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Key Points for Loan Preparation

From a consumer's point of view, the more common sense about loans, the better. But ultimately, you need to find an expert to trust. Let us know that it can be a good starting point too. Please contact us,

  • You can hear more essential explanations of the complex world of loans,

  • You can do heavy calculations in advance.

  • You can also get referrals to some of the strongest financing experts. (FYI, we do not charge any referral fees from loan brokers or banks. We only know how to do this, and at first many don't believe it.)

  • And I strongly recommend that you compare at least 2-3 places to find out the loan.

  • We look forward to seeing you don't suffer disadvantages until the end.

Everything we do in this area will be focused only on getting the loan to the buyer on the best terms.

How to quickly calculate your mortgage/income

Quick Tip #1 (Interest rate 4%-5%, fixed 30 years)

House Payment = Mortgage + Property Tax + Insurance/HOA

  • Monthly Mortgage Payment ≈ $50 per $10,000 Loan Amount (for a $400,000 loan, the monthly mortgage payment is 40 x $50 ≈ $2000)

  • Monthly property tax is the price of the house minus 3 balls. (For a $500,000 house, the property tax for 500,000 per month is roughly $500.)

  • Insurance and Condo Management Fee:

    • Detached house insurance approximately $100 per month

    • Condo/town home is about $40 per month with HOA + insurance inside the condo

So, in the case of a $500,000 house down 20% and a $400,000 loan,

  • Detached house is roughly $2000+$500+$100=$2600

  • Condo/townhome is approximately $2000+$500+(HOA fee+$40)

Quick Tip #2 (4%-5% interest rate, fixed 30 years)

  • The difference in payment per month for every $10,000 house value is approximately $60. (If the house price increases by $50,000, then 5 x $60, the monthly payment is approximately $300 increase)

Quick Tip #3 (Income is based on Before Tax Monthly Gross Income)

The income you need to buy a house is:

  • Monthly house payment (mortgage+property tax+insurance/HOA)

  • Regular loan payments (cars, student loans, etc. Excluding living expenses such as cell phones and children's education – not as a loan.)

  • Slightly more than x2 times the above two combined

In the case of a $500,000 house with a 20% down $400,000 loan, as in the case above, if you have a $500 car payment, the minimum income to buy the house is

  • $2600 + $500 (car payment) = $3100 x 2 = at least $6,200

Quick Tip #4 (40% or less down, interest rate 4%-5%, fixed 30 years)

To get a rough idea of ​​the best house price you can buy with my income,

  • (Gross monthly income-(regular loan payment x 2)) x 75 + Downpayment

  • As in the case above, assuming $6200 a month before tax gross income and $500 car payment

  • $6200-($500 x 2) = $5200 x 75 + down ($100,000) ≈ $490,000 (Condominiums and townhomes have association fees, so the maximum price I can buy should come down a bit here.)

Key Points for Loan Preparation and Notes on Loan Progress

Preparation period

  • Start the loan preparation process as soon as possible.

  • Probably it wasn't imprinted to say that the loan preparation process starts as soon as possible.

  • Start the loan preparation process as soon as possible.

  • Nevertheless, most of them start preparing for loans only right away.

  • It's impending to start preparing, but ultimately, 70% of buyers are okay. The remaining 30% suffer losses or can't buy a house at all.

  • After familiarizing yourself with basic financing common sense on this website, etc., consult with a trusted expert.

  • Credits are drawn as early as possible and, if any, problems are corrected with the help of a professional.

  • Learn and practice credit management tips from experts.

  • Collect the amount of money needed to buy a house in one place. The sooner you do it, the better.

  • If possible, don't move or close your business until you buy a house.

  • If you can't get a loan now, make a long-term plan and prepare for the future.

Loan shopping

  • Even if you are already consulting with an expert, be sure to shop for more than one loan.

  • Whether it's the interest rate or the cost of the loan, you have to choose the bank to get the loan with only “Estimate”.

  • It's even more important to see a trusted expert because you have to make all your decisions in a very ambiguous situation.

  • Get the Pre-Approval Letter. (The Pre-Approval Letter itself is not so important. It does not have any legal effect. What is really important is the preparation of the loan in the process of receiving it.)

Loan in progress

  • Discard “common sense” and follow the bank's guidelines when getting a loan.

  • Always communicate clearly with your loan broker/bank.

  • Listen to the loan broker/bank.

  • Highlight again!! Listen to the loan broker/bank.

  • If you feel that the situation is even a little vague, consult with the bank.

  • Even if I don't want to be ambiguous, I consult with the bank for some reason.

  • Be sure to consult with your loan broker/bank when putting money into and out of the bank. (It is better for money not to move in any shape.)

  • Don't change your bank account.

  • Refrain from credit inquiry.

  • I don't use a lot of credit cards.

  • Don't spend money saved for closing.

  • Don't buy cars or expensive furniture.

  • Don't change jobs or start business.

  • No co-sign is given to anyone.

Three conditions for home loans

The following is written with Conventional Loan or General Loan in mind.

After reading this, I'm going to be a loan, I can't... It is forbidden to make hasty judgments. Below are just the most basic concepts. Loans come in many ways and variables. We recommend that you make the final decision after consulting with a loan expert.

1. Income

It is worth knowing the jargon of DTI. DTI stands for Debt to Income Ratio, which refers to the ratio of expenditure to income. If your expenses are $3000 and your income is $6000, the DTI is 50%. Under the same circumstances, if the income is $9000, the DTI drops to 33%.

There are two types of DTI.

  • Front End Ratio: Home-related expenses/income

  • Back End Ratio: Home related expenses + other regular expenses / income

> House related expenses: PITI (P-I-T-I)

  • P=Principle (principle)

  • I=Interest (interest) +

  • T=Tax (property tax) +

  • I=Insurance (House Insurance, Condo Management Fee)

(Utility = electricity bill, water bill, etc. are not included in the DTI calculation)

> Other regular expenditures: Debts commonly found in credit reports: Most commonly, car payments, student loans, credit card payments, etc.

> Income: Gross Income = Total annual salary in case of receiving a salary, and net income before tax for business

> Notes on import: Stable import requirements for the last 2 years. If you got a job 6 months ago, no matter how high your income is, the bank may not recognize it as a stable income. However, there are many exceptions.

Textbook guidelines are 28% or less for the front end and 36% for the back end.

Looking at the Front End alone, if the monthly income is $10,000, you can buy a house as long as the house payment does not exceed $2800. We have to see if the back end is also satisfied at the same time. If the out-of-home loan payment is $1000 and the home payment is up to $2800, the Back End Ratio is 38%, exceeding the 36% cap. Then, you need to lower your house payment to $2600 and find the right house for it.

But!!! The reality is a lot different. Practically, the back-end is considered more important than the front-end. The front-end is almost neglected in banks. And it is the banks/investors who set the DTI cap. For example, as of 2019, the FHA's DTI cap is 43%. Fannie Mae raised the DTI cap from 45% Max to 50% (in 2017). Of course, that doesn't mean that anyone can get to the DTI cap. Credits, down payments, and other difficult conditions must be satisfied. And each bank, loan program, or even the same bank can vary slightly from person to person. This is because there are highly subjective factors in the interpretation of the variables that go into determining the maximum DTI. Anyway, the 28%/36% mentioned above is just a theory.

In general, (Bank-End) DTI is seen most often between 40-50%. It is important to know how much DTI the bank can give as much as possible, and it is also important to consider whether I am willing and able to make such payments.

2. Asset

Minimum Asset = Downpayment + Closing Cost (home purchase cost) + Reserve (non-deposit)

  • Downpayment continues to change depending on the loan environment. 20% is the most common. In mid-2000, when the loan environment was loose, No Down was popular. It's not that much, but there are always options that can be down to 20% and buy a house. In this part, it is good to know the abbreviation of LTV. LTV is the Loan To Value, the ratio of the amount of the loan to the price of the house. You can simply think of it as the opposite of Downpayment. If you decrease 20%, you will receive 80% of the loan, so your LTV will be 80%.

  • Closing Cost is okay if you think about 2-3% of the cost of the house. Almost half of it is the cost of the loan.

  • Reserves (emergency funds) depend on the loan program and the financial condition of each individual, depending on the bank's requirements. Sometimes you don't need it at all, and sometimes you need to show the bank that you have a PITI for months to a year in extra funding.

Note 1 : When looking at assets in a bank, they usually look at the average of the last two months. Let's say you need $100,000 in total, but the bank only has $80,000. In that case, even if you borrow $20,000 the day before you get the loan and repay it, the bank does not accept it as $100,000. If you already have these preparations, you can easily proceed with a loan. Other cases (if you actually have money) are a big problem, but the loan process is a little complicated.

 

Note 2 : Also, not only looking at the amount of the asset, but also picking the source of the asset. If your assets are scattered here and there, it's a good idea to put them together as far as possible in advance. And it's a good idea to keep money moving as much as possible. The bank checks all the sources of the money that has been in and out recently, but too many changes can make the paperwork very complicated.

C. Credit

The credit score is commonly referred to as the FICO Score. In general, a FICO score of 740 or higher is usually the best way to get a loan. (This can also be different from bank to bank loan program. For example, if the FICO exceeds 780, there may be cases where the loan conditions are a little better.) You don't know your usual credit history. It plays an important role. A few things to note...

  • There are many organizations that provide credit reports and scores, and the content may vary slightly depending on where you choose them. I can't tell you to write a credit report that I already have, because the bank pulls its own credit when making a loan. For loans, the median score of 3 Credit Bureaus (Equifax, TransUnion, Experian) is used.

  • In banks, you don't just look at your credit score, you also look at the credit period and content. If the credit period is too short (usually less than 2 years), it can be a problem, and if there is something like a collection, it may not give you a loan until it is paid off.

  • One of the most important reasons to look for a loan before buying a home is to prepare your credit. There are quite a few cases where the credits have unexpected problems. Many are surprised. Some problems can be solved without much difficulty if you have time. However, if you know the day before writing the offer, the progress of the work becomes tight and difficult.

  • In order to manage your credit, you have to pull out a credit report regularly. There are three main ways.

1. Annualcreditreport.com : Federal law allows consumers to receive a free credit report once a year.

Grant authority. To meet this law, three Credit Bureaus (Equifax, TransUnion, Experian) are jointly operated.

The website is Annualcreditreport.com. Free credit once a year from each Bureau through this website.

You can pull it out. It might be a good idea to take turns picking once every four months. However, credits to the report drawn here

There is no score. However, knowing your credit score may not mean much if you are not going to finance it anyway. Credit

In terms of management, it can be said that it is more important to understand the credit content.

2. CreditKarma.com : Unlike Annualcreditreport.com described above, Credit Karma allows you to check your credit score.

However, there are two limitations. One is that there are not all three of the Credit Bureau, but only two of Equifax and TransUnion.

And another thing is that the credit score shown here is VantageScore 3.0, not FICO. 3 Credit Bureau

Collects and stores credit information. There are dozens of systems that calculate credit scores based on this information. in those

The most representative and common system used by banks is FICO. That's why the credit score is called FICO Score, strictly speaking

FICO is one of many credit points.

VantageScore is known as a credit conversion system operated directly by Equifax and TransUnion. So it won't be foolish

Think about it, and the credit score range is also 300-850, the same as FICO. However, the credit score that the bank will use when receiving a mortgage,

In other words, you need to remember that there will be a slight difference from the FICO score. And in addition to the credit score, in Credit Karma

You'll have access to a neatly organized credit report, great information on credit management, and even credit editing tools. And

It's a completely free service. If you go in, you can see why it can be free. If you haven't registered for Credit Karma yet

We recommend that you do it unconditionally.

3. Various Euro Credit Monitoring Services: As you can see, the two representative free services above do not provide complete information, so they still provide a gap for paid services to survive. However, because of the tremendous momentum of Credit Karma (50 million users

Exceeded.) It is expected that many are struggling. For reference, the credit information checked through this credit monitoring system is

Soft Inquiry does not affect your credit score. On the other hand, when you get a loan or apply for a new credit card,

Directly extracting credits from banks is called Hard Inquiry, and if it is too frequent (multiple credit cards

Applying or applying) can be a factor in lowering your credit score.

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