2006-2016 Quality Service Pinnacle Award; 2014-2016 Sapphire Sales Award

8 Steps to Get Your Finances in Order


  • Develop a family budget. Instead of budgeting what you would like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses such as car repairs, illnesses, etc., as well as predictable costs, such as rent.

  • Reduce your debt. Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 and 28 percent of income, you need to get the rest of your installment debt—car loans, student loans, revolving balances on credit cards—down to between 8 and 10 percent of your total income.

  • Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You will probably see some great ways to save.

  • Increase your income. It may be necessary to take on a second, part-time job to get your income at a high enough level to qualify for the home you want.

  • Save for a down payment. Although it is possible to get a mortgage with only 5 percent down—or even less in some cases—you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent down payment.

  • Create a house fund. Do not just plan to save whatever is left toward a down payment. Instead, decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.

  • Keep your job. While you do not need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.

  • Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.

Reprinted from REALTOR® Magazine Online with permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2007. All rights reserved.


How Purchase Loans Are Made
A Step-By-Step Walkthrough

1.

 

Pre-approval - Get pre-approved for a mortgage and know in advance exactly how much house you can afford. Completing this step will also increase your negotiating power since you'll be viewed as a "cash buyer".

 

2.

 

Loan Search - Put yourself in the hands of an experienced mortgage professional, someone who will help you to determine which financing options best suit your needs today and in the future.

 

3.

 

Loan Application - It's crucial to supply the lender with as much information as possible, as accurately as possible. All outstanding debts as well as assets and income should be included.

 

4.

 

Documentation - Paperwork supporting the application must also be submitted. Information commonly sought includes pay stubs, two years' tax returns, and account statements verifying the source of the down payment, funds to close and reserves.

 

5.

 

The Hunt - Begin shopping for a house. Once you find the right one, the terms of the sale will be negotiated, including the price and potentially the terms of the loan being sought.

 

6.

 

Appraisal - Lenders require an appraisal on all home sales. By knowing the true value of the home, the borrower is protected from overpaying.

 

7.

 

Title Search - This is the time when any liens against the property are discovered. A lien may have been placed on a property to ensure payment of outstanding debts by the owner. All liens must be cleared before a transaction can be completed.

 

8.

 

Termite Inspection - While most purchase loans do not require a formal inspection for termite and water damage, some loans (especially government loans) allow for the possibility. If problems are found, repairs may be necessary.

 

9.

 

Processor's Review - All pertinent information will be packaged by your mortgage professional and sent to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.

 

10.

 

Underwriter's Review - Based on the information put together by the loan professional, the underwriter makes the final decision regarding whether a loan is approved.

 

11.

 

Mortgage Insurance - Many lenders require private mortgage insurance when borrowers put down less than 20 percent on a loan.

 

12.

 

Approval, Denial or Counter Offer - In order to approve a loan, the lender may ask the borrowers to put more money down to improve the debt-to-income ratio. The borrower may also need a bigger down payment if the property appraises for less than the purchase price.

 

13.

 

Insurance - Lenders require fire and hazard insurance on the replacement value of the structure. Flood insurance will also be required if the property is located in a flood zone. In California, some lenders require earthquake insurance on condominiums.

 

14.

 

Signing - During this step, final loan and escrow documents are signed.

 

15.

 

Funding - At this point, the lender will send a wire or check for the amount of the loan to the title company.

 

16.

 

Confirmation of Funding - The lender authorizes the disbursement of loan proceeds.

 

17.

 

Closing - Documents transferring title will now be officially recorded by the County Recorder.

 

18.

 

Congratulations, you are now a homeowner!

 

If you'd like to learn more, please give me a call. I'd be happy to speak with you!

 



Pre-Approval vs. Pre-Qualification


The Difference Between Pre-Qualification and Pre-Approval

Pre-qualification is the first step in obtaining mortgage financing. A potential borrower answers a few questions to provide the loan consultant with a quick snapshot of the borrower's income, existing debt, accumulated savings and whether or not there is a co-borrower. Signature(s) allow the loan consultant to run a credit report and begin to determine what loans are good candidates for this particular client. However, there are literally thousands of loan programs available. It is important for the loan professional to know the long-term financial objectives of the prospective homeowner.

Pre-approval is a written documentation that proves the borrower has full support of a lender. It means the form 1003 Uniform Residential Loan Application has been completed and reviewed by an underwriter. Based on the borrower's income, debt ratio and savings, the underwriter will provide a dollar amount this borrower is eligible for. Now the borrower has the convenience of shopping for a home in the price range agreed upon by the lender.

Pre-approval allows potential homeowners to shop as cash buyers, and that means negotiating power. The seller will take an offer from a pre-approved shopper much more seriously, and full credit approval can save the borrower up to 15% off the purchase price of the home.


Why Pay Private Mortgage Insurance (PMI)?


Private Mortgage Insurance (PMI) is required by most lenders when a borrower puts less than 20% down on a purchase loan. Paid for by the borrower, PMI not only protects the lender from foreclosure, it also enables many buyers to qualify for loans and purchase real estate when they couldn't have otherwise. On January 1st, 2007, legislation went into effect making PMI tax deductible for new borrowers whose personal adjusted gross income is $100,000 or less. This has created additional opportunities for many buyers to finance a more expensive home or, in some cases, to obtain a lower monthly payment, while reducing annual income taxes.

An alternative financing option that borrowers may also consider involves taking out two home loans concurrently. The second loan, commonly referred to as a "piggyback loan", can take the form of a traditional home loan or a Home Equity Line of Credit (HELOC). It supplements the borrower's funds to help them achieve a 20% down payment, eliminating the need for PMI. However, in most cases PMI can be cancelled once the accumulated equity has reached 20% of the home's value, while a second home loan will have to be paid back in full regardless. Factor in the new PMI tax benefit, and a borrower's monthly payment may actually be lower with PMI versus a piggyback loan scenario.

Choosing PMI is not a one-size-fits-all decision. It is my job to weigh my borrowers' long-term goals and to provide comprehensive solutions that clearly explain all of the pros and cons of each mortgage option available. It's a job I take very seriously.


What is Title Insurance?


What Is Title Insurance?

Title insurance is a policy that is usually issued by a title company to protect the lender against something that might have happened in the past, rather than something that might occur in the future. In essence, an extensive search of public records is conducted by the title company to validate who has held title to the property in the past. The lender wants to know if there are any liens, judgments or easements on the property that they should be aware of.

But title insurance also guards against hidden risks or unknown factors that might cause an encumbrance at some point in the future, such as unknown heirs, forged deeds or wills, misinterpreted wills, false impersonation of the true owner of the property, deeds signed over by persons of unsound mind, or defects in the recording of past titles. Title insurance covers the cost of the title search, and any legal fees that may result from any dispute over past property ownership. It is required by the lender and paid for by the buyer.

The smart home buyer will also purchase title insurance to protect their own interests. This is a one-time premium that protects the buyer or their heirs, as long as they retain an interest in the property.


Credit Score


Ways to Improve a Credit Score

With identity theft on the rise, consumers are becoming increasingly aware of the importance of reviewing their credit reports. However, their thoughts about credit and its long-term impact upon their financial future typically end there until it's time to apply for a home loan. A credit score is used to evaluate how likely a borrower is to repay their loan. There are several actions a person can take to impact their score. Here are a few to keep in mind.

If someone has a credit card which has a high balance, while their remaining credit cards have low or zero balances, it's best to distribute the debt across the cards in order to change the ratio of debt to available credit.

Many consumers believe that they should close an existing credit card account if the card is inactive. It's better to keep the account open and use it periodically in order to take advantage of its contribution to their long-term credit history.

With the flood of credit card offers that come in the mail, it may be tempting to open new accounts. However, these "pre-approved" offers are not approved until the companies run a credit report which will temporarily impact the applicant's credit score. In addition, experts recommend that a person maintain between two to five credit card accounts, total, so it's best to avoid accumulating too many.

There are several factors that contribute to a credit score. But by observing the tips above, as well as making payments on time and keeping balances as low as possible, a consumer is sure to achieve superior results.


Rate Lock


Rate Lock Duration

Lock durations can vary for mortgage financing, but most lenders lock in the interest rate for 60 days from the date the loan application is submitted. As long as the loan is closed within that lock-in period, the lender honors the agreed upon interest rate.

Some consumers are misled by advertising that quotes unrealistically low rates based on 15- or 30-day lock durations. This is called 'short-pricing.' The lender basically knows the borrower doesn't have time to meet their conditions and have all the necessary paperwork in order within that brief time period. As a result, the lender is not obligated to honor the low rate that was listed in their advertising.

For simple refinance transactions, a 45-day lock-in period is more realistic. For purchase transactions, which are typically much more complex, you're much safer going with a 60-day lock, even though the interest rate might be a little higher than the rate you see quoted on billboards and the Internet.

Borrowers should make sure they have a written rate lock agreement, and allow themselves a reasonable amount of time to close their loan. I prefer to lock in all my clients as soon as their application is filed, rather than gamble with predicting short-term interest rate movement. My team and I focus more on assisting clients with long-term goals and management of their mortgage debt to secure a strong financial future.


Mortgage Points


What Are Points and When Should You Pay Them?

Points are up-front fees paid to obtain a better interest rate on a loan. One point equals one percent of the loan amount. A lower interest rate may result in a lower monthly payment, but it is important to consider how long you intend to be in the loan, and to compare current rates to historical market trends.

If you take out a $300,000 mortgage and decide to pay one point, this translates into an up-front closing cost of $3,000. Paying a point up front saves $100 a month but it will take 30 months to recuperate the cost of that point. If you decide to refinance or sell the home before the 30-month mark, your money is lost. In this case, you would benefit financially by remaining in the home longer than the 30 months.

Rates run in cycles. When rates are at historical lows, it is sensible to pay points if you plan to live in the home for an extended period of time. It is unlikely that rates will go down; hence, there will be no need to refinance.

When rates are up, there is a strong likelihood that they will come down. This is no time to pay points. The chances of refinancing in the future are extremely high, and you will likely not be in the loan long enough to recuperate the cost of the points.


Negative Amortization


What is Negative Amortization?

A negative amortization loan is an adjustable rate mortgage that allows the consumer to tap into home “equity” by offering several monthly payment options. Up to an additional 25% of the original loan amount is available to the borrower.

This flexibility works well for consumers who have seasonal income or want more control over their cash flow. However, the borrower must have some degree of financial discipline. Each month, the borrower will choose to make a fully amortized payment, an interest-only payment, or a low introductory rate payment.

A fully amortized payment is larger, and includes payment toward principal + interest. The interest-only payment is lower, but no part of that mortgage payment goes toward the principal. The borrower is simply keeping their head above water.

The third option is where negative amortization comes into play. If the consumer chooses to make the low introductory rate payment, the interest is not sufficiently covered for that month. The balance of interest owed is then tacked back on to the principal, thus increasing the mortgage debt.

Smart consumers can use these payment options to their advantage, but should have a full understanding of how adjustable loans work. They should also know that once the maximum loan amount has been reached, the lender will immediately increase the payment amount to the fully amortized rate.