Your first home mortgage

Your First Home Mortgageby Rhonda Porter

Washington State Licensed Loan Officer MLO-1213241Mortgage Master Service Corporation CLA 40445

• Senior Loan Officer at Mortgage Master Service Corporation , where she’s been employed since April 2000.

• Licensed Mortgage Originator MLO121324 for homes located in Washington State

• Author of nationally recognized blog, The Mortgage Porter

• Interviewed by NPR, Seattle Times, MSN Money, WSJ Market Watch.

• 2012/2011 WAMP Outstanding Loan Originator finalist

• Lives in Seattle area with hubby, three kids (off to school), flat coated retriever and kitten

• Enjoys cooking and painting on black velvet (in her spare time)

http://www.mortgageporter.com/

The “4 C’s” of Mortgage Underwriting Basics

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When reviewing an application for a mortgage, lenders consider the borrower's "4 C's".

Capacity = the ability to repay the mortgage factoring your income, employment history and debts.

Credit = credit history and scores. Capital (or Cash) = your available assets, including

your down payment. Collateral = the proposed home you are considering

financing.

I often compare the "4 C's" to the legs of a bar stool.If one of the legs are weaker than the other three, the stool may still be okay. The more weak legs, the less sturdy the stool will be.

Lenders will often consider borrowers who do not have strength in all areas of the "4 C's".

It's important to start the preapproval process early in case you need to make improvements to your financial scenario.


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BASIC QUALIFICATIONS

• 2 years steady employment history in same line of work (formal education may count).

• Income and assets fully documented.

• Debt to income ratio less than 45%

• 3-4 established credit lines 1-2 years old currently in use

• Credit scores 620 or higher

• Savings for down payment + enough savings for 2 months mortgage payments "in reserves"









Credit ScoresWhat YOU Need to Know


Credit scores favor older established debt over new accounts/debts.New debt brings scores down. Keeping balances below 50% of credit lines improves scores.Scores improve again when balances are below 30% of the credit line.Paying off and closing older accounts may lower your score.Paying off collections may lower your scores (consult with a LO first).3 - 4 established and active credit accounts preferred.Credit scores change constantly to reflect current use of credit.

What Creates a Credit Score?










Lenders rely on scores from three credit bureaus which each produce a score for a borrower.

The middle credit score is what is used for underwriting purposes and for pricing the mortgage rate.If there are more than one borrower, like a husband and wife, the lowest middle score is what is used.

In the example above, the borrower's middle score is 730 and co-borrower's middle score is 775. For this couple, lenders will use the lower of the two scores: 730.

Conventional programs are more credit score sensitive than FHA, VA or USDA mortgages.

Free Credit ReportYou have access to a free copy of your credit report at www.annualcreditreport.com. This is a great place to start reviewing your credit. Lenders do not use the same scoring modules as what you will find online so the credit scores you see will most likely be different than those pulled from a mortgage company.









http://www.annualcreditreport.com/

Qualifying


Your current debts and income are reviewed to determine how much mortgage payment you qualify for.

The monthly mortgage payment along with the mortgage program and current interest rates determines what loan amount you qualify for.The amount of funds used for down payment will determine the sales price you qualify for.

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Debt to Income Ratios


Debt to income ratios consist of a "front" and "back" end ratio, also referred to as "dti" (debt to income) ratios.

The front ratio is the proposed total new mortgage payment, including any HOA dues, divided by the borrower(s) gross monthly income(s).

The back end ratio is the proposed new mortgage payment PLUS the borrowers debts divided by the gross monthly income.

Let's assume a mortgage program allows for a 28/45 debt-to-income. If the borrowers gross monthly income is $5000, this means that they qualify for a $1400 total monthly mortgage payment assuming their debts do not exceed $850 in monthly payments.

$5000 income x 28% (front ratio) = $1400 $5000 income x 45% (back ratio) = $2250$2250 - $1400 = $850 max monthly debt

The more monthly debt a borrower has, the less mortgage payment they qualify for.

NOTE: One of the biggest mistakes I see home buyers make is buying a car before buying a home. The monthly payment typically reduces what they would have qualified for and it negatively impacts credit score.

aka DTI









Income & Employment


Ideally, lenders want a two year history of steady employment in the same line of work. Sometimes a borrower's formal education may count as employment history. And borrowers with new jobs may be able to use an employment letter or contract to show their future employment.

Employment and income are documented by W2's, paystubs and sometimes tax returns.

Self-employed borrowers need a minimum of two years history with 2 years of tax returns to support their income.

It's important to meet with a local mortgage professional early to review your employment and income scenario.









Calculating Income


Salaried BorrowersAnnual base salary / 12 Months

Commission, Bonus income or Self EmployedAveraged over 2 years

Hourly IncomeAveraged over 2 years

OvertimeAveraged over 2 years

Child Support or AlimonyMust have 3 years continuance and paid regularly

This is just a small example of different types of income and how they're basically calculated.









Funds for Closing


Down Payment and Closing Cost

The amount of funds you have available for down payment determine the sales price you qualify for.

For example, if you qualify for a $400,000 mortgage based on your income and debt load, and you have saved $50,000 for down payment, you may buy a home priced at $450,000 (assuming the seller or lender paid rebate pricing pays closing cost).

Typically, the down payment for a home needs to come from the home buyers funds. These funds will need to be "sourced" or documented with complete statements showing where the funds came from and proving they are the borrowers.

Closing cost can be paid for by the buyers seasoned funds or other resources, such as rebate credit or a seller contribution. "Seasoned" funds means that the funds have been in the buyers account for two months.

Lenders will require documentation of large deposits on your asset accounts to verify the funds used in the transaction are yours.

Cash on hand is rarely accepted by lenders for down payment or closing cost.









http://www.mortgageporter.com/2010/12/what-determines-how-much-home-you-qualify-for-part-2-funds-for-closing.html

http://www.mortgageporter.com/2007/05/funds_for_closi.html


Acceptable funds for closing costAll the above

Seller/builder contributions (subject to program guidelines)

Lender rebate pricing (increasing interest rate to generate rate credit)

This is just an example of where funds for closing can come from.

Acceptable funds for down paymentChecking and savings

Stocks/bonds/mutual funds

Retirement funds (can be borrowed or withdrawn)

IRS refund

Gift from family (% of gift varies depending on program guidelines)

Inheritance

Sale of personal property (keep documentation)

Funds from down payment assistance program









http://www.mortgageporter.com/down-payment-assistance

Mortgage ProgramsThere are many mortgage programs available to the first time home buyer.

Which one you select will depend on your personal financial scenario, including down payment, credit scores and income.

It's important to ask your mortgage professional to review mortgage programs that you may qualify for and what the pros and cons are.

Consider how long you plan on staying in the home and what your financial goals are.

Be sure to ask plenty of questions!


Home Buyer Education ClassesI am a Washington State Housing Finance Committee trained instructor teaching classes with real estate agents in Western Washington. July 13th at High Point Library in West SeattleJuly 20th at Green Lake Library in SeattleFor a list of classes where I'm teaching or to rsvp, visit www.mortgageporter.com/education









http://www.mortgageporter.com/education

Home Advantage with Down Payment AssistanceHome Advantage is a program that is offered through the Washington State Housing Finance Commission. Home Advantage is typically combined with a Home Advantage second mortgage that can finance closing cost and the down payment. Unlike the House Key program (state bond), this program has unlimited funds available for qualified Washington home buyers.The first mortgage can be FHA, VA or a conventional mortgage. Waiting periods DO apply. With a 680 or higher credit score, the conventional mortgage offers reduced mortgage insurance premiums which makes this a very attractive option for home buyers shy on down payment who have been considering FHA.The second mortgage has a maximum loan amount of 4% of the first mortgage loan amount and the payment is deferred for 30 years (or until the property is no longer owner occupied) at zero percent interest. Should the home owner convert the property to an investment/rental or sell the home, the second mortgage may be called due.

Here are some of the program guidelines:property must be owner occupied/primary residenceonly for homes in Washington stateyou do not need to be a first time home buyermaximum debt to income ratio is 45% (exceptions up to 50% with specific compensating factors)620 is the minimum credit scorehome buyers must attend a Home Buyer Education seminar that has been registered with WSHFC

As a WSHFC trained mortgage originator, I'm pleased to be able to offer their programs.










"Traditional" Conforming Mortgage Basic Guidelines20% down payment to avoid private mortgage insuranceSecond mortgages up to 85% loan to valueDown payment as low as 3% with private mortgage insurance.Perfect credit scores are not required however the better your credit, the lower your rate will be.45% debt-to-income ratios (especially w/pmi)Loan limits vary by county. Most counties in Washington have a $417,000 loan limit. King, Pierce and Snohomish Counties have a loan limit of $506,000 for single family dwellings.


Conforming Loan Limitsfor King, Pierce & Snohomish Counties

1 Unit: $506,0002 Unit: $647,7503 Unit: $783,0004 Unit: $973,100









Fannie Mae HomePath

Fannie Mae HomePath properties are homes that Fannie Mae has foreclosed on. These homes are generally in better condition that typical distressed properties. Often times, Fannie Mae will make minor improvements prior to putting the homes on the market.Property must be eligible.

Visit www.homepath.com for available homes.Minimum 3% down paymentNo private mortgage insurance with credit scores above 660No appraisal requiredSeller can contribute towards closing costGifts for down payment acceptable with 5% down or moreOnly available for specific homes owned by Fannie Mae (foreclosed).


http://www.mortgageporter.com/fannie-mae-homepath-mortgage

http://www.mortgageporter.com/fannie-mae-homepath-mortgage

http://www.homepath.com/









FHA Insured MortgagesMinimum down payment 3.5% - 5%Maximum allowed Seller contribution is 6% of bona fide closing cost, prepaids and reserves Owner occupied onlyNo mandatory Seller paid closing costHigher loan limits than conforming in Seattle, Pierce and Snohomish CountiesMortgage insurance regardless of loan to value.No income limitsAppraisals are essentially the same as conventional. Possible second appraisal if property was "flipped" - HUD does not allow 2nd appraisal fee to be paid by buyer.










Why FHA?Less reserve requirements if borrower owns different property.Buyers who pay alimony may consider this program due to flexible

underwriting.Popular with young professionals who have great employment and income and are shy on down payment.Home buyers can purchase 2-4 plex w/minimum down payment IF they're occupying one of the units.203k rehab programs allow for remodeling with an all-in-one FHA mortgage.

FHA Loan Limits King, Snohomish & Pierce Counties

1 Unit: $567,5002 Units: $726,5003 Units: $878,150

4 Units: $1,091,351


http://www.mortgageporter.com/2010/07/fha-alimony-calculation.html









VA MortgagesOnly available to those who have served our country in the militaryNot difficult to underwriteAppraisals are done through VA's systemSeller pays for buyer's escrow feeMaximum allowed seller contribution is 4%


VA Loan LimitsKing, Snohomish & Pierce Counties$500,000 for zero down payment

NOTE: VA does not set loan limits. VA down payments for loan amounts over the zero down limit are 25% of the difference.

For example, a $600,000 sales price has a minimum down payment of $25,000 in King County. 600,000 - 500,000 = 100,000. 100,000 x 25% = 25,000.









USDA MortgagesZero Down -Rural Housing

Only available for homes that are in designated rural areas. (not orange on map)Income limits apply based on county and family sizeOwner occupied onlyNo maximum seller contribution


Current household income limits for USDAKing and Snohomish Counties: 1-4 Person $93,450 | 5-8 Person $123,350Pierce County: 1-4 Person $82,450 | 5-8 Person $108,850









Jumbo Mortgages aka "non-conforming"


Typically requires higher credit scores.Less than 20% down payment possible with piggy back mortgages or LPMI (lender paid mortgage insurance).Additional reserves typically required of buyers.Two appraisals may be required.Seller contribution varies depending on the lender.









Mortgage Insurance (pmi)


When you have less than 20% down payment, odds are you have some sort of mortgage insurance. Mortgage insurance protects the lender in the event the borrower defaults on the mortgage loan - it does not protect the buyer.

Government loans, such as FHA, USDA and VA loans all have their own forms of "mortgage insurance" which each have their own unique terms. FHA and USDA have both upfront and monthly insurance premiums. VA loans currently just have an upfront insurance premium called a "funding fee".

Conforming mortgages may have private mortgage insurance with premiums that vary depending on program type, credit scores, loan to value and other factors. Mortgage insurance premiums may be paid monthly, in a lump sum, split premium (portion paid upfront and monthly) or lender paid mortgage insurance (typically rate is slightly higher for the lender to absorb the cost of the pmi).

You may have several options and you should ask your mortgage professional to explain what is available to you.









Property TypesDifferent types of property may impact your financing, including the interest rate.

Detached Single Family Dwelling is your basic house. If it's in a plat with a home owners association (HOA), it may be considered a "Planned Unit Development" or "PUD". Documentation may be required if there are dues associated with the HOA.

Condominiums have special requirements. Lenders want to make sure that the HOA is financially sound and that not too many of the units are rentals/non-owner occupied. Government loans (FHA, VA and USDA) have a list of condos that are approved for mortgages. Conventional mortgages charge a 0.75% fee (priced into the rate) if the mortgage term is more than 15 years or less than 25% down payment.

Townhomes can be considered a single family dwelling or condo. The only real way to know is by the property's legal description. If it has HOA dues, it's probably a condo. If it is a condo, the lender will treat it as such as far as guidelines and pricing.

Manufactured Homes. At this time, Mortgage Master Service Company does not lend on this type of property.










Mortgage Rates

Mortgage rates have been historically low for a long period of time largely thanks to the Fed's manipulation of the market.Mortgage rates are based on mortgage backed securities (bonds) and the Fed has been buying mortgage backed securities (MBS) in order to keep rates low. The intent is to help spur the housing marketing and allow home owners to refinance and save money on their monthly mortgage payments.When the stock market is rallying, you may see mortgage rates trend higher as investors will pull money from bonds (like MBS) to seek a potentially higher return from stocks. The reverse is also true. Mortgage rates may change several times a day when the markets are volatile. Unless your rate is locked, it's subject to change.










10 Factors to Pricing a RateWhen I’m pricing a rate quote, I use our pricing engine which sorts through all the lenders we work with and provides their current pricing based on the criteria I enter. The different lenders we work with may have better pricing based on various price points.Here are some of the required criteria I need to consider before I’m able to produce live rates for my quote:

1. Loan amounts for the first mortgage and (if applicable) second mortgage or heloc balance2. Property or sales price (or appraised value)3. Purpose of the loan (is it a purchase, refi, cash-out refi, etc.)4. Occupancy (primary residence, second home or investment property)5. Estimated mid-credit score of all borrowers6. Property type (detached, condo, 2-4 plex, et.c)7. Loan type (conforming, jumbo, FHA, VA, USDA, etc.)8. Loan term/amortization (30, 20, 15, etc.)9. Amortization type: fixed or adjustable rate (arm)10. Lock period (when is the transaction anticipated to close)

Any of the above factors can impact how a rate is priced. Add to this criteria that we’re dealing with live, changing pricing that is impacted by mortgage backed securities (bond markets). There also may be bank pricing overlays or special programs, like Home Advantage or Fannie Mae HomePath.










Where do you start?

The first step is to get preapproved so that you know how much you qualify for before you present an offer on a property.

After you're preapproved, you can begin to shop for your first home, knowing how much you can buy and what your new mortgage payment will be. You really cannot start the preapproval process too early!










Typical Documentation for getting Pre-Approved

Last two years W-2'sLast two years tax returns (if self employed or paid commission)Most recent paystubs covering 30 days of incomeMost recent bank statements/asset accounts (all pages) documenting funds for closing and reservesComplete loan application Social Security Award LettersDivorce Decree/Child Support OrderBankruptcy and DischargeWhen considering buying a home, it's time to unplug your shredder.

Keep copies of everything, including deposits to your bank or asset accounts. Questions? Ask your Loan Officer.










References and Resources• APR (Annual Percentage Rate)• Conforming Loan Limits• Credit Scores• Debt to Income Ratios• Do's and Don'ts during the Mortgage Process [Flyer]• Down Payment• FHA Loan Limits• FHA guidelines on "flips"• Finance Flyers for Listings Sample [Flyer]• HUD - FHA Condo approved list• Loan Application• Preapproval • Rate Quote• Seller Contributions• The Mortgage Porter - Blog• USDA income limits• VA Loan Limits


http://www.mortgageporter.com/2012/10/apr-is-not-the-best-tool-for-shopping-mortgage-rates.html

http://www.mortgageporter.com/2012/11/2013-conforming-loan-limits-for-washington-state-mortgages.html

http://www.mortgageporter.com/credit-and-identity-theft

http://www.mortgageporter.com/2007/12/debt-to-income.html

http://www.mortgageporter.com/images/2013/03/dos-and-donts-flyer-rhonda.pdf

http://www.mortgageporter.com/2007/05/funds_for_closi.html

http://www.mortgageporter.com/2012/12/2013-fha-loan-limits-for-washington-state.html

http://www.mortgageporter.com/2012/12/hud-flip-waiver.html

http://www.mortgageporter.com/images/2013/03/re_loan-comparison-flyer_rhonda.pdf

https://entp.hud.gov/idapp/html/condlook.cfm

http://www.mortgageporter.com/apply

http://www.mortgageporter.com/2012/02/what-do-you-need-to-get-a-preapproval-letter.html


http://www.mortgageporter.com/2011/05/how-much-can-sellers-pay-towards-closing-cost.html


http://www.mortgageporter.com/2013/02/updated-income-limits-for-usda-zero-down-home-loans.html

http://www.mortgageporter.com/2012/12/2013-va-loan-limits-for-homes-in-washington-state.html










http://www.mortgagemasterwa.com/

http://www.nmlsconsumeraccess.org/

The Fine PrintThe content provided is presented or compiled for your convenience by Rhonda Porter and is provided for informational purposes only. It does not necessarily represent the views or opinions of Mortgage Master Service Corporation.

Neither Rhonda Porter nor Mortgage Master Service Corporation assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information disclosed, or represents that its use would not infringe privately owned rights.

The information provided should not be construed as offering legal, financial or other advice to be relied on by the reader to make or refrain from making any decision or to take any action.

The investment, mortgage or financial services or strategies mentioned in and throughout this website may not be suitable for you.

Mortgage Master Service Corporation is an Equal Housing Opportunity Lender.All rights reserved. All content, including but not limited to text, photos and videos are protected by US Copyright. Plagiarism will not be tolerated.

Rhonda Porter is NMLS Licensed Mortgage Originator MLO-121324.

Mortgage Master Service Corporation NMLS# CLA-40445.










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