The Four “C’s” in the Loan Process

Having good credit and a steady job just does not seem to be good enough in today’s credit world when it comes to getting your home loan approved.  You need to make an impression.  Below are some great tips I would like to share with you.

Today’s lenders are a picky bunch when it comes to the loan approval.  Even well-qualified borrowers are expected to jump through some pretty high hoops to qualify for financing.

Have no fear. The tips below and suggestions can help you make the best possible impression on the lender of your choice.

Just as job hunters may wonder what top employers want to see on a resume, prospective borrowers may be curious about what lenders look for on a loan application.

The four C’s

The answer may be summed up with a mnemonic called “The four C’s,”

•    Capacity, which refers to the adequacy of the borrower’s income to cover the interest and principal due on the loan, plus property taxes and homeowners insurance.

•    Character, which refers to the borrower’s track record of paying debts, as evidenced by his or her credit history and credit score.

•    Capital, which refers to the borrower’s down payment (or equity) as a percentage of the current value of the home.

•    Collateral, which refers to the safety and soundness of the home and the value of the home as determined by an appraisal relative to the agreed-upon purchase price.

Today’s mortgage broker might use a quadrant with “income,” “credit,” “assets” and “property” in the four corners, but his point is the same as that of the four C’s:  What lenders like to see is strength and stability in all four areas.

Maybe your credit score has some dings or you need a stated-income loan.  Borrowers who are qualified but whose down payment will be less than 20% of the purchase price of the home must withstand a second level of scrutiny. That’s because mortgage insurers also have to approve such loans, and they have “completely different qualification ratios”. Borrowers in this situation should discuss their options with a loan officer who is familiar with lenders’ and insurers’ guidelines.

Have paperwork in order

Lenders rely not on the borrower’s say-so but on a pile of paperwork to verify and document the borrower’s financial position. At a minimum, most borrowers are required to submit the following:

•    One month of paycheck stubs.

•    Two years of W-2 forms.

•    Three months of bank account statements.

Additional paperwork also may be required:

•    If you’re self-employed or earn more than 25% of your income from commissions or bonuses, you’ll need to hand over two years of income tax returns.

•    If you’re divorced, the lender will want a copy of your settlement to ascertain how much alimony or child support you’re obligated to pay or are entitled to receive and the duration of those payments.

•    If you’ve filed for bankruptcy protection within the past seven years, you’ll need to show your bankruptcy papers.

•    If you’ve deferred repayment of student loans, you should provide your deferral agreement as well.

“If (borrowers) have student loans that are going to be deferred for at least 12 months, that may help them qualify, so they would want to bring the account numbers for those loans.  Student loans are counted as debt, but deferral of repayment may strengthen the borrower’s application.

Homebuyer – Tips for Negotiating

Of course, negotiating is a huge part of the homebuying process.  There are some principles that are universal, though.

You’re in a strong bargaining position if:

• You’re an all-cash buyer

• You’re already preapproved for a mortgage

• You don’t have a home that needs to be sold before you can buy

These circumstances give you a little more leeway in negotiating. However, even if you are in a strong position, in a “hot” market, you may want to make your offer more desirable by offering more than asking price. When the market is “soft,” homes tend to sell more slowly, creating a larger pool of homes from which to choose. On the other hand, when the market is “hot,” there may be a limited number of homes to visit and the demand for them may be high.

Overall, here are some suggestions:

• Enter into negotiations with the maximum amount you are willing to pay for the property firmly in mind.

• Keep in mind (and add to the contract) some terms you can live without – then you can make concessions without compromising the items that are important to you.

• Always have a few alternative homes in mind – knowing you have other options will help you stay objective during bargaining and may encourage the seller to be more reasonable.

• Try to ascertain what the seller wants and needs. If, for example, the seller’s new home is not ready by the closing date, you might consider allowing the seller to rent back the home for a short time, provided your schedule permits.

• Terms may be negotiated as well as price, and the changes can result in financial savings.

Moving With Chidlren

Moving can be extremely stressful especially if you have children. It is important to be aware of the things that may be a concern to your children when making a move.

A few areas of concern for children when making a move may include:

• Preschool children tend to worry about being left behind or separated from their parents.
• Kids aged 6 to 12 can be concerned with how their daily routines will be affected.
• Teenagers are concerned primarily with fitting in and having their social life disrupted.

A way to ease these concerns may include:

• Communicating with your child about what the new house will be like.
• Take them on a visit of the new home and neighborhood (if possible)
• If you can, visit the school with your child and meet some of the teachers.

Involving your children in the move can help make the transition easier. Your kids can be a great help to you and the move if you involve them such things as:

• Packing some of their own special belongings, and decorate the box with stickers and markers.
• Make plans together on how to decorate their new room.

There is a lot to consider during a move and by involving your children you just may relieve the stress your children are feeling, reduce your own stress and be able to focus more on other aspects of your move!

Moving – Let’s Get Pre-qualified

How much home can you really afford? The first step in buying a home is to have a budget and figure out how much you can actually afford. Your agent or lender can help you with this in a couple of ways:

• Pre-qualifying process This process will give you a general “estimate” of what you will be able to afford.

• Pre-approval process This process will allow your lender to review your finances in more detail in order to determine the amount of money they agree to loan you for your home purchase.

Your lender will review your finances and focus on a few main areas such as:

• Gross monthly income
• Credit history
• Amount of outstanding debts
• Source and amount of money available for down payment and closing costs
• Interest rates, etc.

All these things put together will help your lender determine two important qualifying ratios.

1. Debt-to-Income Ratio Generally the amount of debt you pay each month should not exceed 36 percent of your gross monthly income
2. Housing Expense Ratio Most lenders will not approve your loan if the mortgage payment exceeds 28 to 33 percent of your gross monthly income

These are the first steps in determining how much you can afford when purchasing a new home. For more mortgage and finance information feel free to contact me at any time or visit my Finance Information page.

Examining Your Credit History

Your credit report and history are key to obtaining your home loan. We encourage you to view your credit report yourself, prior to the lender’s viewing of it, by contacting one or all three of the major credit reporting companies: Equifax, Experian, and TransUnion. All you have to do is call and request it. Once you receive it, check the “high credit limit,” “total loan,” and “past due” columns. It is a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports.

Credit reporting companies:

•    Experian (800) 682-7954 www.experian.com
•    Equifax (800) 685-1111 www.equifax.com
•    TransUnion (800) 888-4213 www.transunion.com

You can also get a copy of your credit history at the following online locations:

www.freecreditreport.com

www.creditreports.com

What if I find a mistake in my credit history?

You can correct simple mistakes by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders usually understand about legitimate problems.

What about my overall (or FICO) score? What does it mean?

Prior to the late 1990s, credit scoring had little to do with mortgage lending. When reviewing your credit worthiness, an underwriter would make a subjective decision based on past payment history. Then things changed.

Lenders studied the relationship between credit scores and mortgage delinquencies and found a definite relationship. Almost half of those borrowers with FICO scores below 550 became ninety days delinquent at least once during their mortgage. On the other hand, only two out of every 10,000 borrowers with FICO scores above eight hundred became delinquent.

When can I stretch the percentages?

Depending on your area’s housing market, lenders sometimes will allow you to stretch their allowable debt ratios. One of the best ways to encourage your lender to do so is to increase your down payment.
Allowable Monthly Housing Expense

Underwriters sometimes also will stretch the ratios for other “compensating factors,” including:

•    Strong cash reserves after close of escrow
•    A new payment that’s only slightly higher than current rent or mortgage payment
•    A history of increasing earning capabilities
•    A history of an ability to save money
•    A large cash down payment

Keep a Journal on what you are grateful for

The point of Thanksgiving is to remember the things we have to be grateful for. It’s our special time to give thanks… not just for the obvious, like food, but for the thousands of fortunate moments, the multitude of blessings that we receive each year.

That’s not always as easy as it sounds. We tend to remember the bad things much more easily than the good. That’s where this article comes in. using the tips below, you can make thankfulness an everyday habit. It’s a skill that will benefit you throughout the year.

Begin by keeping a gratitude journal. Don’t write down negative things; only positive ones. For example, “I’m grateful that I made it through that heavy rush hour traffic safely.” “I’m grateful that I got to see a beautiful sunset.” “I’m grateful that I have a class at school that I really like.”

Think of all the good things that happened because something bad happened first. For example, “If that slow driver hadn’t pulled in front of me, I would have gotten a speeding ticket.” “If I hadn’t tripped on the playground, I would never have met such a nice person.” “If I hadn’t experienced unemployment, I would never have acquired the skills that got me a more fulfilling job.”

Don’t focus on what you don’t have. Focus on what you do have. For example: “I’m so fortunate to have a warm place to sleep in the winter.” “I’m so fortunate to live in a safe neighborhood where I can take walks.” “I’m so fortunate to be able to see the beauty around me.”

Think about people you’ve known that have made you thankful for their existence. They can be family, friends or simply people that you’ve read about or seen on television. Imagine how many other people there are who might be equally as wonderful. You just haven’t met them yet.

Think about people who have made life hard for you. Now think about the things you accomplished because of them. Did you finish something because they said that you couldn’t? Did you get better at something because they made fun of you when you did it badly? Did their cruel actions make you vow never to treat others that way? Even the negative forces in your life can be hidden blessings, worthy of your gratitude.

Think about the animals that have given you joy: Dogs that love you with every inch of their hearts, cats that think your lap is the best place to nap in the whole world, birds whose songs uplift your spirit, squirrels whose antics put a grin on your face and so on.

Think about the places that make you smile: A favorite hangout, a wooded trail, an exciting city, a great spot from which to view the sky, a hill that you once rolled down. Give thanks for all these things.

Now pass it on. True gratitude involves action. Lend a hand. Pitch in. Make a gift. Give your time. Listen. Give back as often as you can. Even a friendly greeting can make all the difference in the world.

Create your own opportunities for gratitude. Do you know someone who never seems happy? Be ready with a smile and a kind word each time you see them. It may require patience, but eventually, they’ll smile first when they see you. Your interactions with them will be much more pleasant. Guess what? You’ll have a new reason to be thankful!

Let others know when they’ve done something that you’re thankful for. For example, “I’ll never forget how you stuck up for me. It meant a lot.” “That email you sent really made my day.” “You make shopping here a pleasure.” An attitude of gratitude spreads like ripples from a tossed pebble, benefitting all it touches.

Remember that hard times make good times sweeter. Also keep in mind that obstacles and challenges not only make you stronger, but they force you to explore outside of the comfortable routine that you’ve settled into. Without challenges, there can be no progress. Without obstacles, there can be no achievement. Be thankful for the opportunities that they provide.

In conclusion, giving thanks is a powerful tool that can dramatically improve your life and the lives of those around you. Start by embracing gratitude’s special day, then make it a habit!

Housing & Economic Recovery Act of 2008

 As a first time home buyer you can now take advantage of the new tax credit being offered.  This is called the Housing and Economic Recovery Act of 2008.  This Act includes a number of provisions that will help prevent foreclosures and reinvigorate the housing market as well as strenghten the nations economy.

If you feel the time is not right for you to buy your first home you might be interested in learning more about this Tax Credit that was created just for you.  And, then look at your credit then the interest rates available.  This might be a great time for you afterall.

Residential Interest Rates for the Week of July 28th

Heartland National Bank Residential Loans

July 28th, 2008

 

Owner Occupied                                                         Investment Property (1-4 family)
 
30 year fixed    6.625%                                                    30 year fixed    7.000%
 
15 year fixed    6.125%                                                    15 year fixed    6.500%

 
•        Free prequalification
 
•        Loan approvals within 24 hours
 
•        Underwriting decisions are made locally
 
•        Stress-free, hassle-free, in-house loan process from application through closing
 
•        Fixed, Adjustable and Bridge loan products
 
•        Up to 100% financing on primary purchases
 
•        Current rate, terms and closing cost estimate provided same day
 

Contact Information

          
Residential Loans
               
Melissa Rego                           mrego@heartlandnb.com

Steve Scheck                            sscheck@heartlandnb.com
         
Commercial Real Estate Loans
           
William Allbritton                      wallbritton@heartlandnb.com  
           
Jim Belflower                            jbelflower@heartlandnb.com 
                      

320 U.S. Highway 27 North, Sebring, Florida 33870   (863) 386-1300 Fax (863) 386-1302
www.heartlandnb.com

Now is the Time to Invest in Real Estate in Sebring, Avon Park & Lake Placid

I just finished two full days at the Allen Hainge Cyber Star Summit in Orlando, July 21-22.  My head is on overload with all the great ideas, latest tech tools, and best marketing ideas for selling real estate.  Some of the top selling agents from around the country attended this event.  Along with all these good tips and talk about the negative media on foreclosures, short sales, high gas prices etc., one of the points agents from around the country kept making is there are great deals just waiting for buyer!  The stock market may be bad.  But now is the best time to invest in real estate for those with money to invest.  Pick up good properties at rock bottom prices.  Invest in your future.

To find out the best deals in Avon Park, Sebring and Lake Placid, give the Cool Team of Maureen and Carl Cool a call today at 863 873-7243 or 1-888-243-2665.  We will be happy to provide a free list of foreclosures and short sales in the Highlands County area by email.   You can request this by emailing me at maureen@ACoolRealtor.com.

June 1 – July 15, 2008 Real Estate Update: Sebring, Avon Park & Lake Placid

June 1 – July 15, 2008  Real estate sales in Highlands County are down a little, but this tends to happen during the summer.  Our real season is January through March with summer being the slowest.  The greatest amount of sales are short sales or bank forclosures.  There are some really good deals out there.  I just saw a home go into the MLS close to Florida Hospital that is a foreclosure for $69,900.  It is a four bedroom home (the garage was converted to the fourth bedroom).  For an investor or first time home buyer, this is a steal.  RE/MAX continues to lead our county with number of sales.  I am fortunate enough to continue being one of the top selling agents in Highlands County.  Finding good buyers to qualify continues to be an issue.  But, the buyers are there!
 
This is the recap of activity for the past six weeks June 1 – July 15, 2008 in Highlands County.
 
Single Family Homes
 
Currently Listed                      1,578
Contingent or Pending             116
Sold   6/1 – 7/15                     77
       Sebring                           42
        Avon Park                      11
        Lake Placid                     23
 
Condos, Villas, Duplex
 
Active                                   357
Contingent or Pending            15
Sold                                     9
 
Mobile Homes – Owned Land

Active                                    134
Contingent or Pending             9
Sold                                      7
 
The majority of the sales were under $125,000, 15 sales were over $250,000 and 5 sales were over $400,000.  The houses that are price to sell are selling.   With all the media about short sales and foreclosure sometimes really good deal of great homes that are in the best condition are missed.  Work with an experienced agent…Call Maureen Cool to find the best deals.  Maureen keeps up with listing daily and knows what is new on the market that is prices right.  Let Maureen help you find your next home.  Now is the time to buy!.  Let the next great deal be yours!  Call Maureen Cool today at 863- 873-7243.