Palm Beach Real Estate and Loans

To further your understanding of what goes on in the Mortgage / Home loan process, we need to talk about C.I.A.

No, not THE CIA - your C.I.A:

• Credit
• Income
• Assets.

These three things directly impact exactly what and how much you can borrow.

First of all: CREDIT.

How many of you have ever seen your Credit Report?  I don't think that too many of you will be able to say 'yes' to that one.  That's a shame because it has such a huge impact when you need to borrow money.

I've encountered far to many people who think that their Credit is fantastic - only to be rudely surprised!

After we fill out your Loan Application, the next thing I would do is 'pull' (order)  your Credit Report and review it with you. 

There are three major bureaus that grade your credit: Equifax, Experian and Transunion; that's where the term 'tri-merge' comes from.  Actually, there is a fourth, but it is so new the results are not currently used.  Each of these companies give you a credit SCORE (between 350 and 850) and a summary of your history.

The middle of the three scores is used when looking into what you can borrow.

You'd think that all three scores would be the same - but they aren't!  This is due to the fact that not every company that you deal with will report to all three bureaus - some do, but some only report to 1 or 2.

If you learn ANYTHING from this article, it should be this:  Before going anywhere (home loan, car loan, boat loan, etc.) YOU need to know what is on your report!  That's the safest thing to do.

As of this writing, you are entitled to one free credit report per year from each of the three bureaus - get them and review them. Pay particular attention to the history section.  Almost everyone has a blemish in their history somewhere, just make sure that there aren't any mistakes.  If there are, you need to correct them as soon as possible - you'd hate to be turned down for a loan due to someone elses' mistake!  And mistakes do happen.

The higher your score and the cleaner your credit history is, the better off you are - in other words:

• more types of loans are available
• better interest rates are available and
• you can borrow a higher percentage of the purchase price.

*** Eye-Opener - Pulling your credit does lower it by a few points BUT - the bureaus realize that if you are shopping for a Mortgage or a Car, etc. that you are going to comparison shop and that does mean several reports are going to be ordered.  That does NOT count against you if they are all done in a 15 day period!  If a Mortgage Broker or Loan Officer warns you to never let anyone order another report because it will DESTROY your credit - they are lying!  It's an old trick to keep you from comparing offers, don't fall for it.

Next: Income

Very basic - how much do you make?  Your income is going to be compared to 2 things: the proposed monthly home debt and to the total of all your monthly debts.  These are also called the 'front end' and 'back end' ratios.

Different loans have different requirements as to how much of your PRE-TAX income can be used to go for monthly bills.  The highest I've seen is 65%.  Around 35% is much more comfortable.

Regardless of what the maximum is that you can get approved for, you need to have an extremely clear understanding of how your debt is going to fluctuate.  Ratios are based on what you make NOW - not what you HOPE to make in the future!

My intention is not to scare you, but to educate you so you don't make an uninformed decision.

*** Eye-Opener - Another 'scam' that you need to be aware of occurs when you don't actually make enough to qualify for what you want.  In this case a dishonest Mortgage Broker might 'suggest' that you just claim that you make more.  This is very common and it is fraudulent - face it, if you can't afford the loan with what you really DO make, how are you going to handle the payments??  If someone tells you to claim a higher income, get up and leave.

Don't confuse this with legitimate Stated Income Mortgages!  They do have a place - they are great for people that don't have consistent income - tipped, commission-only.  More on that in a later post.

Lastly: Assets

This is probably the easiest part.  You always need to show that you have enough money for closing costs. 

Another thing to consider, depending on the type of Loan, you might need to show that the funds are 'seasoned' - meaning that you have had the money for a certain period of time - 2 months is common.  In some cases this isn't necessary and 'gift' funds may or may not be usable.

You may also need to show that you have 2 months reserves to pay for PITI - or Principle, Interest, Taxes and Insurance.

If (or when!) you have any questions, just call or email me and I'll be ready to help you out.

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