crawford and associates mortgage 101seminar
TRANSCRIPT
Presents
Mortgage 101Mortgage 101
Crawford & Associates
SEMINAR AGENDA
• How to find a lender and a mortgage that is right for you
• Conforming vs. Alternative lenders
• The rights of the borrower and the lender
• Importance of good credit
• Income and employment
• Appraisal / loan to value (LTV)
Mortgage Types and Terms
Mortgage Types:
•Fixed Rate
•Adjustable Rate
•Balloon Mortgage
Interest Only
Two popular terms are:
•15 Year Mortgage (builds equity and pays off quicker, has a higher monthly payment)
•30 Year Mortgage (lower monthly payment with longer commitment)
WHAT IS CREDIT WORTHINESS?
• Mortgage/Rent Payment History
• Debt Payment History
• Total Debt
• Debt Balance Vs. Credit Limit
• Collections
• Bankruptcies & Judgments
CREDIT REPORT
• Reporting Agencies– Equifax
– Experian
– Trans union
• Scores range from 400-850
• Factors affecting scores are listed on report
• Available online for nominal fee
• Verify that paid debts report accurately
Credit scores are compiled using models based on your credit history. Your score directly affects the rate you receive. If you have a higher credit score, you will generally receive lower rates. Scores generally range 400-850.
Credit Scores
30 year loans based on credit scores are:
720-850 Payment on $100K loan: $626.55700-719675-699 620-674560-619500-559 Payment on $100K loan: $863.71. Over $235 more per month!!!!
In compiling credit scores credit bureaus look at the following items:
1) What is your track record? (Approx 35% of your score)2) How much credit is too much credit (Approx. 30% of your score)3) How established is your credit (Approx. 15% of your score)4) Are you taking on new debt (Approx 10% of your score)5) Is your credit a “healthy mix”? (Approx 10% of your score)
More information is located on your credit score handout and http://www.myfico.com
Principal
and Interest
Taxes and
Insurance
Front End Debt to Income Ratio (DTI)
Included in the ratio are :
•Mortgage Principal and Interest Payments
•Tax and Insurance payments on your property
•Conforming Lenders (banks, credit unions) look at this ratio to determine how much of a loan you can afford. They allow up to 28% of your gross (pretax) income.
•Alternative lenders do not look at this ratio.
Back End Debt to Income Ratio (DTI)
Included in this ratio are your:
•Mortgage Principal and Interest Payments
•Tax and Insurance payments on your property
•Auto Loans
•Credit Card Debts
•Student Loans, etc
•Conforming Lenders allow up to 36% of your income for this ratio.
•Alternative lenders typically can go higher depending on your qualifications.
INCOME AND EMPLOYMENT
• Ability To Pay• Time At Job• Time In Your Field• Additional Income
APPRAISALWHAT IS MY HOME WORTH?
• Appraiser compares your home to other properties
• Makes adjustments (for example, comparable property has a garage and you do not)
• Small variances
• Obtain a copy (once you pay for it)
• Verify accuracy based on your knowledge
• Loan to value is based on appraised value, if inflated it could jeopardize your selling the house in the future
LOAN TO VALUE (LTV)
• Loan amount as A percentage Of home value
• LTV takes into consideration all mortgages or liens on the property. It could include home improvement loans, tax liens and 1st & 2nd mortgages
LOAN$IZE
What is Home Equity and Loan to Value? (LTV). The value of your home divided by the loan amount is LTV. The area in color is home equity
$100K purchase price $97K mortgage, $3K down 97% LTV (3% Equity ($3K))Private Mortgage Insurance (PMI) required by conforming lenders PMI not required by many alternative lenders.
5 yrs later: Home appreciated to $120K $90K mortgage balance90/120=75% LTV ( 25% Equity ($30K).No PMI required (LTV in excess of 80%)
18 yrs later: Home appreciated to $175K $50K mortgage balance50/175= 28%LTV (72% Equity. ($126K)
30 yrs later: Home appreciated to $275K $0K mortgage balance0/275= 0%LTV (100% Equity. ($275,000)
Responsibilities of the Borrower
•Escrow Accounts (Paying your Taxes and Insurance)
•Making payments on time
•What is a “Grace Period”?
•Payment Options (Internet, Phone Payments, Automatic Payments)
•When Emergencies Occur
[email protected]@carolina.rr.com
The Crawford & Associates Dwight Crawford, C.M.C. LLO
704-542-7937
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Crawford & Associates