Sunday March 19, 2017
 

General Help

Appraisal Basics

One of the many steps involved in purchasing a home is to order an appraisal.  Appraisals are frequently confused the comparative market analyses, but are very different in purpose and also in effect.

A comparative market analysis is ordered by a seller who needs to come up with a good asking price on a home, but isn’t nearly as detailed as an appraisal, which is ordered by or on the behalf of a lender.  Lenders use appraisals to determine whether to give you a home loan on a particular property.

Documents Required for Your Mortgage Application

One of the steps of buying a house is of course applying for a mortgage on that house.  To apply for a mortgage you’re going to need to bring a series of documents with you as well as the necessary fee for your application, which consists of two parts—the cost of your appraisal and the cost of your credit report.

What are the documents you need in order to apply?

You will need to bring a sales contract which has been signed by yourself and the seller(s) of the house.  Any co-signer on the future mortgage will also need to have signed the sales contract.

You’ll have to provide your social security number and that of any co-signers.  Have all the addresses of all the places you’ve lived in the past two years and also the current addresses of your past landlords over the same time period.

Bring information on your employment including the names and addresses of your employers over the past two years along with how much income you earned.  Bring all your W-2s from the past two years and your most recent pay stub.  If applicable, bring in court records relating to Child Support and Alimony income.

Bring information about your bank accounts, including the name and address for all of your banks, your account numbers, and the balance for all accounts.  This includes not only checking and savings accounts but also trading accounts for stocks, bonds, currencies or anything else.

All capital you own must be accounted for.  You will need to account for your loans and debts as well.  If you have a current mortgage or auto loan, you’ll need to provide information on that, as well as information on student loans, credit card accounts and any other types of debt.  You’ll have to provide the names and addresses of all of your lenders as well as your account numbers.  Bring the most recent three months worth of account statements for all your accounts.

If the loan you’re applying for happens to be in conjunction with the G.I. Bill, you will need to furnish DD-214, the Certificate of Eligibility, or you can bring a statement from your commanding officer if you are still active.

What do you bring if you’re self employed and have no W-2s or pay stubs?

If you work for yourself, then you’ll need to bring the most recent two years of Federal Tax Returns for your income and self-employment tax along with a statement which calculates your year-to-date profit and loss. 

For those who have filed for bankruptcy in the last seven years, it will be necessary to bring a copy of the bankruptcy petition and discharge, as well as a letter (handwritten) which explains the event.  Also bring evidence that you have improved your credit in the intervening time and have established yourself as a reliable investment.  It can be hard to convince a bank to consider you this soon after bankruptcy, but it is not impossible.

Finally, for applicants who already own other properties, it will be necessary to provide the addresses of those properties as well as their market values.  If you still owe money on any of the properties, you’ll have to provide the name and address of your lender along with your account number and balance and how much you pay every month.  If you rent other properties, bring a copy of your lease instead.

These documents should be sufficient in most cases for you to apply for a mortgage.  By pulling together everything you need, you’ll be able to save time and ensure that the process goes smoothly.

Loan to Value Ratio

When you apply for a mortgage, one of the factors which the lender will consider before granting you a loan is your loan to value ratio.

Your loan to value ratio is equal to the amount of the mortgage divided by the appraised value of the property that you want to buy.  The resulting number is a percentage and the higher the percentage, the less likely you are to get the loan.

Homeowners Insurance

Homeowners insurance (HOI), also called hazard insurance, is a way that you can protect your home and valuables against loss in the case of various contingencies such as fire, lightning, wind, hail or theft, not including floods, warfare, or nuclear explosions.

Some insect infestations (termites for example) are also not covered unless add-ons are purchased.  Add-ons for floods are available as well.

Another great provision in homeowners insurance is legal coverage should somebody sue you, for example because somebody tripped on your doorstep and wants you to pay their medical costs.

Debt-to-Income Ratio

Your credit score isn’t the only number which is going to be important in how potential mortgage lenders evaluate you.  Another number which can be as important as your credit score is your debt-to-income ratio.

Debt-to-income ratio is a simple concept—it’s a ratio which compares your debt to your income.  The lower this number is the better off you are, and the more stable an investment you appear to be as far as lenders are concerned.

What is a Mortgage?

When you want to purchase a home and don’t have the cash to buy it outright (meaning you’re most people), then the very first most basic term you’ll need to be acquainted with is the term “mortgage.”

What is a mortgage?

A mortgage is a loan on a home—a mortgage lender (usually a bank) agrees to loan you money to purchase a home.  The title on the home transfers to you, and you get to live in the home.  During that time you will owe payments on the mortgage.

What is a Rate Lock?

The changing values of interest rates can work against you when you purchase a home.  Is there a way around these changing interest rates?  Some lenders do allow you to lock your interest rate in at a particular value.

This is known simply as a rate lock. A rate lock will be held in place for a specific timeframe, usually expressed as a certain number of days.

If the rate lock spans the duration of your mortgage, come closing time you will receive that rate—even if the interest rates of mortgages around you have shot upward.

Truth In Lending and Mortgages

The Truth in Lending Act (TILA) was established in 1968, with the purpose of regulating the credit market and providing ample disclose so that consumers can make informed borrowing choices.

TILA helps consumers to understand the risks which they will take when they borrow money, particularly when the loan is for a large amount and tied to real property as collateral (for example real estate).

The Truth in Lending Act also stipulates what information a lender must provide to you on paper when you sign up for a loan.

Yield Spread Premium

What is the yield spread premium and how does it cost me moneyThe Yield Spread Premium is a payment by the lender to your mortgage broker for having the consumer agree to a higher interest rate then what is known as par.

Par is the interest rate provided by the lender to the mortgage broker for zero cost.  Meaning the broker will receive no additional (hidden) payment from the lender for the interest rate being offered to you.