Posts Tagged mortgage approval
Mortgage Bits: What do you need to get Approved? Income Documents
Posted by Top Home Loans in Credit Information, General Banking, Mortgage Advice on November 8th, 2009
When thinking about getting a mortgage, most people assume that an approval depends on how much they have in the bank or their credit rating.
Although these items do have an impact, they are not the most critical items to the approval. The most critical item is your annual income.
Why? The bank is uninterested if you have the money to pay off the mortgage; however, they are interested in your ability to make the minimum monthly payments each month. They are also interested in ensuring that you have a guaranteed annual income.
So, what do you need for the bank to verify this?
The best way to ensure the bank has everything they need to approve you is if you provide your most recent pay stub and your last 2 years tax assessments; however, keep in mind that some banks may request more while some banks need less documentation. Make sure you have this as a minimum at all times.
Has your bank asked you for anything different? What process did you have to go through for your mortgage?
Welcome back!
The Mortgage Approval Process: One Day Approvals
Posted by Top Home Loans in General Business, Mortgage Advice, Real Estate on June 13th, 2009
The Process of Getting your Mortgage Approved
The first thing you should have is a covenant approval. If you do not have a covenant approval, then you need to contact your mortgage specialist immediately to get them to start working on your mortgage. Get a full list of all the documents you need to collect, and setup the time that the appraisal will be completed. Next, contact a property inspector to assign a time for the inspection to be completed.
Even if you do everything exactly how it should be done, the bank may be way behind schedule causing your approval to be days or weeks late.
When completing a mortgage application, you cannot assume that a bank will drop everything that they are doing to look after you. Instead, expect and anticipate that it may not be completed on time, and you may have to push back the waiver date.
Unfortunately, if you are trying to get the lowest possible interest rate, then the bank your doing your application with will be incredibly busy, and will have a difficult time getting your mortgage approved.
How to Avoid the Quick Close?
To avoid the quick close, the first thing that you must understand is that this is not the last house for sale, and if they are unwilling to negotiate, then you won’t be getting the best possible deal. When speaking with your real estate agent, advise him that you are unwilling to make certain sacrifices in order to close on the property. The most important sacrifice that you are unwilling to budge on is the timeframe that you have to complete your financing, inspection, and appraisal of the property. If your real estate agent is unwilling to settle with your terms, then you should be looking for a different real estate agent.
The second way to avoid the quick close is by choosing low demand properties. Low demand properties have been listed for more than 30 days. Usually on these properties, you can negotiate a better deal, have a longer closing, and have a longer time to waive the condition of financing. By choosing these less demanded properties, it will not only save you money, but it will also save you the stress when closing.
Before deciding on placing an offer in on a location, make sure that you know and understand exactly what you are getting into. Do the affordability calculations beforehand. Have the professionals on your team before you make an offer, and always maintain full control of the process. Do not let anyone who is working for you push you around.
How much You can Afford when Buying a New Home? Not how much You can be Approved for!
Posted by Top Home Loans in General Banking, General Business, Mortgage Advice, Mortgage Rates, Retirement Planning on June 11th, 2009
However, before placing your final offer, consider what you may be looking at in several years in the future.
How much You can be Approved for?
When getting approved for a mortgage, the bank will calculate the maximum mortgage payment that you can afford to be, at the absolute maximum, approximately 40% of your annual income. To describe this in actual numbers let’s use the following situation:
Your Annual Income: $40,000
Interest Rate: 4%
Amortization: 35 years
Your Property Taxes: $200/month
You have no outstanding loans, lines of credits, car loans, credit cards, etc.
You could potentially purchase a property for $300,000
Now you will be thinking ‘wow, I can buy a great house with such a little annual income’; however, this is definitely not the case.
Albeit, the bank may approve your mortgage, but let’s compare your take home dollars versus your household upkeep:
Total Mortgage Payment: $1,456.28
Total Monthly Property Tax Payments: $200
Monthly Home Insurance Payment: $62.50 approximately
Monthly Utility Bills: $300/month
Monthly Food Bills: $5/day or $150/month
Transportation: $200/month
Entertainment and Communication: $100/month
Total Expenditures: $2,468.78/month
Total Income: $40,000
Taxes and Other Deductions: $8,698.58
After-Tax Income: $31,301.42
After-Tax Monthly Income: $2,608.45
This means that you have a monthly surplus of $139.67 when living on an extremely light budget.
What Happens if Interest Rates go up?
When first applying for a mortgage, the bank is more than happy to approve your mortgage with a financial situation like this, but when you analyze what will happen if interest rates go up, then if some major financial improvements have not been made for the borrower, then the borrower could be in big trouble. Let’s see what happens if rates rise 50% and 100%.
Mortgage Amount: $300,000
Mortgage Rate: 6%
Mortgage Payments: $1,695.76
Payment Increase: $239.48
Mortgage Amount: $300,000
Mortgage Rate: 8%
Mortgage Payments: $2,102.48
Payment Increase: $646.20
These are incredible increases, and it will cause the borrower to go from a surplus budget to a deficit in a short amount of time. This will cause the borrower to have to refinance the equity from the property to keep up with the payments, or the borrower will have to have an ever increasing income.
Don’t think that these rates can happen? Take a look at a Historic look at Prime Rate
Why would the Bank lend like this?
The bank lends like this because they are assuming that the property value will increase, and that the borrower’s income will increase with inflation. The loan is based on today’s dollars, while the future payments are based on future dollars. Although, it appears to be a large increase in payments with the change in interest rates, but the bank is hoping that a portion of their clients will be able to make the payments, some will have to refinance to be able to afford the property, and a small percentage will default on the loan.
Even though some of the borrowers default, the bank is still expecting that the property values have increased, so they can sell the property at a profit.
Protect Yourself from Perpetual Debt or Default
By purchasing a house that has mortgage payments that are well within your means is a great way to prevent either of theses situations. By applying the additional surplus that you will have against the principle balance of your mortgage, then you will be able to pay your mortgage off quicker. As you pay down your mortgage, then you will be able to get away with lower monthly payments. In a few short years, you will be able to upgrade your property to a much bigger property with fairly low monthly payments as well.
By keeping your mortgage balance low, your payments low, and your budget surplus high, then you will be able to get debt free faster, and have more money to buy the home of your dreams without the risk.