Loan product developments in recent years have greatly expanded the options available for all home buyers. Today's loan programs offer borrowers opportunities to maximize buying power, save cash for repairs or improvements, get a loan with little or no income verification, or even buy a home with little or no down payment. Now we will discuss some of the ways buyers can take advantage of the expanding loan market to secure the best financing available today.
Purchase prequalifications
We can pre-qualify you as a borrower without specific property information. In other words, your loan information is used for full underwriting and includes your employment information, asset information, and credit history. We can then pre-qualify you as a borrower, subject to a maximum loan amount, down payment, and interest rate.
Getting prequalified for a loan is critical in today's real estate environment. Many Realtors® do not want to accept offers from buyers unless they are pre-qualified for a home loan. By going through the loan process prior to signing a purchase contract on a home, you can eliminate all of the obstacles to borrowing without jeopardizing an actual purchase transaction. Once your loan is approved, your real loan closing will be quick and subject only to a satisfactory appraisal and title report on the home.
To begin the prequalification process you need to make some assumptions about your purchase price, loan amount, and loan program. Any of these assumptions can change once you've found your home, but it helps to do the following:
- Complete your application for the maximum loan amount and purchase price that you're interested in. We can always change these later.
- Get your loan approved at an interest rate that is somewhat higher than what you expect to get. Again, we can always change it later.
The prequalification of your loan will ensure that your real purchase will go smoothly once you have located the perfect home.
No income verification loans
Often grouped together despite their subtle differences, "light
documentation," "no-income verification" and "quick qualifier," or "QQ" loans
are a solution for many buyers who have income from sources that are hard to verify.
Generally these loans are used by self-employed borrowers who have difficulty
verifying all of their income, or by borrowers with very complex income structures.
With a no-income documentation loan, a borrower can simply state income on the
application, and the lender will use this stated income to qualify the loan. Why
do lenders do this? Because they recognize that by charging a slightly higher
rate of interest they can rely on this stated income of the borrower and cover
the additional risk. Lenders do, in fact, rely on verifying that the borrower has
assets which logically match the stated income, along with excellent credit.
You can avoid mortgage insurance with 80/10/10 financing
One way to avoid having to pay mortgage insurance is to purchase
a home with a combination first and second mortgage. The first mortgage would
be limited to 80% of the home's appraised value. The second mortgage, which would
close in conjunction with the first, would then provide for the difference between
the home's purchase price, less the 80% first mortgage, less the down payment
available. In other words, if you have a 10% down payment available, your first
loan would provide for the 80% mortgage with a second mortgage of 10%. This is
commonly referred to as an "80-10-10" transaction.
Another way to avoid incurring mortgage insurance payments is to
find a lender that offers self-insured programs. This type of loan would typically
have a higher interest rate in place of the private mortgage insurance premium.
The decision of whether to obtain a loan with mortgage insurance versus the above
two options should take into account the combined monthly payments of the various
options, adjusted for the tax benefits of interest deductions.
