Step 1: Find Out How Much You Can Borrow
The first step in obtaining a loan is to determine how much money you can borrow. In case of buying a home, you should determine how much home you can afford even before you begin looking. By answering a few simple questions, we will calculate your buying power, based on standard lender guidelines.
Click here to Pre-Qualify.
You may also elect to get pre-approved for a loan which requires verification of your income, credit, assets and liabilities. It is recommended that you get pre-approved before you start looking for your new house so you:
- Look for properties within your range.
- Be in a better position when negotiating with the seller (seller knows your loan is already approved).
- Close your loan quicker
LTV and Debt-to-Income Ratios
LTV or Loan-To-Value ratio is the maximum amount of exposure that a lender is willing to accept in financing your purchase. Lenders are usually prepared to lend a higher percentage of the value, even up to 100%, to creditworthy borrowers. Another consideration in approving the maximum amount of loan for a particular borrower is the ratio of monthly debt payments (such as auto and personal loans) to income. Rule of thumb states that your monthly mortgage payments should not exceed 1/3 of your gross monthly income. Although there are several options where the ratio could be higher. Ask me how much you can qualify and we can discuss what is best for you.
FICO™ Credit Score
FICO™ Credit Scores are widely used by almost all types of lenders in their credit decision. It is a quantified measure of creditworthiness of an individual, which is derived from mathematical models developed by Fair Isaac and Company in San Rafael, California. FICO™ scores reflect credit risk of the individual in comparison with that of general population. It is based on a number of factors including past payment history, total amount of borrowing, length of credit history, search for new credit, and type of credit established. There are several different credit score models. Therefore the score you get when your credit report is pulled at an auto dealership may be quite different from the mortgage credit score.
Self Employed Borrowers
Historically, self employed individuals often find that there are greater hurdles to borrowing for them than an employed person. Calculating income from a business tax return is often more complicated. Often times lenders want to take the most conservative approach in calculating the actual income. They may not even consider certain items that increase the self emplyed borrowers buying potential. That's where our extensive experience with self employed borrowers can greatly benefit you. We can analyze and present the best case to the lender in order to use all available income and increase your buying potential.
Source of Down Payment
Lenders expect borrowers to come up with sufficient cash for the down payment and other fees payable by the borrower at the time of funding the loan. Generally, down payment requirements are made with funds the borrowers have saved. If a borrower does not have the required down payment they may receive “gift funds” from an acceptable donor. There are also down payment assistance/grant programs you may qualify for that can be used to cover down payment requirements and/or closing costs. Some of these programs have interest rates, some do not. Ask me which of these you may qualify for.
Step 2: Select The Right Loan Program
Home loans come in many shapes and sizes. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each. Whether you are buying a home or refinancing, there are 2 basic types of home loans. Each has different reasons you'd choose them.
1) Fixed Rate Mortgage
Fixed rate mortgages typically have terms lasting anywhere from 10 to 30 years. Throughout those years, the interest rate and monthly payments remain the same. You would select this type of loan when you:
- Plan to live in home more than 7 years
- Like the stability of a fixed principal/interest payment
- Don't want to run the risk of future monthly payment increases
- Think your income and spending will stay the same
2) Adjustable Rate Mortgage
Adjustable Rate Mortgages (often called ARMs) typically last for 15 to 30 years. But during those years, the interest rate on the loan may go up or down. Monthly payments increase or decrease. You would select this type of loan when you:
- Plan to stay in your home less than 5 years
- Don't mind having your monthly payment periodically change (up or down)
- Comfortable with the risk of possible payment increases in future
- Think your income will probably increase in the future
By carefully considering the above factors and seeking our professional advice, you should be able to select the one loan that matches your present condition as well as your future financial goals.
Step 3: Apply For A Loan
Step 4: Begin Loan Processing
Although lenders conform to standards set by government agencies, loan approval guidelines vary depending on the terms of each loan. In general, approval is based on two factors: your ability and willingness to repay the loan and the value of the property.
Once your loan application has been received we will start the loan approval process immediately. We verify all of the information you have given. Often times this can be done automatically through secure online services. If any discrepancies are found, we will work with you to straighten them out. This information includes:
- Income/Employment Check
- Is your income sufficient to cover monthly payments? Industry guidelines are used to evaluate your income and your debts.
- Credit Check
- What is your ability to repay debts when due? Your credit report is reviewed to determine the type and terms of previous loans and your repayment history.
- Asset Evaluation
- Do you have the funds necessary to make the down payment and pay closing costs?
- Property Appraisal
- Is there sufficient value in the property? The property is appraised to determine market value. Location and zoning play a part in the evaluation.
- Other Documentation
- In some cases, additional documentation might be required before making a final determination regarding your loan approval. We will work with you to resolve any issues.
In order to improve your chances of getting a loan approval:
- Fill out your loan application completely. You may use our online form to expedite the process.
- Respond promptly to any requests for additional documentation especially if your rate is locked or if your loan is to close by a certain date.
- Do not move money into or from your bank accounts without a paper trail. If you are receiving money from friends, family or other relatives, please contact us for the specific documentation we will need depending on the type of loan.
- Do not make any major purchases until your loan is closed. Purchases cause your debts to increase and might have an adverse affect on your current application.
- Do not go out of town around your loan's closing date. If you plan to be out of town, you may want to sign a Power of Attorney.
Step 5: Close Your Loan
After your loan is approved, you are ready to sign the final loan documents. You will receive a Closing Disclosure at least 3 days prior to the scheduled closing with a break down of the loan terms, fees and costs to close.
Your loan will normally close in Colorado as soon as the documents are fully executed by both you and the seller. On owner occupied refinance loan transactions federal law requires that you have 3 days to review the documents after you sign them before your loan is funded and closed.