Evaluating Loan Types

Mortgage Type Considerations

You have selected a Real Estate agent and loan officer, now is the time to decide the loan type. This article will outline factors for selecting the best loan type for you.

Ideally, the mortgage type should reflect maximum purchasing price with the least amount of required cash.

You should review various AskChristee loan option reports with your Real Estate Agent and Loan Officer. Click here to run AskChristee’s ‘Buyer PreQual’ Program.

The following chart is general mortgage information for an owner-occupied, single family, primary residence. Not applicable for purchasing a vacation or investment property.

1. Conventional loans have a maximum loan limit amount based upon an area. Any number above that amount is considered a Jumbo loan.

2. Mortgage insurance is typically part of your monthly payment. For Conventional loans, it is referred to as PMI, for FHA loans it is called MMI. PMI is based upon the LTV and credit score, and generally is less expensive than FHA. USDA mortgage insurance is less expensive than FHA. PMI coverage can be dropped on a Conventional but not on an FHA or USDA loan.

3. These credits scores are a minimum and are suggestive of loan approval. There are many factors that combine with credit score in mortgage underwriting such as: down payment, cash reserves, job stability, earnings, and other compensating factors.

4. FHA loans require an upfront MIP fee, which is approximately 1.75% of the loan amount. VA loans require (except disabled vets) a Funding fee, which is 2.3% of the loan but it decreases with an additional down payment. USDA loans require a 1% funding fee. These fees can be paid in cash at closing but are generally financed.

5. USDA loans are more applicable for low to moderate-income households. Income limits are based upon geographical area. Conventional loans with 3% down also have income limits.

6. All loan types, except USDA, are available everywhere in the US. USDA loans are restricted to rural areas and are not available for urban areas.

7. Maximum seller concessions on conventional loans are based upon loan-to-value.

AskChristee Algorithms contain all mortgage requirements and regulations.

Pre-Approval Letter

A pre-approval letter is a document from your mortgage company setting forth the loan amount, mortgage type, and payment which you qualify for. This document will be required by most listing agents before presenting your offer to the sellers. Pre-approval letters come in different formats and can differ dramatically. Some lenders will collect documentation and submit the loan to AUS (automatic underwriting) before issuing a pre-approval. Other lenders will collect documentation, but not submit to AUS before issuing the pre-approval. Some lenders will verbally (or online) collect borrower information without documentation and issue a pre-approval letter.

Prep for Loan Application

If you are thinking about applying for mortgage approval in the near future, now is NOT a good time to change careers, move your money around, have unusually large deposits, or buy big-ticket items. Lenders like stability. If you are considering any major changes, it pays to meet with a lender and ask them how to proceed before you make any changes. Unless you have a firm grip on your qualifying ratios, now is not the time to purchase an expensive item such as a new car.

Loan Application Documents. Prior to making formal loan application, you should make ready the following documents: (1) W2’s or 1099 (2) Two years of Income Tax Form 1040 (3) Two months Bank Statements (4) Revolving credit card statements (5) Any personal loan documents – such as auto loans or student loans (6) 2 most recent paystubs, and (7) Alimony or child care documentation.

You need not worry about things such as: (1) life insurance (2) health insurance (3) utility bills (4) cable bills, and (5) car insurance (6) school tuition. You should confirm required documentation with your Lender prior to application. If you don’t want delays in the process, you must be proactive and be ready to submit a complete loan application.

Gift Letters

If you are utilizing gift funds as part of your down payment or closing cost, you should start the process now. To avoid delays in your loan process, you should obtain a letter from the donor with the following information:

• The donor’s name, current address, and home phone number
• The donor’s relationship to the client (e.g. card is signed, “Love, Mom & Dad”)
• The exact dollar amount enclosed
• The date of the funds transfer (in legible format MM-DD-YYYY)
• A clear statement from the donor expressing that no repayment is expected
• The donor’s clear signature
• The address of the property to be purchased

Some lenders will also verify the donor’s capacity to give. In other words, they will verify the donor’s bank statements.

Contract Form

To avoid additional stress at time of signing an ‘offer to purchase’, we suggest you familiarize yourself with the standard contract of sale form. Most real estate contracts are signed electronically and as such, the signee is automatically moved to signature sections, making it difficult to understand what you are signing. For this reason, we suggest you ask your agent to provide you with the standard contract form. The agent should be able to forward the contract form in a PDF format. This will give you the opportunity to review the form prior to signing an offer to purchase.