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5 important things to know when buying a home

 

  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: 

  1. LTV= Loan to Value= loan amount/ appraised value ex: $100,000 / 160,000= 63% LTV
  2. 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.
  3. PITI= Principal, Interest, Taxes and Insurance
  4. 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%.
  5. 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)

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