The Sire Effect ~ Mortgage Education

In my previous blog, we discussed knowledge of the mortgage industry. So now let’s talk just general education. I think, regardless of your ethnicity, regardless of your economic status within society, everyone can learn a thing or two about the mortgage industry. With my background in underwriting, and now as a mortgage loan originator, I have had the opportunity to learn a lot of information on what gets a loan approved. 

The Process 

Let’s look at the process. You wake up one morning and you’ve decided that today is the day to purchase that home. You gather your documentation from what you think you should have. Your ID and paystub. Maybe you’ve reached out to your real estate agent, and they’ve confirmed that they have homes within your desire price isn’t an issue at this point you just know that you want 3000 ft.² four bedrooms, two car garage and a pool in backyard with lots of space for the kids to play.  

So, you go to the bank, and you fill out this application it takes about 20 to 30 minutes to get through the application and they say that they will give you a call and let you know what you are approved for.  

Well, I am here to tell you that that process is completely wrong. Before you find your home, you need to know what you can afford. Purchasing a home is a process that begins way before you randomly wake up one morning and go apply for a loan. Ahead of time, you should be taking research and knowledge to heart. Look at your income and have a clear understanding of your bills and budget. Do the expenses that come with owning a home? How much do you bring home after taxes? Are you wasting money anywhere? What does your credit score look like?   

Credit 

Your credit score plays a huge part in your interest rate. Fun fact we do not use the best credit score available out of the three credit bureaus that report we also do not use the lowest that’s right, we use the middle number whatever that number may be so if your top number is a 790 and your bottom number is a 490 but that middle number is only of 495. We are using the 495 that’s 790 plays no part in locking in your interest rate. You may not qualify with your 495. You’ll need to take into consideration, evictions, collections, student loan payments, bankruptcies foreclosures all of that can impact your credit but may not reflect on your credit score. This makes your credit report considered as high risk.  Focusing on the score, but not the contents within the credit report is not the way to go. 

Assets & Debt 

Now let’s talk about assets. Do you have enough money for your down payment? Typically for conventional loans you need 5% down for FHA loans you need 3.5% down and if it’s an investment property meaning you’re not going to live on it you’re going to rent it you need 20% down that has nothing to do with your closing costs and Reserves which may be required depending on how well and how clean your file is set up?  

Calculate your income by knowing how much you make an hour and the debt do you have compared to your income, Debt to income ratio, it’s a very simple formula: 

Hourly wage x Hours worked per week = Income 

Hours worked on average per week for full time employees is 40 

Example:  $20 x 40 hrs= $800/week 

To calculate your debts, you need to look at not only what bills you pay, but also what you spend. How much are your bills every month I’m not talking about your utilities I’m not talking about Groceries. I’m talking about credit card payments vehicle payments, anything in collections the things that are reporting on your credit report.  

Monthly debt / Income = Debt to income ratio (or percentage) 

To qualify for a conventional preferred loan for you not to exceed 43%. FHA loans are a little bit more flexible. You may be able to get up to 55%, However you must make the decision, do you want to spend 55% of your income on one bill? Keep in mind these percentages must include your new housing payment. 

This is the foundation before you step into an office and apply for a loan. You’ll need to submit your documentation which includes Social Security card, driver’s license, paystub’s, W-2s, tax returns bank statements for the last two months, any proof of receipts that you just paid something off. If someone has just given your random $10,000 that you deposited your account, you’ll need a gift letter stating that you don’t owe them that money and it’s not an additional loan. If not, we now need to add it into your debt-to-income ratio. 

Pre-Approval 

Walking in with this little bit of knowledge, you’ll understand what’s expected of you upfront and whether what you’re being told matches your records. Once you’re pre-approved keep in mind that those numbers are not final. A pre-approval does not mean you are approved for a mortgage. You must take into consideration taxes and insurance HOA; the total of the mortgage will change after you figure out which home you want to purchase. My advice for you to keep in mind is to find the cheapest house with all the specs that you’re looking for. Just because you’re pre-approved for $550,000 does not mean that you must spend $550,000, so do not feel pressured. Mortgage loan originators and real estate agents. We work on commission the more you spend the more we make. Unfortunately, sometimes that drives the direction you’re led in. 

Try to stay ahead of that and know that the person that keeps your best interest at heart first and foremost will always be yourself. No, I’m not saying that mortgage loan originators and real estate agents don’t have good morals, because we do. It’s still your responsibility to understand the process so that if you run into someone that does not have your best interest at heart you can identify it and move around them. 

House Hunting 

Once you’ve found a home you love your Real Estate Agent will make an offer and, in this market, you’ll need to hell the seller accepts. If they do, great! If not, you’re gonna do some back-and-forth. You may even miss out on that home you love.  

When negotiating look for seller concessions. Seller concessions is money given from the seller to help with your buyer’s cost. Meaning, you pay less out-of-pocket. You should always ask about a down payment assistance program too. You may be a classified as a first-time home buyer if you qualify. A good Realtor should know to ask for you but if not be sure to ask so you aren’t missing out on any savings. The only way to know if you qualify as if you ask what the requirements are, it never hurts. It may be something available to you, that will also help with your closing cost. These programs make it so some people end up paying little to nothing for closing cost and their down payment so keep that in mind when you’re looking for financing for your home.  

Underwriting 

After the seller accepts your offer, you’re on your way to owning that home! But what happens after that? Your mortgage loan originator takes all your documents, contracts, and your application, and they submit it to a lender for underwriting. Underwriting is the process of an individual reviewing your documentation. They are making sure that what you reported is what the documentation supports. They’re checking the guidelines for qualified mortgages, and they are making sure that you are within guidelines and company policies based on the information you provided. They are now reviewing your assets your, debt- to- income ratio, and your credit reports. They’re making sure that you don’t own additional homes and that you’re not reporting that you had a two-year employment history when you filed your taxes. If you own a business, they’re making sure you can support yourself, you can’t write off all your income and then tell me that you can afford a home when you can’t. Keep in mind that this process takes weeks. Therefore, it’s important to understand what you qualify for before you decide to apply because if you provide the proper documentation, we can cut down the underwriting process with a clean file clean submission.  

Sire & Co. 

Some of the things that I offered to you are counseling, especially for first-time homebuyers. With FHA loans you get to shop around. Keep in mind certain fees you must pay for such as an appraisal inspection fee, and title hazard insurance. The list goes on and on, so you be prepared financially to cover these fees. Things take time. A benefit of working with Sire & Co is that we can pre underwrite your file to help cut down on your waiting time and close on your home sooner. 

Let’s say everything is perfect. You’ve submitted everything you’ve paid all your fees and the underwriter signed off now you are clear to close you have your final approval.  

Congratulations! You’re now going to finally sign your documentation which locks you into a loan for 10, 15 20,30 years and in some rare cases 40. This is when you celebrate being a homeowner. You get to move into your new home. 

Understanding the process is important because it’s a long one and it’s a long commitment one of the biggest commitments we make in life besides having children and getting married, don’t make the mistake of going into that situation, uneducated, unprepared, and lost with vocabulary. 

Looking for more resources? Download my Mortgage 101 workbook to help you get in the position to buy!