Qualifying For A Home Loan in Massachusetts
In recent years since the real estate bubble popped, getting approved for a mortgage has become a slightly more labor intensive process for both borrowers and mortgage professionals. Additional regulations and laws set forth by the government require lenders to heavily scrutinize a borrower’s ability to repay a home loan.
A good Cape Cod mortgage professional should be able to clearly articulate this complex process in a manner that you can understand to help you make the most confident and informed decision about your various options.
While much has changed with regards to the availability of mortgage financing to the masses in light of the foreclosure crisis that swept the nation starting in late 2006, the “Four C’s” of underwriting standards have remained consistent throughout history.
Capacity
CAPACITY is the analysis of comparing a borrower’s income to their proposed debt, which includes the new mortgage payment and any other monthly liabilities that may show up on a credit report. Basically answering the question as to whether or not the new mortgage payment is within the borrower’s ability to repay.
Character
CHARACTER refers to a borrower’s credit history and credit score. Make sure that you are keeping your credit card balances below at least 30 percent of your credit limit. keeping your balances low and keepiong accounts open can result in a higher credit score in most cases. If there so happens to be an outstanding account in failed payment, a letter of explaination as to why this is would usually be required to keep the process going.
Capital
CAPITAL is in reference to your assets. During this step of analysis, the lender typically reviews bank statements to verify that the borrower has the sufficient amount of funds available for the down payment, closing costs and other such fees. Any assets (gifts or loans) larger than a few hundred dollars will need to be explained in document.
Collateral
COLLATERAL is also known as the actual home. An evaluation of the home’s condition and value is generally baseed off on the home’s appraisal during the appraisal process. All repairs of the home must also meet the program’s guidelines, and any other property used as a comparison to the collateral must be as similar to one another as possible.
Mortgage Approval Components in Cape Cod
Mortgage lenders approve borrowers for a loan, which is secured by real estate, based on a standard set of guidelines that are generally determined by the type of loan program.
The following bullets are the main components of a mortgage approval in Cape Cod:
Debt-To-Income (DTI) Ratio –
A borrower’s DTI Ratio is a measurement of their income to monthly credit and housing liabilities.
The lower the DTI ratio a borrower has (more income in relation to monthly credit payments), the more confident the lender is about getting paid on time in the future based on the loan terms.
Loan-to-Value (LTV) –
Loan-to-Value, or LTV, is a term lenders use when comparing the difference between the outstanding loan amount and a property’s value.
Certain loan programs require a borrower to invest a larger down payment to avoid mortgage insurance, while some government loan programs were created to help buyers secure financing on a home with 96.5% to 100% LTV Ratios.
EX: A Conventional Loan requires the borrower to purchase mortgage insurance when the LTV is greater than 80%. To avoid having to pay mortgage insurance, the borrower would have to put 20% down on the purchase of a new property. On a $100,000 purchase price, 20% down would equal $20,000.
Credit –
Credit scores and history are used by lenders as a tool to determine the estimated risk associated with a borrower.
While lenders like to see multiple open lines of credit with a minimum of 24 months reporting history, some loan programs allow borrowers to use alternative forms of credit to qualify for a loan.
Property Types –
The type of property, and how you plan on occupying the residence, plays a major role in securing mortgage financing.
Due to some HOA restrictions, government lending mortgage insurance requirements and appraisal policies, it is important that your real estate agent understands the exact details and restrictions of your pre-approval letter before placing any offers on properties.
Mortgage Programs –
Whether you’re looking for 100% financing, low down payment options or want to roll the costs of upgrades into a rehab loan, each mortgage program has its own qualifying guidelines.
There are government insured loan programs, such as FHA, USDA and VA home loans, as well as conventional and jumbo financing.
A mortgage professional will take into consideration your individual LTV, DTI, Credit and Property Type scenario to determine which loan program best fits your needs and goals.
Pre-Qualification Letter Basics in Massachusetts:
Getting a mortgage qualification letter in Cape Cod prior to looking for a new home with an agent is an essential first step in the home buying process in Cape Cod.
Besides providing the home buyer with an idea of their monthly payments, down payment requirements and loan program terms to budget for, a Pre-Approval Letter gives the seller and agents involved a better sense of security and confidence that the purchase contract will be able to close on time.
There is a big difference between a Pre-Approval Letter and a Mortgage Approval Conditions List.
The Pre-Approval Letter is generally issued by a loan officer after credit has been pulled, income and assets questions have been addressed and some of the other initial borrower documents have been previewed. The Pre-Approval Letter is basically a loan officer’s written communication that the borrower fits within a particular loan program’s guidelines.
The Cape Cod Mortgage Approval Conditions List is a bit more detailed, especially since it is usually issued by the underwriter after an entire loan package has been submitted.
Even though questions about gaps in employment, discrepancies on tax returns, bank statement red flags, and other qualifying related details should be addressed before a loan officer issues a Pre-Approval Letter, the final Mortgage Approval Conditions List is where all of those conditions will pop up.
In addition to borrower related conditions, there are inspection clarifications, purchase contract updates and appraised value debates that may show up on this list.
This will also list prior to doc and funding conditions so that all parties involved can have an idea of the timeline of when things are due.
Getting Approved For a Massachusetts Mortgage
