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Speak with a loan professional before you start to shop for a home!

It's important to know how much home you can afford, obtain a written pre-approval letter, and provide yourself with a superior negotiating position once you find the right property.

Make sure your mortgage broker or banker is well-educated, experienced, and is on top of recent guideline changes with the banks and investors he deals with.

Here are some questions lender should asks  today before determining the buyer’s qualification to purchase:

• Do you currently rent from a management company or an individual homeowner?
• Do you have cancelled rent checks if it becomes necessary to show them?
• How much do you currently pay in rent or on their mortgage?
• How much money do you have in liquid assets?
• Do you have money saved for down payment? How about reserves?
• If you have bought before and are buying a new house, how was you mortgage history in the last 12 months?
• Do you have any mortgage or rental lates in the last 12 months? How about in the last three years?

Lenders have tightened their guidelines because they have to. Foreclosures on mainland are up dramatically. When the housing market was booming, banks relaxed their guidelines so that more people than ever were able to purchase a new home. Loans were made to people who, quite possibly, should never have been given loans. Today, many of those loans are going into default.

Pre-Approval vs. Pre-Qualification

Pre-qualification typically means that a buyer has told a loan officer how much income the buyer earns, how much money the buyer has in the bank, and the state of the buyer’s credit. Based on this information, the loan officer can calculate the approximate price range a buyer might be able to afford. However, just because the buyer is pre-qualified for a certain amount does not mean that the buyer is guaranteed to be able to purchase a home for that amount. For example, a buyer gets pre-qualified for $165,000. That buyer places an offer on a home for $163,000. When the loan officer delves deeper into the buyer’s credit and the buyer’s ability to pay, it may be determined that the buyer really only qualifies for $152,000. This problem can be avoided by getting pre-approved before shopping for a home.

Getting pre-approved is the best way to know what you can purchase. By providing the items needed to get pre-approved you can rest assured there will not be any surprises later in your transaction.

How to get Pre-Approved
The following items are needed for pre-approval:

  • Past two years W2’s
  • Past two pay stubs
  • Past two months bank statements
  • Past two statements on any retirement accounts or other financial accounts
  • Copy of award letter if receiving social security or a pension
  • For a veteran wishing to do a VA loan please provide the DD214 and certificate of eligibility
  • Explanation of any late payments or collections in the past two years
  • Bankruptcy discharge papers if a bankruptcy occurred in the past seven years
  • Court documents for alimony or child support if applicable, and proof of receipt
Once these items are collected, the loan officer will have a complete file to turn in to an Underwriter.

Pre-Approval vs. Pre-Qualification

Benefits of Pre-Approval

One of the main benefits of pre-approval regards your credit report and determining its accuracy. Your credit report will be pulled to make sure your credit is acceptable to the loan program you are applying for. 70% of the time a credit report has inaccurate information that could hurt your chances of approval. Because of this it is very important to get your credit pulled quickly. As long as there is time to fix the inaccurate information before your closing there is not much concern. However, there can be surprises that you were unaware of such as:
  • You co-signed and that person has been late, thus reflecting a late payment on your report.
  • Your medical insurance did not cover the full cost of a visit and there is a $50 medical collection on your report.
  • The last time you moved, the cable company did not account for picking up your cable box. Now they are showing a $400 collection (this happens a lot).

Another benefit to pre-approval is clarification of employment. If you tell your loan officer that you make $30,000 annually, but not that $5,000 of that is from overtime and $2,000 was from a bonus, there could be an issue. Typically there needs to be a two year history in order to count overtime and bonuses. The same is true for commissions. However, even if there is not a two year history the amount you have received can be divided over a two year period and the figure averaged. Lets pretend you pick up the phone and tell the loan officer, “I make $50,000 a year and I only have a $100 monthly credit card debt.” The loan officer is likely to tell you that you are pre-qualified for $185,000 home. However, what if that $50,000 is from commission and not salary and you have only been on the job for a year? Now there is a problem because there is no two year history of making $50,000. So maybe the Underwriter (the person with final say over your loan) allows us to divide the $50,000 over two years and now we have $25,000 in income. Now you are pre-qualified for a home priced around $100,000. Big difference from what you were originally pre-qualified for!

Based on the fact that a pre-qualification leaves too much room for error it is important to get pre-approved before looking for a home. Pre-approval will analyze your documents and assure you that you are looking at what your budget will truly allow!



 

 

These new loan opportunities will really help your qualify or afford more:

*40 Year Fixed loans
*30 Year Fixed interest only
*Stated income/ stated asset with 5% down with credit score over 730, 10% with 700 or above
*No Doc loans with only 5% down, do not need 2 year work history for this* 680 and above credit, owner occupied
*VA 30 year fixed with seller paying all the closing costs There is No Money Down required when purchasing a home. It is guaranteed loan up to $625,000( Hawaii). If you have Bad Credit, you are likely to get a much lower rate with VA loan com compared to conventional loan.  It is NO mortgage insurance (PMI) required.  The VA has released a hybrid ARM product. Veterans now have a choise of either of Fixed rate or an Adjustable rate VA mortgage and MORE!!!. 

 

Recently, I’ve been receiving a lot of calls regarding Reverse Exchanges.  It seems to be gaining in popularity because clients want to buy a property here in Hawaii and don’t want to wait for their other properties to sell.  The exchange process should be discussed with an exchange company.  However, regarding the loan, we are able to finance these types of transactions.  The sticking point with other lenders is that the title is usually taken in an LLC by the exchange company.  We have lenders who can do these loans and would like the opportunity to answer any questions you may have should you come across this situation.

 

Market Updates - The Option ARM

 

With property values currently on the rise, potential borrowers have been turning to a very creative mortgage loan product in order to control monthly payments and afford higher price points. Called an Option ARM, the mortgage is a basic adjustable rate product with the added flexibility of being able to choose from several payment options each month in order to better manage cash flow (see example, below).

 

Borrowers may also use the program to:

* Refinance existing fixed-rate mortgage loans to increase their cash flow;
* Payoff consumer debt;
* Save for a child’s tuition; or
* Gain the ability to reduce their monthly payments should their income fluctuate.

 

The program’s low introductory start rate (some are as low as 1%) allows a borrower to take advantage of very low initial mortgage payments and low qualifying rates (most are below 5%). It simply enables a borrower to qualify for more home.

 

An Option ARM mortgage may be just right for borrowers who are not planning to hold on to their property for an extended period of time, and prefer affordability and flexibility in their monthly payments. However, selecting the minimum payment option in the early years will lead to higher principal and interest payments in later years. With a proper amount of planning and understanding of the Option ARM program, borrowers may achieve heightened flexibility in a very competitive housing market.

 

Pay Option ARM Example:

Loan Amount - $350,000
Initial Rate – 1%
Index – 2.504% (MTA as of May 2005)
Margin – 2.75%

 

Monthly Payment Options:

* Fully Indexed Rate – 5.254% (index + margin)
* Minimum Payment - $1,125.74 (deferred interest - $406.68)
* Interest Only Payment - $1,532.42
* Fully Amortizing 30-Year Payment - $1,933.58
* Fully Amortizing 15-Year Payment - $2,814.30