BUYER FINANCING OPTIONS
BUYER FINANCING OPTIONS
Timing and pricing for your home is imperative to a satisfactory sale. The Glery Ross Group will help you determine these factors to get the best price in the best time.
LOAN PURCHASE PROCESS
PRE-QUALIFIED OR PRE-APPROVED DIFFERENCE AND WHAT DOCUMENTATION IS NEEDED FOR AN ALL CASH OFFER?
The offer process involves getting a Pre-Qualification or Credit approval letter submitted with the corresponding offer. If you’re making an all cash offer, proof of funds (POF) will be needed. That usually is either a copy of an asset statement or a bank letter. Starting your loan process prior to making an offer is vital in determining your comfort zone either on the purchase price of if financing, a specific type of loan and corresponding details. Consider various loans depending on your circumstances.
Having a “Pre-qualified” letter, means your credit has been reviewed and approved subject to verification of your financial information. Verification and approval of your financial information will then elevate you to a “credit-approved” purchase, which is preferred. Having a “credit-approved” certificate can give you better leverage to negotiate. Anyone taking title to the property should be included on the loan process.
Once your offer is accepted, the lender will require title work, appraisal, survey, and insurability, in order to “approve the home”. The final loan approval is then given once you and the property are approved without conditions.
When to close on the property depends on timing of all parties including your Lender. This could take a few days to weeks to complete the loan process, title work and contract contingencies due diligence. It only makes sense to contact your lender before looking to purchase. We can discuss the timing issue once we visit.
Normally, the loan application can be completed on line, by phone or personally meeting with the lender. The process can start without personally meeting you however; eventually they need to verify your identification in person.
The information you provide is strictly confidential. The lender may ask questions for clarity however, it’s for your benefit. The loan officer will know what the loan underwriter or investor requires from you for various loan programs. Patience is necessary in today’s loan approval process. You’ll probably feel as if you’re being crossed examined by the Lender however, it’s the norm in today’s lending environment. Once the verifications are completed, to the “Loan Processor” reviews the verifications and packages the loan to submit for under writing. Do not be alarmed if they call you several times. This is a normal process in getting the loan approved.
WHAT ARE POINTS?
Points are often called Discount Points or Fees, or New Loan Fees, and sometimes Origination Fees. Points provide the necessary ingredient to allow the purchaser to select an interest rate best suited to their finances. Normally, under a fixed rate loan program the lower the rate, the higher the points, and vice versa. Expect to pay either more points or a higher interest rate for investment properties vs. owner occupied. Investment properties carry a higher risk, therefore higher cost to finance.
Points are paid to the Lending Institutions (Banks, Savings and Loans, Mortgage Companies, Investors, Insurance Companies, etc.) to allow the Lending Institution to make funds available to you the Borrower. The Bond market impacts the mortgage market more than any other financial gauge. The higher the bond cost, the less the interest rate you pay. Depending on market conditions and the interest rate, points may not be advantageous to pay. Points vary daily and are pegged tied to down payment, loan type, FICO scores, type of property, location of property, etc, and fluctuate according to market conditions locally and the global economy.
Originating fees are different than “Discount Points”. The Originating Fees is the fee paid to the lending institution to process your loan. Normally the Originating Fee is one percent of your loan amount. Origination fees are determined by the Lender.
Depending on market conditions, Discount Points or Originating fees may be paid by either the purchaser or seller regardless if the loan is a Conventional, VA, or FHA.
LOCKING INTEREST RATES
Locking in your interest rate and corresponding discount points (if applicable) is one of the most important decisions you will make regarding your loan. Once you lock a rate, you have committed to closing your home loan at a specific interest rate, subject to loan approval. Only you can decide when you want to lock in your interest rate. Be aware that the rate you are quoted today may be the last time you will see that rate. Market rates may drop below the market rate you locked in today. Some lenders offer a “float down” where after you lock if the rates improve by 100 basis points (about ½%), they will allow you the lower rate. Check with your lender if they offer this program.
If your lock expires prior to closing, the new rate and discount points will never be less than the original lock-in. Check with the lender regarding this policy. This applies even if the rates have decreased subsequent to your lock-in. Floating your discount points, or not locking in your discount points, will be subject to change daily. Your loan will cease to float only when you have consented and agreed to lock in for a maximum of 60 days.
If you float, you could jeopardize when your closing occurs and fall out of contract dates. New regulations effective in 2009 will re-set the timing needed for approving the new APR (Annual Percentage Rate). A minor fluctuation on the APR re-sets new disclosure time lines. Please speak with your lender about the consequences of floating.
Depending on the price range and your personal finances, the conventional loan is one of the most popular loans in our market place. Normally, with a conventional loan, you can avoid paying a mortgage insurance premium (discussed later) if your down payment is at least 20%. Check with your lender on investment property requirements.
Conventional loans are stricter on their qualification ratios versus other types of loans. The qualification ratio the lenders use is a percentage of your gross income (if salaried) times a given percentile as established by the lender to figure your maximum loan payment. For example, if gross monthly income is $8,000, and you are a salaried employee, then your gross monthly income times 28% (some flexibility applies depending on your credit score) will determine the maximum monthly payment for your future home or $1,960 per month. If you have monthly obligations or debt, such as car payments, credit cards, child care, etc., then your gross monthly income times 36% or higher, should establish your maximum monthly payments minus your current debt, or $2,520. Both ratios should be in line in order to qualify. Flexibility does occur but it primarily depends on your credit score, and many other financial considerations that lenders have to look at in today’s economy.
FNMA Loan limits are generally known as Conforming Conventional financing and depending on the county where the property is located; it’s normally a $458,850 loan limit effective for 2016 in most of the Denver metro area. Jumbo Loans are in excess of that amount and cost varies depending on credit score, property, and loan amount. The majority of loans issued today are fixed rate mortgages however; some lenders still offer a varietal of the fixed rate programs but adjust at a future date.
FHA & VA LOANS
Government insured loans can be obtained by either first time purchasers or experienced purchasers. Loan limits apply depending on the County and or City. Most Denver metro areas are $458,850 loan amount. You follow an easier qualification guideline for debt to income ratios, but you follow the same process as Conventional loans. Some properties or condominium developments are NOT FHA or VA approved, therefore you will not be able to have Government insured finance!
All Government loans have an additional MIP, Mortgage Insurance Premium, added to your normal rate plus principal loan amount. FHA loans can be assumed, as long as you qualify to assume and release the seller from liability. Ask your lender for details.
Only Lenders endorsed by HUD can perform FHA or VA loans. Please check with your lender for endorsement rights.
MORTGAGE INSURANCE (PMI/MI/MIP)
When purchasing a home with less than 20% down payment, you are required to protect that lenders investment with Mortgage Insurance. Just as you purchase insurance to protect your home and automobile, Mortgage Insurance is needed on most federally insured loans. A lender making an insured mortgage loan to a purchaser that defaults on the loan is protected against loss incurred from the loan through the MIP paid by the home owner. Mortgage Insurance premium is not to be confused with life or disability mortgage insurance. Separate policies are available to purchase through your insurance agent. All lenders require that you obtain Hazard Insurance coverage at closing in case of casualty or fire damage to the property.