2018 Best home mortgage loan options

 

What is your best mortgage option? 

The one you get approved for.  All kidding aside, there is a lot of truth to this.  You can read online, apply at a lender with an option or two, or even go to your local bank.  But every single one of these could literally tell you no, or even worse, put you in the wrong type of loan!  And not because you are so bad, just because they don’t have any unique, out of the box options, or the right product for you.

1) FHA

Don’t count out an FHA loan.  They have a higher debt to income limit generally than does a conventional loan. They have a higher loan to value ratio for refinances than does conventional.  They have an option for citizens, non-citizens, even non-resident aliens, more options than conventional in general.  They allow lower credit scores than conventional and don’t penalize the mortgage insurance premium by the borrower’s credit score.  This can lead to real savings.

2) Bank statements for self employed individuals

Bank statements can be used instead of traditional tax returns to prove income.  This program is available from a number of non-traditional lenders.  This allows a self employed borrower to show 1, 12, or 24 months of business (or in some cases personal) bank statements to prove deposit income.  This could help a heavy gross sales, but low net sales (after expenses), client to still qualify for a loan.  Expect a little higher rate, but it’s better than not getting a loan.

3) Debt Service Coverage Ratio

Commonly used in commercial lending, this is a simple formula for income producing properties (AKA rentals) where the customer’s other assets and liabilities are ignored and the income of the property is the primary consideration of the loan’s ability to be repaid.  The cash flow of that particular property is the main consideration, and that cash flow is based solely on the rental income versus the PITIA payment.

4) Home improvement all in one loan

Whether it’s FHA or Conventional, the home improvement loan market is booming.  Many customers don’t know why this is better than a simple cash out mortgage refinance, or financing home improvements with a second mortgage or even a separate type of loan.  First of all, all in one can save you money on a lower rate and one payment (instead of 2 or more).  A “cash out” refinance also costs more than a home improvement mortgage loan.  It also makes the equity position simple, I owe this much on my house, not give me a minute and let me add it all up.

But the biggest reason of all, even bigger than the convenience of one payment, is the fact that this type of mortgage uses “future value.”  What is future value?  With the quote for the repairs from a licensed contractor in hand, the appraiser goes out and literally says that after these repairs the home will be worth that amount.  This will allow you to take advantage of that increased equity from day one.  Last of all, the conventional option even allows you to do this with a rental property.  While not for fix and flip transactions, it’s more for fix and rent investment properties, this could literally be a game changer.   Stop paying higher rates, points, etc., and get a conventional home improvement mortgage loan.

Wrapping it all up

What does all of this mean to you?  You are looking for a mortgage.  Go where there’s more than a handful of options.  Go where your unique circumstances are taken into consideration and may have a niche loan product answer.   To get started

Advertisements

3 C’s of Credit in mortgage lending

When I did car loans, I would often hear, “why is it so hard for a car loan when I just bought a home?”   Simply put, that’s because home lending has a distinct advantage.

Collateral:

A house is number one collateral.  Usually there is a significant investment is made by the homeowner in the form of a down payment or repairs.  And unlike a vehicle or recreational vehicle, it generally with care and maintenance holds its value or appreciates rather than depreciates in value over the years.   Add to that a government guarantee (VA, FHA, USDA) or a conventional guarantee (affectionately known as Fannie and Freddie, etc.), and a home is pretty secure collateral.

Credit:

This could be 10 blogs in and of itself.  But given that a credit history is like the reputation of paying bills, a lender is looking for how likely a borrower is to default in the future.  Each loan has its minimum score or minimum requirements.  It is too easy to spit out a score when there are so many factors that go into it.  But what is true is that if the credit is not good, then another factor must be outstanding (such as a very large down payment and the lender will charge a higher interest rate since the loan is at greater risk of default).

Capacity:

This is ATR (ability to repay) thanks to modern terms.  It means you can prove you make the money necessary to pay your bills, all of them, including your new mortgage payment.  There are a myriad of loan options, including 50% debt to income, a rather standard 40 (or more) percent and a host of other options that vary based on how they account for your income.

No collateral = Great capacity and great credit (unsecured loan is an example)

No capacity = Great credit and collateral such as a large down payment (and there are a few alternative ways to calculate income)

No credit = Great capacity and collateral (and there are a few alternative forms of credit)

I would be happy to consult on your unique situation. Corey Vandenberg