Pre-Qualification gives you an estimate of how much you may be able to borrow based simply on the financial information you tell us. This does not include the gathering of documents for us to review and confirm things such as “useable” income or assets needed to pay for your Down Payment and Closing Costs.  It’s a great first step when you’re just starting to explore your options; however, this type of qualification is 100% contingent upon the information you tell us being 100% in compliance with the federal mortgage guidelines.

Pre-Approval, on the other hand, involves a full review of your credit, income, and assets, using documentation such as pay stubs, W2’s, sometimes tax returns, as well as bank statements. It’s a stronger commitment from a lender and shows sellers that you’re serious and financially ready to buy. When submitting offers on homes, sellers typically require a Pre-approval and not a Pre-qualification because it shows them a lender has looked at your documents and determined that you’re able to buy the home.

We can start with a simple soft-pull on your credit so you don’t have to worry about any ding on your scores or an inquiry showing up.  And our typical practice is to provide Pre-Approvals.  We work very hard on the front end so that when we issue you a Pre-Approval Letter, you can be absolutely certain that you can buy your dream home.  No one likes surprises in Underwriting when they’re already under contract to buy their dream home and have already paid for a Home Inspection and an Appraisal.  This must be one up front!

One of the biggest untruths in buying a home is the idea you have to make a 20% down payment – and that is no longer the standard for most buyers. Depending on the loan type, you may be able to buy a home with as little as 3.5% to 5% down - and 0% down options exist for eligible VA and USDA loans. Down payment assistance programs can also help bridge the gap for qualified buyers.

Generally speaking, there are 3 factors that we as mortgage lenders look at:

  • FICO Credit Score: Most loans have a minimum credit score requirement. While we look at other factors, the higher the FICO credit score, the stronger the chances for a better Mortgage and/or a better Interest Rate.
  • Debt-to-Income Ratio (DTI): This ratio tells us what percentage of your gross monthly income will have to be applied to your debts, including the new monthly Mortgage Payment plus any Auto loans, Credit Cards, Student Loans, Child Support, Tax Liens and/or Court Judgments, etc. If the monthly debt obligations are too high, as a percentage of the monthly gross income, it can lead to your mortgage application being declined.  It is important to have a Mortgage Loan Officer who works hard to make your DTI qualify when things look tight.  Personally, I like to get as creative as I legally can to maximize your documented income and minimize your monthly debt obligations!
  • Assets: Most buyers generally must pay a Down Payment plus Closing Costs in their purchase of a home, so we must confirm that you have – or have access to – the funds required to pay these two amounts.
    • Gift Funds from family members can be used as an asset if a Homebuyer personally does not have the assets to purchase.

There are typically 5 components of a monthly Mortgage Payment:

  • Principal: This is the portion of your payment that goes toward paying the loan off.
  • Interest: This is the amount of interest you pay to the lender for the loan.
  • Taxes (Property Taxes): Typically, lenders will collect 1/12th of the home’s annual Property Taxes that are charged by the county each year. This way, when the tax bill comes due – and that’s at Christmas time in many states – the lender will have the funds saved in your Escrow Account to pay the tax bill for you.
  • Insurance (Homeowners’ Insurance): As with the Property Taxes, most lenders will typically collect 1/12th of your annual Homeowners’ Insurance Premium so that each year, the lender also has those funds in your Escrow Account for them to use in paying your insurance renewal on a yearly basis.

Many folks have heard of the acronym “P.I.T.I.” for these first 4 components of a monthly Mortgage Payment, but it is very important to also remember that depending on the amount of their down payment, some Homebuyers will also have to pay a 5th component:

  • Private Mortgage Insurance (if Applicable): If a Homebuyer is putting less than the old 20% down as their Down Payment, most loans have federal guidelines that require the Homebuyer to pay for an insurance policy that protects the lenders in the event of a default or foreclosure. The amount of this monthly expense is collected within the monthly Mortgage Payment, and it can vary widely depending on FICO Credit Scores and just how much the Homebuyer is putting down.

You want to be sure you have a Mortgage Loan Officer who will take the time to review these components with you so that you have a solid understanding of how your finances will look after the purchase!

Your FICO credit score, loan type, down payment size, and current market conditions all play a role in determining your mortgage Interest Rate. A higher credit score typically means a lower rate, which will save you money every month and over the life of the loan.

No!  Not at all.  I see situations every month where some other Mortgage Loan Officer has told a Homebuyer that they cannot qualify, but not only can I get their mortgage approved, I can also close it very quickly. 

Simply put, some Mortgage Loan Officers can be smarter than others, some might work harder to make it work for you if something falls outside the normal box to qualify, some are organized and have a simplified process to help you, and just like some doctors have great bedside manor while other doctors do not, some Mortgage Loan Officers take time to ensure you understand things and that all your questions are answered in a way that you need, while some Mortgage Loan Officers can be hard to reach after you commit to using them!  Some Mortgage Loan Officers are available nights and weekends when the homebuying activity is happening, while others have set office hours outside of which, the customer may have to wait until Monday to get an answer.  In the end, some genuinely care about YOU and what is best for you when you are taking on such a massive event in your life as buying a home, while others do not!

Think about this: For most people in general, when they think about how they personally do their jobs, they realize that other coworkers may not do the same job in the same way.  This personal approach is typically what causes some folks to get bigger raises or even promotions while their peers do not.

On my end, I just love it when a desperate Homebuyer comes to me after another mortgage lender has declined their mortgage – often just a few days before they were supposed to close.  I would guess that in 90% of those cases, I find a way to make it work and close quickly.  I just love getting creative to turn an individual’s hopes around!

*Important Tip!  Just because one mortgage lender says you cannot qualify, that does NOT mean that you should give up on your dreams of homeownership!  A better Mortgage Loan Officer can make all the difference in the world for you!

A simple online search will show that Closing Costs typically range from 2% to 5% of your loan amount and include fees for things like an Appraisal, Title Insurance, and the mortgage lender’s Processing and Underwriting, among others.  

Most people keep it simple and only refer to 2 buckets of funds a Homebuyer should expect to pay: their Down Payment plus their Closing Costs.  But there are several expenses you will pay as part of the Closing Costs that you would have to pay regardless of whether or not you take out a mortgage for the purchase.  The ‘true’ Closing Costs are those fees associated with getting the loan and buying the home.  However, there are other expenses that you would pay even if you paid cash for the home, such as Property Taxes and Homeowners Insurance.

  • At closing, you will pay for 1 full year of Homeowners Insurance, and
  • Depending on the time of the year, you and the Seller may have to pay each of your prorated portions of the year’s Property Taxes.
  • With both of these, a mortgage lender will often collect an additional 3 months of each to put into your Escrow Account.

With my mortgage loans, I typically see Closing Costs range from 2.00-2.50% but every lender will provide a Loan Estimate early in the process, so you’ll know what you will have to pay on Closing Day.

And if needed, there are lots of ways to either roll the closing costs into the mortgage or there are also down payment assistance programs available that might provide funds that can be used to cover both the Down Payment and Closing Costs.

The best mortgage depends on your personal financial situation and long-term goals.  This is certainly NOT a one-size-fits-all situation!  There are generally going to be options for most Homebuyers:

  • Conventional Loans are considered the standard reference point. For example, you may hear people talk about “today’s Interest Rates”; they are typically talking about the day’s Interest Rates for a 30-Year, Conventional mortgage.  These are the most common types of mortgages; however, there are certainly many times when another type of mortgage is better for a Homebuyer.  Your mortgage lender should be able to walk you through these options and provide the information you need to decide which type of mortgage you want to proceed with.
  • FHA, VA, and USDA loans offer lower down payments or flexible credit requirements. Working with an experienced loan officer (like me!) ensures you get personalized guidance based on your unique needs.
  • Non-QM Loans: These are non-traditional mortgages for folks who, for whatever reason, do not qualify for any of the 4 types of mortgages listed above.
  • Within each of these types of loans, Homebuyers typically have two options regarding their Interest Rate:
    • Fixed-Rate Mortgages offer stability with consistent monthly payments for the life of the loan.

Adjustable-Rate Mortgages (ARMs) start with a lower rate that is set for 3, 5, 7, or 10 years but after that, the Interest Rate can change more than once over the rest of the loan term.  While these make sense for certain specific Homebuyers, they can also be a significant risk to other Homebuyers.

Homebuyers can often choose a shorter-term mortgage than the common 30-year mortgage.  While 30 years is the maximum length of a mortgage, shorter terms can save you tens of thousands of dollars, and quite often hundreds or thousands of dollars!  With the shorter term comes a larger Monthly Payment because you have less time to pay back the loan amount. 

The mortgage process varies according to which lender is doing the loan.  They all do generally the same processes, but the sequence and the amount of time allowed for each part of the process can vary greatly!  From application to closing, the typical mortgage lender typically needs 28 to 30 days.

And the individual Homebuyer also plays a role in how long the process takes.  Some Homebuyers are very prompt in providing whatever documentation the lender needs, while others might put it off as long as they can.  Timelines can vary depending on how quickly documents are submitted and whether any additional conditions arise during underwriting.

My team and I have streamlined each step of each process, and we’ve got it dialed in so that we can close quickly!  We have been able to close some mortgages in just 8 days (that’s the fastest the federal laws allow!) in desperate situations, but our standards for closing a mortgage are the following:

Conventional Loans:                14 days

FHA and USDA Loans:             14 days

VA Loans:                                   18-21 days

Non-QM Loans:                         14 days for some, 28 days for others

*Homebuying Tip!  Most Sellers prefer to close as quickly as possible, so being able to close faster than any other buyers who may be negotiating to buy the same home can really, really help your offer to stand out and become the Seller’s top choice.  Or perhaps you may be negotiating the price or some other terms of the purchase contract, and offering a fast close can help you with your negotiations.

Sellers prefer to close as quickly as possible because they need to know with 100% certainty that they can buy their next home as scheduled, so that they can plan movers, family helpers, school changes, utilities, mail forwarding, and many other of the fine details within moving.   They simply cannot have full peace-of-mind until the sale of their current home is closed because most of them know that anything can happen all the way up to Closing Day that could end the Homebuyer’s ability to purchase.  Tragically, I have seen a few cases where homebuyers lost their jobs in the last 1 or 2 days before their anticipated Closing Day – so then they no longer qualify for their mortgage without any income.

Absolutely YES!! Having debt certainly does not automatically disqualify you. Lenders look at your Debt-to-Income Ratio (DTI), the percentage of your monthly income that goes toward debt payments including the new monthly Mortgage Payment, to determine how much you can comfortably qualify for. Student Loans have specific mortgage guidelines, but with the right strategy, you can absolutely qualify for a mortgage with Student Loans.

There are solutions for these situations, too!

  • Taxes due to the IRS: there are exceptions to every rule, but in most cases, we can approve you with the taxes being past due as long as you have a payment plan that is approved by the IRS in writing and that you can prove that you have made the last 3 monthly payments to the IRS as agreed within the payment plan.  Without having a payment plan and being able to show a good payment history with that plan, you will most likely have to pay the balance owed before or on Closing Day.
  • Court Judgements: These can be a little trickier than past due taxes, but in many cases, you can also provide a written payment plan that has been approved by the collector along with the 3 months of consistent payments on the payment plan. In the same way, if someone lacks a payment plan or the payment history, they will most likely have to pay the balance in full before or on Closing Day.

Equity is simply the difference between the current value of a home and the current balance on any mortgage(s) secured by that home.

  • For example, if someone’s home has increased in value to $500,000 and they have just one mortgage with a balance of $298,000, then that person has $202,000 in Equity!

Yes, there are!  Several states have regulations that if someone wants to borrow against their equity, they can only do so as long as the resulting balance of their mortgage(s) is less-than-or-equal-to 80% of the home’s current value.  There are 2 common ways that folks can access their equity:

  • Cash-Out Refinance: This option is where we replace the existing mortgage with a new one that has a higher loan amount. For example:
    • A home’s value is $500,000
      • 80% of that value is $400,000, so this new loan can only be up to this amount.
    • The homeowner’s current mortgage balance is $150,000.
    • The homeowner can do a cash-out refinance for $400,000, and the loan funds will first go toward paying off the current mortgage’s balance of $150,000, then toward covering the closing costs of this new loan, and the remaining monies are given to the homeowner to use however they wish! In this example, after paying off the current mortgage and the closing costs, this homeowner might receive approximately $245,000.
  • Home Equity Line of Credit (HELOC): This option does not pay off the current mortgage, but it establishes a new, second mortgage for the amount of money the homeowner wishes to access. The 80% rule still applies, so sticking with the previous scenario, here is an example to help illustrate:
    • The home’s value is $500,000
      • The combination of mortgages – the current one plus this new second one – is capped at 80% of the Home’s Value, so $400,000 in this case.
      • The homeowner will keep the current mortgage open, with its balance of $150,000, so this means he can use the HELOC to access $250,000.

Which one is better?  It depends!

  • Cash-Out Refinances usually have significantly lower interest rates than HELOC’s do.
  • If the current mortgage has an Interest Rate that is much lower than the current market’s interest rates, it may benefit the homeowner to use a HELOC. This way, they continue to pay lower interest on the amount of the current mortgage, and although the Interest Rate on a HELOC is much higher, doing it this way might save the homeowner money in the long run.

To determine what is best for someone, it’s always worth doing the analysis and put the 2 options side-by-side! A good Mortgage Loan Officer can help you with this analysis so that you can make the decision you are most comfortable with.