Underwriting & Elements of a Home Loan: Part One

 

There are difference aspects of the financial picture that are common in what makes a good mortgage loan. All of these elements have a degree of risk to the lender. Mortgage companies judge these risks and assign a credit grade to them. The higher the risk to the lender results in a higher rate to the borrower.

This is the first installment in a series of six. They will be released every Monday for six weeks.

 

We will begin with loan programs and discovering what best suits you.

What type of loan product are we looking at? Is this a fixed rate mortgage or an adjustable rate mortgage? Fixed rate interest loans are considered more conservative. This is true even though a long-term fixed rate ARM, such as a 7/1 or 10/1 ARM loan is comparable to the thirty year fixed rate loan. An ARM loan can save a borrower thousands of dollars over a thirty year loan that is kept for only five years.

What loan to value? What is the loan amount? Anyone who can put 20% down from money that they saved, or will receive when they sell their current home, will be the strongest borrower. The source of the down payment, or any down payment, is very important as is the type of property you will buy.

To my knowledge, no 100% financing has ever existed for a $4,000,000 house, but they are funded often for $400,000 houses and condominiums. One-hundred percent financing on homes has tightened up a lot in the past three months, but can done. The best pricing will be for loans where income can be proven.

There are also 3% down-payment loans from FHA and many types of loan products for First Time Homebuyer programs.

New legislation went into effect in 2007 that made mortgage insurance tax deductible. I have written about it in two different posts. The first post was to break the news after the bill had actually passed. The second post was to update you on the progress of that law.

The law provides a homeowner who makes less than $100,000 per year to write off the insurance premiums on their income tax returns. They can do this just as they would for interest and property taxes paid on their home. As of right now, this can only be done in the 2007 tax year on loans that were funded in 2007.

I confirmed with MGIC, a leading mortgage insurance company to see if the law was extended beyond 2007. As of the first week in September, it had not.

I would feel bad for any borrower who had chosen mortgage insurance over a second trust deed. It takes five years and significant appreciation to free yourself from mortgage insurance.

"Tune in" on September 24 for the next installment of this post. Investment property will be discussed.

You can also reach me at 619.701.4321. Thanks for continuing to read my blog posts. I appreciate your comments.