Before you go applying for mortgage rates or even take a car ride to find your dream home, it’s important to know exactly what you can get approved for.

1. Work history. Nothing is more appealing to a mortgage lender than a steady source of income. That means you can pay your monthly mortgage payment.

Ideally your lender will want to see “two years of work history in a related field.” As you can see there are two criteria here: first, two years of consistent income and second, all the work is in a related field. This tells the lender that you have a skill or trade that is in demand.

You will, of course, have to prove this two year work history so be prepared to show W-2s, tax returns, and pay stubs verifying your income.

Exceptions: As with any guidelines, there are exceptions. There are some circumstances that create “acceptable” gaps in employment, such as: maternity leave, job skills re-training, pursuing higher education.

2. Good credit. This really is the centerpiece of today’s mortgage approval process. It’s simple the higher your credit scores the better your chances of getting approved for a mortgage loan. In addition, a higher credit score will give you the added bonus of a lower mortgage rate.

If you don’t know what your current credit score, get a copy today. Here are a couple simple places to get all three of your credit scores and the associated credit reports online (instantly):

• TrueCredit
• myFICO
• CreditReport.com

Not only will it prepare you for your mortgage application process, but a very high percentage of credit reports have mistakes. It’s better to correct these errors now.

3. Savings history. Your mortgage lender’s primary concern is: “Will they be able to make the monthly mortgage payment?”

Your savings account is a good indication of that discipline. Not only will show that you have sufficient financial reserves to fund a down payment, closing costs, homeowners insurance, and property taxes–It will show you have sufficient income to pay your current bills and support a mortgage payment.

Important Note: Your lender will be looking for “seasoning” in your savings. That means that they expect to see documentation that your savings are consistent and over time. One large, recent deposit to pump up your savings account will only lead to suspicion that a “family loan” is the source of your savings. Don’t do this.

4. Funds for closing costs. Somewhat related number 3, your lender will need to verify that you have enough money to pay for fees and costs associated with closing your mortgage loan. All of these expenses will be itemized on your Good Faith Estimate (GFE), early in the mortgage application process. Make sure that you have the savings to pay any closing expenses.

Closing Cost Tip: Often many of these closing costs can be “rolled into” you mortgage, saving upfront depletion of your savings and financial reserves.

5. Strong debt to income ratio. This is another critical component of the mortgage approval process. Remember, your mortgage lender wants you t o pay your monthly mortgage payment–and so should you. The rule of thumb here is that your mortgage payment is no more than 33%-35% of your monthly income. Do the math and adjust your home/mortgage loan expectation accordingly.

Having a house but being poor is not fun. And in the current housing market, chances are you can get a lot of home for a very affordable price–so don’t unnecessarily push this limit.

6. Down payment of 20%. There are a variety of ways to skirt this ideal down payment, but more than likely it will increase your mortgage rate and monthly mortgage payment. Typically, you will pay a higher interest rate and need to pay for mortgage insurance (insurance to pay your lender–not you–if you can’t pay your mortgage).

You can generally get away with only putting down 10% if you pay mortgage insurance; however, if you get a government-backed mortgage (like an FHA loan) you can’t get this even lower–3.5% or nearly 0% with a 203k fixer-upper FHA loan.

7. More than one borrower/income. One of the easiest ways to beef up many of these qualifying factors is to add income to the approval process. For most, this is simple because you are buying with a spouse or partner–nearly doubling qualifying income.

Note: This is another important reason to know your credit scores. If one borrower has a very low credit score a mortgage lender will often use the lowest credit score as the qualifying credit score. Therefore, you might have better chances of qualifying for the mortgage without that borrower, even if it means less qualifying income.

8. Reserves (emergency funds). Cash is also King in the mortgage approval process. You’re lender will love to see how you are going to pay that monthly mortgage payment (and still have enough to eat).

Any mortgage broker, especially in this market, should be top of mind. Checking in from time to time just might make your mortgage situation improve.

This market has lots of things changing when it comes to preparing to buy a new home or after you’ve purchased that new home. Bottom line, your mortgage broker can be the key to getting you the lowest possible mortgage payment!

Here are 7 reasons why it’s in your best interest to give a mortgage broker a call:

1. Mortgage rates are at historic lows. This is probably the biggest reason to call your mortgage broker. Currently, we’re experiencing the lowest mortgage rates in history, and they’re not likely to return anytime soon.

2. Home prices are at rock bottom. This is a VERY close second, only to historically low mortgage rates, home prices can’t get any lower. If you own a home or have ever dreamed of having a second/vacation home then now is the time to call. The housing market is literally flooded with cheap homes, waiting to be grabbed. A quick check-in with your mortgage broker could tell you exactly what you can afford.

Then, you can house shop with confidence.

3. Knowing What You Can Afford. Nothing is more empowering in a negotiation than knowing what your price is. This is all the more critical in buying a home. House shopping without a pre-approval or good understanding of what you can afford is a recipe for disappointment.

Your mortgage broker can give you a clear picture of your mortgage options and exactly the price range you should be looking in.

4. Your financial Situation Changed. If you’re already a homeowner, there’s a good chance that your financial situation has changed. That could range from a new job, lost job, more income, less income, or a change in your credit score.

Any of these scenarios could change the mortgage you should have and the mortgage payment you should be paying. Often you can significantly reduce your monthly mortgage payment with all the government programs and special mortgage loans available in this unique economic environment.

5. You Could Have the Wrong Mortgage. The economy, the mortgage market, the housing market have all taken radical turns in the last several years. Each of those changes has impacted every American. And for that reason unless you got your mortgage loan in the last six months to a year…you’re probably in the wrong one.

You’re call to your mortgage broker could help you REALLY enjoy the coming economic recovery, with a lower mortgage payment or quicker pay-off of your home.

6. The market is changing. It’s been worse. It will get better. Don’t miss your opportunity to get in the best position possible for the future.

Get in the right mortgage, the lowest payment, and best mortgage for the future economy.

7. Switch from adjustable rate to fixed rate. As the market does change, one of the biggest and most predictable changes is that mortgage rates will go up. They simple cannot stay this low much longer. If you are in an adjustable rate mortgage it is probably time to consider a switch.

There is nothing to lose. Calling up your mortgage broker to ask him what should be simple questions could potential save you lots of money down the road.

This economy has a lot of people asking a lot of questions!

• It seems like every other day the Federal Reserve makes an announcement the economy is “slowing”, all though truer along the Midwest regions. These announcements come as mortgage rates are at record lows, a real opportunity for those homeowners looking to refinance or attain a mortgage.
• People are buying! Many factors such as low interest rates and home prices have many active homebuyers pursuing new loans.
• Whether it’s refinancing an original mortgage or the first time homebuyers, the market seems to be stabilizing and even showing growth.
• It’s important you become an educated homebuyer, it’s also important to properly prepare yourself for the mortgage process. There are many new rules in place that could help save and help you from throwing your money away.

To help you prepare for the mortgage process we have put together a list of important questions you need to ask when meeting with your mortgage lender.

Annual percentage rate (APR)

• Of course this is the most obvious question, but it’s the most important! Shopping and comparing rates can end up saving you thousands of dollars; stay on top the mortgage interest so that you can compare rates. But beware of misleading advertisements that are common in the mortgage industry.
• Read the fine print mortgage lenders don’t always disclose all the fees. Before using any figures to shop around and compare get an itemized breakdown of rates, points and fees that make up the final terms. Find out how many discount and origination points will I pay? At times, lenders charge pre-paid mortgage interest points to lower your interest rate that have no benefit to you at all.

Closing Costs

• Typically, mortgages have fees on services provided by lenders as part of the transaction. Be sure you know how much and what those fees might be early on. Lenders are required by law to provide a written good-faith estimate outlining closing costs within 3-days of receiving your loan application.
• Find out at what time you can lock-in interest rates. What will it cost you to do so? Your interest rate could fluctuate from the time you apply to the closing. Therefore, it’s a good idea to lock-in rates. Ask your lender if lock fees apply. Keep track of what the experts forecast see Rate Trend Index.

Pre-Payment Penalties

• At times, you may be assessed a pre-payment penalty on your loan. This penalty could be 1% of the loan amount still others might be set at equal to six months’ interest. Check to see if this only applies if you refinance or reduce the principal balance by over 20% while lenders may assess these if you sell your home.
• Find out the duration of any penalty period particularly the method used to calculate the penalty. Many lenders provide lower interest rates to borrowers that accept pre-payment penalties. Find out your minimum down payment required the loan. Typically, the down payment is 3% to 20% of the buy price. Generally, the more money you put down, the lower your rate and better the terms.

Any Guidelines for My Loan?

• Most often these requirements are contingent on your income, employment, assets, liabilities and credit rating history.
• Keep in mind, first-time home buyer programs, VA loans and other federal mortgage programs generally offer less demanding qualifying guidelines than conventional loans.

What Paperwork to Bring?

• Most lenders also require proof of income and assets prior to approving your loan. They may require additional documentation as well.
• Some buyers having excellent credit ratings could potentially qualify for what is known as “no-documentation” or “no-doc” loans. However, these may carry hefty down payment and higher interest rate.

Loan Application Process Time?

• This depends on a number of variables. For example, if the market for loans is brisk, underwriters get backed up, verification takes longer, appraisals move slower and bottlenecks develop in the loan pipeline.
• Some might tell you two weeks, but 45 to 60 days is probably more realistic. You’ll need to determine how long to lock in your loan.
• The mortgage process can be very overwhelming. Arming yourself with these questions for your lender will help you save time, money, and you’ll be better educated from any scams mortgage writers can sneak in. Knowledge is power!

Homeowners Insurance: Do I need it and if so, why?

• Homeowners insurance is one of those things that you should always have. It protects your home and belongings if tragedy strikes. Even some renters are required to maintain insurance on a property. But the truth is most lenders require it on a home to cover the structure of a home if it were to become damaged or destroyed. Without it, the lender would have a mortgage on a home that was not worth what is owed on it.
• The importance of homeowners insurance can’t be stressed enough. It is a way to ensure that if your contents and/or home were destroyed that they could be replaced. Even if a home is paid for, this coverage is still a good idea to have- just in case.

What does it cover?

• Homeowners insurance covers a laundry list of catastrophes.
• Things such as lightning, fire, theft, storms, and almost every other natural disaster that can befall you are included. Some riders even cover flooding and plumbing. Always get a complete list of coverage before signing.

What can I do to get discounts on my homeowners insurance?

• There are lots of things that you can do to help lower your homeowner’s insurance rate.
• Companies typically give discounts for offering extra security protection on your home. This can range from a security system to smoke detectors. Always talk to your carrier before you have a security system or any other major item installed to ensure that the cost would be made up in savings.
• In some cases, even being a non-smoker can reduce your premiums. Sometimes running a business out of your home warrants a higher premium. And, of course, seniors should always ask for discounts.

Things to watch for

• One area that you will want to pay particular attention to is how you cover your items. This can be accomplished with either replacement cost or actual cost. Replacement cost means the company pays you what it would cost to replace an item with an exact duplicate.
• Actual cost, on the other hand, means you are compensated according to its current value. A TV might have cost $1000 five years ago, but now it might have an actual value of only $200.

How to get the best rates

• Keeping all of your policies with the same company will often net you savings. If your current insurer doesn’t offer the best rates then maybe its time to consider moving everything to a new carrier. Sometimes just letting them know you are shopping around can give you reductions.
• Another method is to raise deductibles. Just like car insurance, when you raise deductibles you are taking on more of the responsibility- if disaster strikes. If not, you can save the difference in the premiums.
• No matter where you have coverage always check periodically to make sure you are still getting the best rate.

Fixed Rate vs. ARM: Which One Is Right For You?

• One of the most common questions that many borrowers have is whether or not they should go with a fixed rate mortgage or an ARM. An ARM is the abbreviation for an adjustable rate mortgage. Typically, an adjustable rate mortgage is one that starts out with a very low interest rate but can adjust upward after a particular period of time. While that might seem like a risky proposition, many people choose to go with an adjustable rate mortgage because it works for their specific situation.
• An ARM has lower payments and interest rates at the beginning of the loan which can often assist buyers with purchasing a home that is more expensive than what they would have been able to afford having been financed with a fixed rate mortgage product. Once the initial time limit has been met, whether it is 3 or 5 years, then the rate can fluctuate based on market trends.
• A fixed rate mortgage is a set interest rate for the life of the loan. It will never change, no matter what the market is doing. If, down the road, interest rates drop significantly, then you would want to contact a lender about seeing if it makes good financial sense to refinance to the new, lower rate.

When is it good to have an adjustable rate mortgage?

• Adjustable rate mortgages are a good choice in several different scenarios. Scenarios where this makes good financial sense are when income will be increasing within the preliminary period of 3 or 5 years.
• For example, if a single person will be getting married and adding an additional income to the household, then that is a good time. Or if you are starting a new job with guaranteed pay increases, an ARM could make sense. If you know that the difference the payment can go up will be covered by that time frame then you can take advantage of a lower payment to start with.
• Adjustable rate mortgages are also a great idea if you will only be in a specific location for a short time. If you know you will only reside in the home for less than five years then a 5-year ARM makes perfect sense. This gives you time to move before your ARM adjusts.
• Plus, while you are waiting for it to start adjusting you can always add extra money to the principal, if you wish, to pay down the principal even faster. The bank is counting on the fact that most people will be in their home for the adjustment period to begin so they are willing to take the chance by offering a lower rate up front.

Many people looking for a mortgage have heard different terms being thrown around, but how many actually know exactly what they are?

• Take FHA loans, for instance. What are they and what does it benefit a buyer to get one?
• An FHA loan is simply a loan that is guaranteed by the Federal Housing Administration or the FHA- a division of the Department of Housing and Urban Development. The lenders making the loans have to be approved by the FHA.
• If a buyer defaults on one of these loans at any time, the FHA guarantees the issuing bank that they will cover it so that the bank is not left having to write off the loss. With this kind of guarantee backing it, banks are much more willing to make the loan.

Benefits of an FHA loan

• The appeal to an FHA loan is not just that it is guaranteed. Another main reason why buyers like them is because they only require a small down payment. The amount required is less than 5 percent. Many people who can afford the monthly payments may not have the means to come up with a significant amount to put down on the home. FHA takes this burden out of the equation. This frees up homeownership to many more of the population.
• The low down payment can also be gifted to the buyer. What does this mean? It means that a family member can give you the money to use as your down payment. The money can also come from other sources. There are certain guidelines that have to be followed so it is best to go over these with me beforehand to ensure compliance. This is especially helpful for first-time homebuyers to get them started.
• Other advantages to an FHA loan are that it typically has lower closing costs than many other types of loans, such as conventional. FHA loans are also easier to qualify for than many other loans so they are open to a larger sector of the population. Since the federal government is willing to back the loan it takes much of the pressure off of the bank.

What if my credit isn’t perfect?

• FHA loans are designed to take certain credit blemishes into consideration. Then know how difficult it is to keep credit ratings in perfect condition. They also know that “life” happens and things can sometimes get out of our control.
• That’s why FHA loans take all of the information into play and can make allowances on certain circumstances that might automatically disqualify you from other loans.

5 Reasons to Get an Adjustable Rate Mortgage

• Adjustable rate mortgages can be beneficial depending on the current economic conditions.
• These are mortgages that have an interest rate that will adjust based on some interest rate benchmark, for instance, prime rate, LIBOR, COFI, or possibly another interest rate index.
• As mortgage rates trend lower, folks often select adjustable rate loans. The same holds true when trends reverse and interest rates threaten to rise, many homeowners begin to flock to fixed rate mortgages.

Wherever the trend is moving

There are a few reasons why you should consider an adjustable rate mortgage:

• Declining Mortgage Rate Environment
  • This really is the no-brainer scenario. If the mortgage interest rate market is poised to go down, or has been unusually high for a period of time? You can expect the trend to reverse.
  • Mortgage rates, like any other financial index, will run in natural cycles.
• Reducing Monthly Mortgage Payment
  • Regardless of the rate environment, you are likely to find periods of time during the life of your mortgage when you need to lower your mortgage payment. Adjustable rate mortgages are almost always lower rates, compared to fixed rate mortgages.
  • Therefore, adjustable rate mortgage, often combined with interest-only payment structures, can give you temporary mortgage payment relief.
• Homeownership is under a Few Years
  • The most common reasons to select an adjustable rate mortgage often, either as a first time homebuyer or employed in a position that involves frequent transfers (i.e., military, large Fortune 500 corporation, etc.), you may know that you are only going to own a home for 3-5 years.
  • Actually, even if you don’t know for sure this is the average (did you know that?); in which case an adjustable rate mortgage is a perfect option. It lowers you monthly payment and reduces the total amount of interest you pay for a mortgage; the best of both worlds.
• Refinance an Adjustable Rate Mortgage Rate that is Expiring
  • If you’re financial planning was a little off and you are in your home a bit longer than you expected or the market unexpectedly turned on you, you might come up against a mortgage rate reset.
  • The best option in this case may be to refinance into another adjustable rate mortgage? Remember adjustable rate mortgages; even in higher rate environments, are often lower.
• Refinancing an Interest-only or Negative Amortization Mortgage
  • Adjustable rate mortgages are often combined with interest-only or negative amortization mortgages. These can provide mortgage payment relief for a few years.
  • However, this option is typically only advisable if you need temporary relief or you are in an aggressively appreciating housing market.

Take a look at your current
monthly mortgage payment. Is it where you want it to be? If you simply said No, it wouldn’t hurt to give a trusted mortgage professional a call.

Fixed rate mortgages are becoming more popular

• Especially in todays mortgage markets.
• Well mortgage rates have continued to stay low for an extended period of time, and like any normal economic cycle, “what goes down must go up.”
• Bottom line, a fixed mortgage rate can protect you from this rising mortgage rate environment.

5 specific reasons why you might want to consider a fixed-rate mortgage:

1. Lower Mortgage Payment. If you think that you can lower your monthly mortgage payment, why wouldn’t you? Fixed rate mortgages rarely are lower than adjustable rate mortgages. However, if you financed your mortgage when rates were much higher, even a fixed rate mortgage could give you a lower monthly payment. And lock in that low mortgage rate.
2. Adjustable Rate Mortgage, Refinance it. More often than not, this is the scenario that brings homeowners looking for a fixed-rate mortgage. If you have an adjustable rate mortgage and it is about to adjust upward, it may be time to refinance before a payment shock.
3. Refinance a Negative Amortization Mortgage. Like an adjustable rate mortgage, a negative amortization mortgage loan can cause large changes in future mortgage payment.
4. If you have a negative amortization loan (sometimes called a pick-a-pay loan) then you probably want to refinance into another mortgage before your “repayment period” kicks in. You have been adding principle (and maybe interest) to the “back-end” (later payments or balloon payment) of this loan.
5. If you have one of these mortgages you definitely want to check into refinancing into a more stable loan. A fixed-rate mortgage is probably the best option.

Lock in a Lower Rate

• In times of low interest rates this really is a must.
• Especially if you have seen mortgage rates reach extended, historical lows then you are best advised to lock-in low, before the rise.

Have a Stable Mortgage Payment

• Like locking in a low mortgage rate, locking in a predictable mortgage payment could be a real need. If you are in a job that has little opportunity for advancement, pay increase, or just flattened out by a bad economy; a stable mortgage payment can be a necessity.
• Stable mortgage payments are also very important for seniors that are about to enter a period of fixed income.

What homeowners don’t like stability and predictability in their monthly mortgage payment?

Getting a fixed rate mortgage can take a lot of stress out of your life and financial situation.

Conventional Loans: What are they and why get one?

• Conventional loans are a breed unto themselves. They offer many differences than most other loans, which in this case, it is a good thing.
• That’s because being different here can save you money.

Unlike other loans such as VA or FHA

Conventional loans are not guaranteed or insured by the federal government. They are backed by the financial institution which decides to take the loan. This means no Fannie Mae or Freddie Mac: just you and the bank.

• Keeping the loan within the walls of the institution also offers another perk: greater flexibility when qualifying. Since the bank representative does not have to answer to a secondary party it allows them to make the decision in-house and offer more opportunity to borrowers.
• The main reason that individuals consider these loans is the interest rate. Since the guidelines are stricter in order for people to qualify the financial institution that offers the loan shows their appreciation to the buyer by giving them a better rate than many other loan types would.

Guidelines of a conventional loan

• For all of the benefit of a conventional loan there are certain requirements that have to be met. For instance, there is the down payment. It could range from 5 to 20 percent down, depending on the individual and the institution. This gives the buyer a good starting point on the loan, and if they choose to put 20 percent down it also eliminates the need for private mortgage insurance. This will save the buyer an additional fee each month.
• The loan amount will be based on the value of the home. Conventional loans cannot be for more than 80 to 95 percent of the current value – whichever is less.

Another consideration is qualification requirements

This loan carries stricter limits on debt –to-credit ratios, or how much money you owe versus how much you make. If you owe too much of your gross monthly income then you might make enough money to afford the monthly payments and still owe too much to qualify within the debt ratios.

• Credit scores are also a stickler for this loan. There are minimum credit score requirements that have to be met in order to be considered for a conventional loan. Not only is your score taken into account, but also your overall credit history is closely examined.
• But even with their strict guidelines they still offer a host of opportunities for a buyer. For example, you can get a fixed rate or even an adjustable rate mortgage that is conventional. Plus, even if an individual has filed bankruptcy it does not disqualify them from a conventional loan, although certain criteria will have to be met in order to qualify.