Important Facts to know when buying a home!
“Get The Money First” and make sure you are prepared when buying a home. You need:
- Minimum of 2 year work history and currently employed, unless you just graduated from college.
- Have a good 12 month pay history on credit cards, installment loans and/or mortgage payments and know your total monthly debt.
- Conventional Loan– I have a special conventional program with 640+ mid-score, 3% down which can be gifted with Reduced or No MI (higher interest rate) OR FHA– 580+ mid-score, 3.5% down.
- Know your maximum TOTAL monthly payment (PITI) you are comfortable making and also consider additional expenses as a new homeowner. Get Pre-approved FIRST before looking for houses. Then you will have a more accurate idea of what you can afford.
- Have money saved in your bank account for minimum of 2 months for a down payment to get lowest interest rates. FHA loan needs 3.5% down and can be gifted by a family member. You will need them to fill out a gift letter, and when they deposit the money into your bank account, have teller make you a copy of the cancelled/deposited check and then an updated copy of your bank statement reflecting that deposit. The lender will need these documents to verify the gift funds.
- There is a huge difference between PRE-QUALIFIED and PRE-APPROVED! PRE-QUALIFIED- is based on a verbal conversation with a lender where you provide your financial background along with debts, income and assets. Your credit report is not analyzed nor is an in-depth study of your ability to purchase a home. (Basically not worth the paper it’s written on). PRE-APPROVED– you complete an official mortgage application and provide the lender all required documentation to perform a detailed analysis of your financial background and current credit rating. The lender can then give you a mortgage amount range you’re approved for and an idea of the interest rate. You can also lock the interest rate at this time if you prefer. **Be sure to ONLY get PRE-APPROVED by a reputable lender before looking for a home!!**
- Do you know your credit score? Once a year, order a free credit report at www.annualcreditreport.com with additional costs to get all 3 credit scores.
Be sure you understand these 5 basic acronyms when applying for a mortgage:
- LTV= Loan to Value= loan amount/ appraised value ex: $100,000 / 160,000= 63% LTV
- PI= principal & interest. *Make monthly payments to principal EACH month, preferably the equivalent of a monthly payment/12. This accelerates your amortization more than making 1 extra payment per year.
- PITI= Principal, Interest, Taxes and Insurance
- MI (PMI)= Mortgage Insurance or Private Mortgage Insurance Conforming= LTV >80% needs monthly MI (there is lender paid MI but interest rate is higher) FHA= there is 1 time UFMIP (up front MI Premium= 1.75% of loan amount) plus monthly MI @ .85%.
- DTI– Debt to Income Ratio (This has a front end and back end ratio). Front end ratio (first #) = housing expense-to-income ratio. This is your new mortgage payment (PITI) divided by your gross monthly income. Ex; $1200 (PITI)/$5000 (monthly gross income)= 24% DTI. Back End Ratio (2nd #) =Total monthly obligations-to-income ratio. This is your Total monthly debt including Mortgage PITI divided by your gross monthly income. $2500/ $5000= 50% DTI Conforming= 28/36 ratio is standard with >620 score but can be higher with DU Approval. FHA= 31/45 ratios with DU approval (I’ve seen > 55% approved with compensating factors).
SELECT SANDY to discuss your needs and get valid FREE PRE-APPROVAL!
502.931.0298 C 502.410.0477 FX
Sandy Kleinhenz (NMLS#20028) Select Mortgage (NMLS #855358)