When applying for a home loan (mortgage), there are multiple qualifying factors considered such as the debt to income ratio (DTI).
In other words, the ratio of what comes in and what goes out. What comes in are your incomes and/or revenues. What goes out are all your revolving accounts, mortgages, car loans etc on you credit report.
Basically the calculation is done this way:
Monthly income before taxes: $4250
Credit card minimum payment: $850
Car loan: $375
The new mortgage payment: $1550
Taxes and Insurance: $175
Total out: $2950
Expenses / incomes = $2950/$4250= 0.69
In this case, your expenses are too high and your income is too low.... This is not GOOD! Some banks (mostly subprime banks) will let you go up to 55% or so. Most Prime banks will like it a lot lower than that. Even if you have great FICO score, the DTI might bring you from a Prime Bank to a Sub-prime Bank just because your DTI is too high. Once again, ask questions to your loan officer. If they put you into a sub-prime bank, they might charge you more points.
What you need to do in this case (and TELL your loan officer about this) if you refinance, you get some extra cash out, you pay a few credit cards and automatically it brings your ratio down. But you need to have equity in the house to do it or you will not be able to refinance using the regular channels. There are other options but they are costly!
If we wanted to be more complicated there are the front and the back but we don't need to go there for now.
Enjoy!
Thursday, June 14, 2007
Tuesday, June 12, 2007
What is coming up for you in my Mortgage NEWS?
Here's what I'm preparing for you in the next couple of days...
Why the Debt to Income ratio is important?
What are the different kind of mortgage?
What is Pay Option ARM?
Why do I need an appraisal?
Why do I have to pay for a closing agent?
What should I understand when I look at a Good Faith Estimate?
What should be my last spot checks when I'm closing my mortgage?
The questions your loan officer doesn't want you to ask...
Enjoy!
Why the Debt to Income ratio is important?
What are the different kind of mortgage?
What is Pay Option ARM?
Why do I need an appraisal?
Why do I have to pay for a closing agent?
What should I understand when I look at a Good Faith Estimate?
What should be my last spot checks when I'm closing my mortgage?
The questions your loan officer doesn't want you to ask...
Enjoy!
Friday, June 8, 2007
Piggyback to increase your credit score to get the best Mortgage Rate!
I watched CNN last night and Paula was talking about piggyback to increase your credit score... It looks wrong to me but at the same time it lookls very appealing for some that needs a better FICO score to get a better mortgage rate.
Piggyback is simple, you find a very trusty person to add you on one of their credit card (you don't get the credit card) and every month when that trusty person pays the credit card, your credit score increase.
Some people call it fraud but so far by law it is not! I can give a credit card to anyone I know if I trust them...
Anyway, it is something to know and to follow up!
Don't forget, a better FICO score = a Good Mortgage Rate = Lower monthly payment on your refinance!
Enjoy!
Piggyback is simple, you find a very trusty person to add you on one of their credit card (you don't get the credit card) and every month when that trusty person pays the credit card, your credit score increase.
Some people call it fraud but so far by law it is not! I can give a credit card to anyone I know if I trust them...
Anyway, it is something to know and to follow up!
Don't forget, a better FICO score = a Good Mortgage Rate = Lower monthly payment on your refinance!
Enjoy!
Wednesday, June 6, 2007
Should I buy discount points on my next refinance?
Before you decide if you will buy some discount points on your next refinance, please do the math!
You have to decide how long you are willing to keep the mortgage. It is a very simple calculation. If you use 2 points to buy the rate down on a $200,000 mortgage, it will coast you $4,000 in discount points (REAL discount points, be careful and read your Good Faith Estimate!).
Let me show you if your rate goes from 6.5% to 6% with 2 discount points:
Monthly payment on principal and interest for a $200,000 mortgage loan (30 year Fixed) at 6.5%: $1,264.14
Monthly payment on principal and interest for a $200,000 mortgage loan (30 year Fixed) at 6%: $1,199.10
A difference of about $65 a month. Now take $4,000 and divide it by $65. It will take you 61.54 months (over 5 years) to get your money back and get even (not including the other fees you will pay).
Once again, please take the time to read your Good Faith Estimate (GFE). If your loan officer gives you number over the phone, make sure you ask for your GFE. Make sure you read every line of your GFE and ASK questions. Did I mention to ask questions?
Now it is time for you to get a pen an paper (OK, your computer) and do the math and make sure your numbers fit your goals (You must have some goals if you are looking at a refinance?). By the way, you should not buy the rate down on any Adjustable Rate Mortgage (ARM)! A very simple reason, if your rate goes up 1 to 2% after the fixed period then you will want to refinance and get a fixed rate.
Enjoy!
You have to decide how long you are willing to keep the mortgage. It is a very simple calculation. If you use 2 points to buy the rate down on a $200,000 mortgage, it will coast you $4,000 in discount points (REAL discount points, be careful and read your Good Faith Estimate!).
Let me show you if your rate goes from 6.5% to 6% with 2 discount points:
Monthly payment on principal and interest for a $200,000 mortgage loan (30 year Fixed) at 6.5%: $1,264.14
Monthly payment on principal and interest for a $200,000 mortgage loan (30 year Fixed) at 6%: $1,199.10
A difference of about $65 a month. Now take $4,000 and divide it by $65. It will take you 61.54 months (over 5 years) to get your money back and get even (not including the other fees you will pay).
Once again, please take the time to read your Good Faith Estimate (GFE). If your loan officer gives you number over the phone, make sure you ask for your GFE. Make sure you read every line of your GFE and ASK questions. Did I mention to ask questions?
Now it is time for you to get a pen an paper (OK, your computer) and do the math and make sure your numbers fit your goals (You must have some goals if you are looking at a refinance?). By the way, you should not buy the rate down on any Adjustable Rate Mortgage (ARM)! A very simple reason, if your rate goes up 1 to 2% after the fixed period then you will want to refinance and get a fixed rate.
Enjoy!
Monday, June 4, 2007
Mortgage Glossary...
One of my friend asked me the other day if there was a good site on the Net where he can find a glossary of all words used in the mortgage business.
Here's a great site: US Department of Housing and Urban Development (HUD)
You will find every definition you need! Have look after you spoke with a loan officer or your bank!
Enjoy!
Here's a great site: US Department of Housing and Urban Development (HUD)
You will find every definition you need! Have look after you spoke with a loan officer or your bank!
Enjoy!
Friday, June 1, 2007
The importance of your credit scores?
It might look like I'm repeating myself a lot (might be the age) but you need to understand how important is your credit score for a new Mortgage or a refinance.
You need to stay on top with your credit score.
You have 3 different credit scores:
1- Equifax
P.O. Box 740256
Atlanta, GA 30374
(800)-685-1111
Web site: www.equifax.com
2- Transunion
P.O. Box 2000
Chester, PA 19022
(800) 888-4213
Web site: www.transunion.com
3- Experian
PO Box 2002
Allen, TX 75013
(888) 397-3742
Web site: www.experian.com
Mortgage companies use the middle score, it means not the smaller one and not the bigger one!
Many sites offer you to monitor your credit score or check with your bank.
Here's what each bureau looks into to give you a FICO score:
35% - Your Payment History
30% - Amounts You Owe
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit
They all use a different way to calculate your score, this is why you can have one score at 704 but another one at 621.
Also, not all companies report your information to the 3 credit bureaus!
Enjoy!
You need to stay on top with your credit score.
You have 3 different credit scores:
1- Equifax
P.O. Box 740256
Atlanta, GA 30374
(800)-685-1111
Web site: www.equifax.com
2- Transunion
P.O. Box 2000
Chester, PA 19022
(800) 888-4213
Web site: www.transunion.com
3- Experian
PO Box 2002
Allen, TX 75013
(888) 397-3742
Web site: www.experian.com
Mortgage companies use the middle score, it means not the smaller one and not the bigger one!
Many sites offer you to monitor your credit score or check with your bank.
Here's what each bureau looks into to give you a FICO score:
35% - Your Payment History
30% - Amounts You Owe
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit
They all use a different way to calculate your score, this is why you can have one score at 704 but another one at 621.
Also, not all companies report your information to the 3 credit bureaus!
Enjoy!
Thursday, May 31, 2007
What affects your mortgage rates?
Many things affect your mortgage rates:
1- FICO sores are at the top. They use the middle score. Prime rate is over 660-680, alt-A rate is between 620-to 680 and sub prime under 620. Each of those will give you a different rate. Actually 619 gives you a worse rate than 620 because it is consider a 610.
2- Mortgage history in the last 12-24 months: Were you on time every month for the last 12 months? Were you 1 time 30 days late (1X30), twice 30 days late (2X30), 60 days late (1X60), 90 days late (1X90) after that it is considered foreclosure. These affects your rate a lot!
3- How much will you borrow on the value of your house. If your house is valued at $200,000 (will need an appraisal)and you borrow $160,000, then you are at 80% Loan To Value (LTV). You will get a better rate than someone borrowing 90%, 95% or 100%. Anything under 80% is very good for the rate.
4- Debt to income ratio: How much comes in and how much goes out... No mortgage company will go over 55% but prime in way under that.
5- Did you have a bankruptcy? How long ago? Was it a Chapter 7 or 13?
As you can see, YOU cannot call a mortgage company and ask what kind of rate do you have because they have many kind of rates... They will need to pull your credit and see what is on it in order to tell you what rate YOU can get!
Enjoy!
1- FICO sores are at the top. They use the middle score. Prime rate is over 660-680, alt-A rate is between 620-to 680 and sub prime under 620. Each of those will give you a different rate. Actually 619 gives you a worse rate than 620 because it is consider a 610.
2- Mortgage history in the last 12-24 months: Were you on time every month for the last 12 months? Were you 1 time 30 days late (1X30), twice 30 days late (2X30), 60 days late (1X60), 90 days late (1X90) after that it is considered foreclosure. These affects your rate a lot!
3- How much will you borrow on the value of your house. If your house is valued at $200,000 (will need an appraisal)and you borrow $160,000, then you are at 80% Loan To Value (LTV). You will get a better rate than someone borrowing 90%, 95% or 100%. Anything under 80% is very good for the rate.
4- Debt to income ratio: How much comes in and how much goes out... No mortgage company will go over 55% but prime in way under that.
5- Did you have a bankruptcy? How long ago? Was it a Chapter 7 or 13?
As you can see, YOU cannot call a mortgage company and ask what kind of rate do you have because they have many kind of rates... They will need to pull your credit and see what is on it in order to tell you what rate YOU can get!
Enjoy!
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