Analysts are still split on whether getting a mortgage loan is becoming easier or more difficult. With that in mind, what numbers do borrowers need to know in order to more effortlessly sail through the process of buying a home?
If you don’t know your numbers prior to buying a property, navigating the mortgage maze can be frustrating and stressful, not to mention costly. Those that know their numbers know where to get the best loans, without the hassle, and are able to streamline their real estate transactions. In order to help you, we have compiled a list of the most important numbers you need to know when applying for a mortgage.
1. Your Credit Score: Unless you know your credit score, you may not even want to try to apply for a mortgage loan. Know what each of your three credit scores are, and especially what your middle score is. Additional digits to know about your credit and which could impact your ability to get a loan can include how many trade lines you have, your debt to limit ratios, and minimum payments.
2. APR: The truth is that most interest rates quoted and advertised can mean little. What is really important when comparing loan deals is the APR, which includes points and other fees. Use this number to shop for the best deals. Of course, it is also important to conduct apples-to-apples comparisons between the same loan programs and terms, or to at least know when you are looking at apples-to-oranges options.
3. Rate Lock : In a rising interest rate environment like we are in now, it is very important for borrowers to lock in rates. Know how long you can lock your rate, and how much it will cost to extend that lock. Be sure to get written confirmation of the lock, as some lenders will gamble and hope they can make more money by letting rates float. Keep track of the countdown so you don’t run out of time and get penalized.
4. Debt-to-Income Ratio: Debt-to-income ratio is a critical number when it comes to qualifying for a mortgage loan, and how much you can qualify for. Know your DTI, what you can do to lower it, and what to avoid that may crush it. For example, avoid taking out new credit, beware of zero interest or no payment credit accounts and student loans which may actually be counted against you, and know how you can pay down installment loans to increase how much real estate you qualify to buy.
5. LTV: Loan-to-value plays a big role in financing. Higher LTVs can mean higher APRs, and vice versa. LTV can also determine whether you’ll be obligated to pay extra mortgage insurance, or ‘PMI’. For those trying to creatively structure real estate deals, watch out for CLTV limitations (Combined Loan To Value). This means the total of all loans on the property compared to the value, not just the loan you are applying for.
6. Reserves: In addition to needing to verify enough cash to close (down payment and closing costs), borrowers may also be required to prove they have a sufficient level of reserves in the bank to cover emergencies. This may be two months of PITI (Principal, Insurance, Taxes, and Insurance), or it could be as much as six months per property owned and mortgaged. You’ll also need to know how many months of bank statements you’ll need to provide.
7. Collections & Charge Offs: Do you have collections and charge offs showing up on your credit report? Some lenders and loan programs will require these sums to be paid off, or down. This depends on the program, how much you are borrowing, and how much these amounts are, and how recent they are. Don’t assume, and always ask your mortgage loan officer to check twice because this can change multiple elements of your loan offer. It can change the amount needed to close, how much you’ll get at closing, or how much you need to prove you’ve got in the bank. Don’t assume; double check. There could be erroneous student loans or phone company collections on your report you don’t even know about.