The initial step in securing a loan is determining your borrowing capacity, which is crucial to finding the most affordable home price. Multiple factors are considered when determining how much you can comfortably afford. Consider your monthly income, credit score, monthly expenses, savings, down payment, interest rates, and housing values.  Our mortgage loan originators can assist you with these calculations to determine your buying power and the different mortgage options that are most fitting for you. Although not required, we do highly recommend prequalification.

Credit Score

Your credit score also plays a significant role in your loan qualification as well as the loan type and interest rate.  Credit scores gauge an individual’s credit risk compared to the general population. Factors such as total debt, payment history, new credit inquiries, credit history length, and credit type contribute to your credit score. It’s logical to authorize lenders to run your credit report only after deciding to apply for a loan through them to prevent negative effects on your credit score. Generally, higher credit scores mean better rates but you may still qualify for a mortgage loan. To improve your credit score in most models, prioritize timely bill payments, reduce outstanding balances, and refrain from accumulating additional debt. Significant score improvements typically require sustained effort over time.

Loan-To-Value Ratio

A loan-to-value (LTV) ratio compares the size of a loan to the value of an asset, typically a property. It’s expressed as a percentage and calculated by dividing the loan amount by the property’s appraised value. For example, if a home is valued at $200,000 and the mortgage is $180,000, the LTV ratio is 90%. 

Debt-To-Income Ratio

Your debt-to-income ratio is an overview of your financial health, comparing monthly debt to gross monthly income. This is used to determine risks associated with the buyer taking on another payment. To calculate your debt-to-income ratio:

Step 1: Add up all monthly bills including:

• • • • • • • • • • • monthly rent/house payments
                    • monthly alimony/child support payments
                    • student loan monthly loan payments
                    • Auto loan payments
                    • credit card payments (use the minimal money  payment)
                    • other debts

Step 2: Divide the total of the added monthly bills by your gross monthly income (this is your income before taxes).

Step 3: The result is your debt-to-income ratio, in the form of a percentage. The lower your DTI, the less risky you are considered to lenders.

Down Payment

A down payment is money that is given upfront and goes directly towards the principal which helps lower the mortgage. The amount varies depending on the type of loan. A higher down payment may help reduce your interest rate and build equity in your home quickly.

There are abundant types of loans available but the most common is fixed rate and adjustable rate. A fixed rate allows you to keep the same monthly principal and interest payments. You can choose 10, 15-, 20-, 25-, or 30-year payment terms with low down payment options. Adjustable-rate mortgages are best for those planning to own their home for a short period. The interest rate is fixed for 5, 7, or 10 years and will vary after. Rest assured, we will assist you with finding the right loan for you.

Several documents are required including W-2, tax returns, bank statements, investment account statements, and brokerage accounts. Please use the reference list provided below.

https://lendingvault.com/mortgage-documentation-checklist/

Based on your application and credit report, additional documentation may be required. In such cases, prompt cooperation in providing requested information can expedite the application process.

When ready, please contact our loan officers for one-on-one assistance with the process.

After submitting your loan application, our officers will begin the approval process promptly. The processor meticulously verifies all provided information and if any discrepancies arise, either the processor or your loan officer addresses them promptly.

Information reviewed includes income verification, credit score assessment, asset evaluation, and property appraisal. In some instances, supplementary documentation may be necessary before finalizing loan approval. In such cases, prompt cooperation in providing the requested information can expedite the application process.

Congratulations, you have been approved! 🎉🎉🎉At this point, you’re prepared to sign the final loan documents. Before signing, carefully review the documents to verify the accuracy of your name, and address, and that the interest rate and loan terms align with what was discussed. A notary is required for this.

There are also various fees associated with obtaining a mortgage, transferring property ownership, premiums for homeowners’ insurance, home inspection costs, appraisal fees, and more which also take place during closing. These fees are paid separately from the down payment and are typically paid by both the buyer and seller.