Logan Utah Mortgages and Real Estate: January 2010

Your debt-to-income ratio is one of the key variables in determining whether or not you will be approved for a home loan, but it is also a tool that you can use to decide if a potential mortgage payment is affordable or not.

The debt-to-income ratio refers to how much of your gross monthly income (income before taxes) is being spent on your debts (e.g. home mortgage, car loans, student loans, credit cards) and the industry standard is that no more than 41% of your total income should be spent on your debts.

For example if you make $4,000/month, you should not be spending more than $1,640 on your mortgage payment and other debts. Anything higher than that and you could be seriously strapped financially and are considered a higher risk to a mortgage lender.

It is possible to be approved with a higher debt-to-income ratio than 41% if there are strong compensating factors such as excellent credit or if you have significant cash reserves. This can be helpful for situations in which an underwriter cannot count all of the income that a borrower actually makes due to certain underwriting guidelines that limit part-time, bonus, commission, or self-employed income as a result of lack of time on the job.

There are ways to bring down your debt-to-income ratio.

I have a borrower that I am working with right now who is trying to get approved to buy a home but she has a debt-to-income ratio of 48%. She wanted to put down $10,000. Because her debt-to-income ratio was too high I recommended that she  make a down payment of only $8,000 and pay off a student loan of $2,000 which would bring her debt-to-income ratio down to 41%, a much more realistic number for approval.

The debt-to-income ratio is not only an important # for the bank but also for you and the fact of the matter is even though you might be approved for a certain debt-to-income ratio, it doesn't necessarily mean that you will be comfortable at that #. A loan officer can guide you but only you can know for certain what you are comfortable with.

If you are looking to purchase a home in Logan, Utah give me a call at 435-770-2709.  I look forward to exceeding your expectations.

If you are buying a home in Logan, Utah a FHA mortgage can be a great option. Here is why...

     1. Only 3.5% down payment required
     2. The interest rates are not credit score driven. This means that whether you have a 620 credit score or 800 credit score, your interest rate will be the same. If you have less than a 700 credit score, FHA may be your best or only option.
     3. The interest rate on a 30 year fixed FHA loan is at 5.0% today (APR 5.566%).
     4. Unlike conventional loans, FHA loans are assumable. This means that somebody buying your home in the future can assume your 5.0% FHA loan with minimal closing costs. This could be an amazing selling feature in the future if interest rates go up like most experts predict they will.
     5. FHA has more lenient guidelines than conventional loans.

A FHA loan probably does NOT make the most sense for you when...

     1. You have a 700 credit score or better and want to put 20% down. Conventional would make more sense in this case because you won't have to pay mortgage insurance.
     2. You are buying a fixer upper that won't qualify for FHA.(Consult with your Realtor and Loan Officer to see if it qualifies.
     3. You are buying a home in Smithfield, Hyde Park, Nibley, Hyrum, or anywhere in Cache Valley besides North Logan, Logan, River Heights, and Providence. If you buy in those areas, you could do a Rural Housing loan which is 100% financing and does not require monthly mortgage insurance.

Other things to be aware of with FHA...

     1. If you are buying a home before 1978, the seller must repair any chipping paint before FHA will allow you to purchase it.
     2. FHA will require safety issues to be repaired before closing (e.g. Missing hand rails, broken windows, other repairs that the appraiser notes on the appraisal report).
     3. You must pay monthly mortgage insurance for a minimum of 5 years. After 5 years, once your loan balance reaches 78% of the value of the home, the mortgage insurance will fall off.

If you are looking to purchase a home in Cache Valley, Utah or surrounding areas, give me a call at 435-770-2709. I look forward to working with you!

Unless you live in a cave on a remote island somewhere you have heard that it is more difficult to get approved for a home loan than it used to be. Things are no different here in Logan, Utah. Your pay stubs, W2's, and tax returns are going to be looked at very closely to make sure that they match the gross monthly income that you put on the loan application.

For self-employed borrowers (if you own 25% or more of a business)  you will have to provide your last 2 years of tax returns (also for all FHA loans) because your history of income is looked at more closely than if you were an employee getting paid a salary.

If you made more income in 2009 than in 2008 and the loan approval depends on that increase it is imperative that you file your tax returns quickly and also that you file it through the closest IRS office. The closest office to Logan, Utah is in Ogden at 324 25th St (See directions below). By filing directly at the office, your transcripts will be available within a few days rather than the weeks or months that it can take if you e-file or send in your tax returns through the mail.

The underwriter orders transcripts directly from the IRS to verify the #'s on your tax return. If your transcripts aren't available than the underwriter can't verify your income and this will delay your loan approval.

Why does the underwriter need to order tax transcripts (Form 4506T) directly from the IRS you say? For this we can thank those few dishonest ones that would send in a different tax return to the IRS than the one they gave to their loan officer.

If you are a first time homebuyer and you need to use your 2009 income, this little detail could be the difference between getting your $8,000 tax credit or not getting it.

Directions for IRS office at 324 25th St. in Ogden, Utah.

Over the past couple of years I have written my fair share of pre-approval letters for borrowers here in Logan, Utah who are making an offer on a home, and it seems like the majority of the time they ask me to put that they are qualified for only the amount that they are offering.

I was thinking about this the other day. It's obvious that the mindset of the borrower is that they don't want the sellers to think that they are approved for a higher amount because they are scared that the sellers will think, "well, if they are qualified for a higher amount, let's counter-offer for that amount".

A real estate agent here in Logan, Utah might have a better feel for how this should work but I'm starting to think that this mindset might be counterproductive, especially in our current mortgage climate where it is more difficult to qualify for a mortgage than it has been in years past.

Put yourself in the shoes of a seller for a minute. Let's say you have your home listed for $200,000 and you get two offers for 190k each from different buyers. One of the 190k offers is accompanied by a pre-approval letter that states the buyer is pre-approved for an amount up to 250k. The other offer is accompanied by a pre-approval letter which states that buyer is approved for only 190k. Which offer would give you more confidence that it would close?

Wouldn't you as a seller be more willing to negotiate with someone that won't have any problems getting qualified for the loan than a borrower that can just barely qualify? I think that in this market where more loans are falling through than normal, that the answer is a resounding "YES".

I'm curious to hear what your thoughts are on this? Do you think the pre-approval letter should state the borrowers are pre-approved for their offer price, the list price, or the maximum amount that they are approved for?

If you are looking to purchase a home in Logan, Utah or Cache Valley, call me at 435-755-2177. 

I sent out a pre-approval the other day to a borrower of mine here in Logan, Utah and for the first time I had the sellers real estate agent call me to ask if I had reviewed their income and asset documentation. I thought that this was interesting and it was obvious to me that this real estate agent must have had an experience where he wasted a lot of time with a borrower who he thought was pre-approved when in fact they were not.

When I first started working as a loan officer it was acceptable to simply fill out a loan application with a borrower and use the information that they gave me verbally to get a loan approval and give a pre-approval letter. Well, times have changed.

For a true pre-approval the loan officer should not only take a full loan application, pull a credit report, and import the loan into an automated underwriting engine, but they should also review the required documentation such as tax returns, W2's, paystubs, and checking and savings account statements. Only when these 4 things take place should a loan officer issue a pre-approval letter.

For a true pre-approval the loan officer should...

     1. Complete a full loan application
     2. Pull a credit report
     3. Submit the credit report and loan application through an automated underwriter
     4. Review necessary documentation such as tax returns, W2's, paystubs, and asset account statements

If you are looking to purchase a home in Logan, Utah or Cache Valley, call me at 435-755-2177.

I've heard some mortgage horror stories lately from borrowers that came to see if I could help them after their horrendous experiences.

         True Story #1

 This borrower had gone to one of the "big banks" in June of 2008 and did a loan application for a refinance to take some cash-out for an investment property that he wanted to purchase. Initially his loan application was approved and the loan officer moved forward with the process (i.e. ordering an appraisal, title report, collecting necessary documentation, etc.). After 4 months of being jerked around, the loan officer not returning phone calls, and processors telling him inconsistent stories of why it was taking so long, the borrower came to me and we closed the loan in 3 weeks. He was a very solid borrower and it was a very smooth loan transaction.

        True Story #2

Another borrower who I recently helped was recovering from the disappointment of losing the opportunity to purchase a home that they wanted because they found out on the day that they were suppose to close that their loan file had been denied because they had a late payment on their credit report. This was after the fact that the loan officer had issued them a pre-approval letter, collected a $400 check for their appraisal, and told them that everything was on schedule to close on time.  Oh...and they lost their $500 earnest money also!

These are horror stories that should never happen or even get close to happening! To me it seems that the problem in each of these cases is that the loan officer was either too scared to tell the borrowers and Realtors the truth about the loan process or too lazy to communicate with everybody.

I believe that communication and truthful communication are key to a smooth loan transaction, whether it be with the borrower, escrow agent, or Realtor. Something that has helped me with this communication is a software program that I purchased which helps me communicate with everyone involved in a loan transaction.

COMMUNICATION IS KEY

No matter how experienced a loan officer may be, there are just some things that occur in a loan transaction that can't be anticipated. When these things come up it's key that everyone involved be made aware of the situation immediately, so that it can be remedied.

I've also realized that loans go so much more smoothly when people are informed of what is going on. That's why I purchased a software program which allows me to notify everyone involved in the transaction when the status of the loan has been updated (e.g. credit report pulled, loan locked, appraisal received, conditions received, etc.,etc.)

The image to the right is an example of the emails that I will send to the listing agent, the buyers agent, their assistants, the escrow agent, the home owners insurance agent, the borrowers, the sellers, my processor, and me (I like to know that it was sent), and anybody else that might need to know how the process is going.

I can also give certain individuals access to a password protected website where they can log-in and view the appraisal, loan docs, good faith estimate, and any other documents that I choose to upload.

I have received great feedback for this service and I feel like it is something that sets me apart from my competition.

The fact is that it's not hard to communicate and it just takes a little bit of effort. But this little bit of effort can make the difference between a rocky and a smooth transaction.

Whenever I meet with a potential client, "What are your closing costs and interest rates?" is usually one of the first questions. It's a good question and one that I would answer even if it wasn't asked. The problem with this question is that it usually comes at the very beginning before I know anything about the individual, their credit scores, down payment, employment history, etc.

The fact of the matter is that interest rates and closing costs are going to be different for everybody depending on the individual characteristics of their loan application. Characteristics such as credit, the loan amount compared to the value of the home, and the type of loan program (e.g. FHA, conventional, etc.) will affect the interest rate and closing costs.

For example, somebody with a 740 credit score and 20% down payment might qualify for 4.875% on a 30 year fixed. Another borrower with a 720 credit score and only 10% down would qualify for 5.25% on a 30 year fixed. Or they could choose 4.875% but it might cost them an extra 1.5% of closing costs.

The other caveat that many borrowers don't realize is that they have a choice of whether they want to pay more closing costs to get a lower rate or less closing costs and take a higher rate. For somebody that is going to be in their home for 30 years and make regular mortgage payments it makes more sense to get as low an interest rate as possible regardless of the closing costs. It's also true that a borrower who will only be in their home for 2 years should take a higher rate and pay less closing costs.

So if the next time you ask "what are your closing costs and interest rates?" don't be surprised if I respond, "What interest rate do you want?", because the fact is that you have a choice.