February 19th, 2015
I don’t want to underestimate or speak ill of loan officers at banks, but most just merely take your application and hand it off to an underwriting department in hopes that it will meet the banks guidelines and get approved.
If the loan does not get approved, that is the end of the road for them, and you just lost a couple of weeks of your time and effort.
On the other hand, an independent loan originator, also known as a mortgage broker, will usually work with several lenders, and is able to place you with a bank that will accept your particular circumstances.
Most independent loan originators, unlike bank employees, are on a commission only basis, so if you do not get the loan, they do not get paid.
Every day you are bombarded with advertisements from large banks and credit unions that want to help you get a mortgage. The truth is that the loan officer at the bank, works for the bank, not for you.
Independent mortgage loan originators on the other hand are on your side, they are your agent, not the banks.
A lot of people believe that by going directly to the bank they will get a better deal on their rate or fees. The truth is that brokers will have rates that comparable to those of a bank. The reason is that banks rely heavily on brokers to sell their loans, so they will not undercut brokers, plus brokers are not on a payroll, so they do not represent any overhead for the bank.
But the most important reason to use a mortgage brokers is that they can go to multiple lenders in order to get you the best deal possible. Remember that not all loans are created equal and banks do not offer every loan program.
There are basically two types of fees, lender fees (like underwriting and processing fees) and third-party fees (title, escrow, appraisal, recording, notary). Some you can shop around for, other cost pretty much the same anywhere. Be weary of offers with no fees, they are only rolling them into the interest rate where you do not see them.
It should be noted that taxes are not fees, they just that taxes.
Simply stated, your closing costs (if you live in Central Florida) will about 5% of the purchase price of the home. What does this mean for you? It means that on a $200,000.00 home you will need about ten thousand dollars for closing costs. This amount does not include your down payment!
But do not despair, it is customary for the seller to contribute towards these closing costs. So talk to your Realtor and have them negotiate this for you.
The most important thing is the debt-to-income ratio (DTI), which is calculated by taking the total house payment (principal and interest, taxes, insurance and mortgage insurance, if applicable), adding all “long-term” debt payments (any that will continue for more than 10 months), and then expressing that sum as a percentage of the gross monthly income.
This number should not be any higher than 50%, but depending on the loan program it can be a bit higher or lower.
The loan-to-value ratio (LTV) is also important. LTV is the ratio between the appraised value of the home and how much money you are borrowing. So if you only give 5% down payment on a home, your LTV is 95%.
Why does this matter? Different loan programs and different interest rates are determined by the LTV. FHA loans are 96.5% LTV whereas USDA are 100% LTV.
Your income is also very important, especially being able to show that it is stable and continuous. Lenders will usually look for two years employment history. If you are self employed, they will want to see your taxes and your business taxes for the last two years.
Your credit score plays a huge role, if not the most important one. Bad credit or lack of credit is just bad. A good mortgage loan officer will work with you and help you in correcting any credit situations that can be helped.
Last but not least, they want to see money in your bank account for at least two months. Sorry, but cash in this situation is no good, since you can not prove where you got it from and they need to see where all the assets have come from.
Best advise is to shop around, and if you are denied, ask the lender why, don’t take a simple no for an answer. You must also take a hard look at all the charges, they do add up, and can end up costing you thousands.
And please do remember to pay your bills!