Month: April 2021

Homebuyers are often not aware of what can cause issues within the home loan process and potentially sabotage your goals. Read these tips to learn some ways to avoid home mortgage sabotage!

Credit Cards and New Debt

Do not apply for any new credit of any kind! That creditor will show up on your credit report, and the lender will have to verify there is no new outstanding debt. If you are planning to add debt or pay debts off for your home mortgage closing, wait until you have spoken with your Loan Officer. A paid debt may not show on your credit report, and the lender will have to re-verify each creditor’s current balance, which takes time. It may be possible to pay off those debts at closing, with no effect on your approval process. This also includes making any hefty purchases for your new home, such as furniture, appliances, etc.

Do Not Move Cash/Savings Around

Lenders must verify all funds before your home mortgage closing, including the source of those funds. Moving assets around can create a paper trail nightmare. The best advice is to leave everything where it is, even if the purpose of the move is to pool your funds for buying the house. After your accounts have been verified and the lender gives you the “ok”, you can consolidate your accounts if needed.

Large Deposits

All sources of funds for the transaction must be verified. The lender will be looking at any large deposits into your asset accounts (checking, savings, money market, etc.). You should be prepared to document the source-such as a copy of a paycheck, bonus check, money from the sale of an asset, etc.

Do Not Pack Financial Papers

Keep all pages of your tax returns, along with any W-2’s, 1099’s, or K-1’s and any other financial papers from the past two years in a handy place. If you sold a home in the past two years, have your (HUD-1) Settlement Sheet handy. You may have to provide more items, which your Loan Officer will outline.

Become a Paper Hound

Save all pages of all your bank statements and pay stubs from now until closing. The lender will need these while they are processing your home mortgage, so please make sure you keep them handy!

Gifts

Gifts from relatives are very common in the purchase of a home. However, there are specific ways a gift must be handled to avoid a paper trail nightmare. If you are receiving a gift, hold off on accepting the funds until you have spoken with your Loan Officer. There is a Gift Letter form you may use which provides instructions.

Selling Something?

If you are selling an asset such as a car, an antique, or baseball card collection to come up with the cash for closing, make sure you document the asset. For example, if you purchase a car, obtain the check from the buyer, car title, and a bill of sale. You may need to get a certified appraisal for the item.

When in doubt, always consult your Loan Officer. They will help guide you through the home mortgage process and answer any questions you might have along the way. Are you looking to purchase a home? Reach out to one of our Loan Officers today! And for more information on what you should avoid during the home mortgage loan process, click here.

When researching the home buying and lending process, odds are you’ve encountered the acronym LTV at some point. But what does LTV mean and why does it matter? Read on to find out!

What is LTV?

LTV stands for loan-to-value ratio. Expressed as a percentage, LTV is the difference between the mortgage amount and the market value of a property. This compares the size of your loan to the value of the home you’re purchasing.

Why is it Important?

A loan-to-value ratio is very important to your lender because it represents how risky your loan is to them. The more money you borrow compared to the value of the home, the riskier the loan is to your lender because they have more money at risk if you were to default on the loan. The lower your loan-to-value, the less risky it is to a lender. Therefore, a lower LTV can improve your chances of getting a lower interest rate; conversely, a higher LTV may result in a higher rate.

How to Calculate It

A loan-to-value ratio is easy to calculate. Simply divide the loan amount by the purchase price or, in the case of refinances, the appraised value. Let’s say you want to buy a home valued at $300,000 and are able to put down 15% which is $45,000. Take $300,000 minus $45,000 to get $255,000 as the loan amount. To calculate LTV, divide $255,000 (loan amount) by $300,000 (home value) to get 0.85. Loan-to-value is always expressed as a percentage, so a result of 0.85 would translate to an LTV of 85%. In general, the higher your down payment, the lower your loan-to-value.

What is a Good LTV?

What is considered a “good” loan-to-value ratio depends on what kind of loan you’re applying for. When it comes to conventional mortgage loans, 80% is generally considered a decent LTV ratio. This makes sense when you consider that many lenders look for buyers to pay at least 20% as a down payment. That said, if your LTV is higher than 80%, it doesn’t necessarily mean you won’t be approved or will be saddled with a higher interest rate. There are also some programs that allow for higher loan-to-value ratios. FHA loans allow down payments as low as 3.5% which means a loan-to-value of 96.5% is acceptable. USDA and VA loans may allow no down payment at all, meaning an LTV of 100% can even be acceptable. In general, you still want to aim for a lower loan-to-value, but having one that’s higher doesn’t have to make or break your ability to get a desirable loan.

Want to know more about calculating your home equity? Read more here.

Are you thinking about buying a new home or refinancing your current home? Contact one of our knowledgeable loan officers today to learn more and explore your options!