may qualify.

Guidelines Only

Don’t forget these are just guidelines. We’ll be happy to pre-qualify you to help you figure out how large a mortgage loan you can afford.

WHAT DOCUMENTS DO I NEED?

In general, the documentation you will need includes:
Copy of all borrowers drivers licenses
Property Information (if you already have a contract on a house)

    • Purchase Agreement.
    • If you are selling your current home, copy of listing contract
    • If you have sold your current home, copy of settlement statement (HUD-1)

Income & Assets

Pay stubs for the last 30 days.
Names and addresses of each employer for whom you have worked during the past two years.
W-2s and 1099s for all employment
Statements for each bank, mutual fund, and/or investment account for the last three months. These statements must show a full account number and your name. They should also include all pages, even if they are blank. In some instances you may utilize funds from a business account, but it is discouraged if at all possible as more verification for use of those funds will be required.

If you have made any large deposits to your accounts:

    • Explanation and verified source for deposit (meaning provide paperwork!!!)

If large deposit was a gift:

    • Signed gift letter (lender can supply).
    • Copy of gift check.
    • Copy of bank statement verifying deposit of funds
    • In some cases a bank statement from the gifter will be required verifying withdrawal of funds

If you own more than 25% of a business:

    • Corporate or partnership tax returns.
    • If self-employed:
    • Tax returns for the last three years (with schedules).
    • Year-to-Date Profit and Loss Statement prepared by an accountant.

If you own rental property:

    • Tax returns for the last two years and current rental agreements.

If you are retired:

    • Pension Award Letter.
    • Social Security Award Letter.

If you are counting child support as income:

    • Copy of divorce settlement.
    • Copy of twelve months of cancelled child support checks.

Debts

Names, addresses, account numbers, balances and monthly payments on all current loans

Explanation of credit report anomalies, including: Late payments, credit inquiries in the last 90 days, charge-offs, collections, judgments and/or liens.

Bankruptcy filed within last seven years (bring a copy of your bankruptcy papers).

VA Loans

Copy of DD Form 214, Report of Separation.

Miscellaneous

Photo ID and proof of Social Security number.
Residence addresses for the past two years.
If applicable, a copy of your divorce decree.

If you are not a citizen, a copy of the front and back of your green card.

THINGS TO AVOID

Things to Avoid While Purchasing a New Home

Many new homebuyers make the mistake of rushing out to buy things to fill their home soon after the seller says “yes” and the loan is approved. Keep in mind that until your keys are in hand, your lender is watching your finances very closely. Here are some actions to refrain from before closing to assure your transaction goes smoothly.

Don’t make expensive purchases. Although you will be listing ways to turn your new house into a castle, avoid big ticket purchases like appliances, electronics, or furniture. You will also want to avoid vacations and car purchases until your loan closes. Using plastic to buy furniture could jeopardize your lending process by altering your numbers dramatically. It’s even a bad idea to make those large purchases with cash. Lenders are examining your cash reserve when considering your loan.

Don’t look for a new job. Consistency in your work history is a positive thing to banks and other lenders. Changing jobs may not compromise your ability to qualify for a loan – especially if you are improving your salary. However, if you switch careers before approval, your mortgage process could fail or be bogged down.

Don’t switch your accounts to a new bank or move around your cash. Bank statements from recent months for accounts in your name (checking, savings, money market, and other assets) will probably be reviewed as the lender makes decisions regarding your application. The lending institution will need to see a steady flow of your money each month, in order to avoid fraud. Changing banks or moving finances to another account – for whatever reason – may hinder the review of your accounts.

Don’t give a “good faith” deposit directly to the seller in a FSBO (for sale by owner) purchase. Your good faith deposit does not belong to the seller: it is actually yours until the transaction is final. Some FSBO sellers may not know that these good faith funds must be applied to your expenses upon closing. It’s advisable to put the deposit into a trust account, or get an attorney to hold it until the deal closes. Your contract should document who keeps the money if the transaction does not go through.

At First Southeast Mortgage Corporation, we answer questions about this process every day. Call us: 954.920.9799 ext 120

CLOSING COSTS

Closing Costs for Home Real Estate Transactions

“Closing Costs” are the fees that pay for the various services involved when you sell or buy a home. Buyers & sellers almost always negotiate to decide how to share these closing costs.

As you’ll see below, many of the costs result from getting your mortgage loan. Since First Southeast Mortgage Corporation is highly experienced with mortgages & closings, we can help you understand your closing costs.

Loan Estimates (LEs)

Very soon after you submit your application, we’ll provide you with the “Loan Estimate” of your closing costs. We’ve provided a general list of closing costs below, but we’ll provide you a specific list of closing costs, with amounts, soon after you complete your application. At First Southeast Mortgage Corporation, we don’t believe in surprises, so if your costs change, we will be sure to let you know immediately.

    1. Lender Underwriting Fee
    2. Title Attorney or Settlement Agent Fee
    3. Appraisal Fee
    4. Credit Report Fee
    5. Up-front Interest Payment
    6. Escrow Account
    7. Transfer Taxes & Recording Fees
    8. Insurance
    9. Homeowners Insurance
    10. Private Mortgage Insurance (PMI) if applicable
    11. Title Insurance

LOCKING IN YOUR INTEREST RATE

When you’re offered a “rate lock” from a lender, it means that you are guaranteed to keep a set interest rate for a certain number of days for the application process. This saves you from going through your whole application process and learning at the end that your interest rate has gone up.

Rate lock periods can vary in length, between fifteen to sixty days, with the longer period usually costing more. You can get a longer period for your lock, but in choosing this option, will likely have a higher rate than you would have with a shorter span of time

WHY TITLE INSURANCE

Title insurance is required by all lenders.

Buying a home will likely be the largest investment you make in your lifetime. So before you sign on the dotted line, you must be certain that the “title” of the property is clear of any other claims.

Determining that your rights and interests to the property are clear is the business of a title company. For a modest, one-time title insurance premium, you will receive continuous title insurance protection equal to the purchase price of the property or its current market value.

The title company searches the property’s title history. Through its research, the title company can usually find any title problems and have these problems cleared-up prior to closing.

Real Estate law is extraordinarily complicated. Title companies make sure that all the T’s are crossed and all the I’s are dotted so you don’t end up with a clouded title and legal problems. Your owner’s policy will describe the property and outline the limitations on your ownership. It will also set forth the title insurance company’s responsibilities should any claim covered by the policy terms arise. Title insurance covers the following:

Contested title — This usually happens when someone who owned or even lived in the home before you claims to still hold an interest. In this case, the title company will defend your title at no expense to you.
Defective title — This is a general term for a legal problem with the title that cannot be corrected and includes “contested title” above. Other examples of title defects include problems with legal access to the property, easements that make the property less usable, unusable, or unsaleable. Any number of other complicated problems define “Defective title.” The title insurance policy will protect you from these errors if the title company misses them.
First Southeast Mortgage Corporation can walk you through the pitfalls of getting a mortgage. Call us: 954.920.9799.