Category Archives: Mortgage Information

Getting mortgage approval could be easier than you think

Posted on July 31, 2017 | Leave a comment

So what does it take to get approved for a mortgage to buy a house this summer, whether you’re a first-timer, planning to move up or downsize? Maybe not all that you think.

For most people, the key requirement is that you’ve got the right package of stuff — acceptable credit score, down payment, financial reserves, debt-to-income ratio — to get an acceptable grade from the automated underwriting systems or “black boxes” installed at the dominant investors in the market, Fannie Mae and Freddie Mac.

Though the intricate webs of algorithms and big data spun inside Fannie’s and Freddie’s black boxes are kept under tight security, we do get monthly read-outs on some of the characteristics of loans they’re approving.

For example, in June the average FICO credit score for home purchase loans at Fannie and Freddie was 754. That’s a big reach for millions of would-be buyers. It’s well above the national average FICO score of 700 and considerably higher than what was typical during much of the previous two decades. (FICO scores range from 300 to 850, with higher scores indicating lower risk of default.)

Debt-to-income ratios are another major factor hard-wired into the black boxes — and can be deal-breakers in mortgage applications that otherwise look pretty good. DTI refers to the ratio of your monthly credit-related expenses — including current rent, mortgage payments, credit cards, student loans and the like — compared with your monthly gross income. If you have $6,000 in income and $2,500 in total debt payments, your DTI is 42 percent.

Fannie’s and Freddie’s average DTIs look strict, but there’s actually more wiggle room for mortgage applicants this summer than any time in recent years. The average DTI for Fannie and Freddie during June was 39 percent. FHA, which tends to be more forgiving on debt matters, had average DTIs in June of 43 percent. But Fannie, Freddie and FHA recognize that even solid, creditworthy applicants can be carrying high debt loads in the current economy, and they are open to higher DTIs than the monthly statistics suggest. In an important policy change taking effect this month, Fannie raised its permissible maximum DTI to 50 percent. A study released last week by the Urban Institute predicts that this change alone could open the mortgage door to 95,000 additional homebuyers. That’s potentially a big splash.

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Can you shop around for a mortgage after Preapproval?

Posted on July 15, 2017 | Leave a comment

A mortgage pre-approval letter demonstrates an applicant’s creditworthiness and ability to obtain a loan by the lender based upon a credit evaluation. The pre-approval letter is not a mortgage loan commitment. The letter shows the seller that you are financially able to close the transaction based upon lender approval, if the seller accepts your offer to purchase the home. You also have the opportunity to obtain several pre-approval letters from different lenders and mortgage brokers before making a commitment to a mortgage loan.

Borrowers can compare mortgage loans with different lenders and choose the best deal that fits their budget and financial profile. Lenders and brokers offer different interest rates, fees and points. After evaluating offers from each lender, you have the opportunity to save money by negotiating with lenders to obtain an affordable mortgage loan.

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Fed Interest Rate Hike – what it means for average American

Posted on December 21, 2016 | Leave a comment

The Federal Reserve’s decision Wednesday to raise its benchmark short-term interest rate will slowly push up rates on everything from mortgages and credit cards to savings accounts.

The Fed increased its federal funds rate by 0.25 percentage points. It was only the second increase in more than a decade. Chairwoman Janet L. Yellen said at a press conference that the economy had shown enough improvement in the last year to warrant higher increases and projected three more rate hikes in 2017.

Here’s how the rate hikes will affect your pocketbook.

Mortgage rates

Mortgage rates are already historically low and the Fed’s short-term rate bump — which indirectly affects mortgage rates — is not likely to make a big difference in the next few months. But, subsequent hikes by the Fed in 2017 could start to really add to the cost of a home.

Zillow and other industry watchers say mortgage rate increases have more of an impact in costly home markets, like San Diego County.

Rates have already gone up since president-elect Donald Trump’s victory.

Credit cards

If you have a credit card with a variable rate or a home equity line of credit, you’ll feel Wednesday’s Fed move pretty quickly.

Average credit card interest rates are about 16.28 percent, while home equity lines are about 4.78 percent, says Bankrate. And banks will pass along that quarter-point increase in the fed funds rate to consumers in a few weeks. So, it will make sense to pay this type of debt off before rates get too high or get into some sort of fixed-rate repayment.

“The cost of carrying that debt every month is going to get heavier and heavier,” Bell said.