Dallas mortage class 6.12.2014


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Dallas mortage class 6.12.2014

  1. 1. Redfin Mortgage Class Mark Riede Redfin Dallas Team July 31, 2014, Dallas, TX @Redfin www.facebook.com/Redfin
  2. 2. A Little Bit About Redfin Redfin is a real estate brokerage has helped over 20,000 people buy or sell a home; 97% would refer us to a friend. ● Customers, not commissions ● Informed decisions ● Right home for the right price  No obligation  Commission credit
  3. 3. Save $4,000 on Average
  4. 4. When you ready to tour a home Click here when you decide
  5. 5. Partners in the Process AGENT Responsible for your success Writes your offer Handles negotiations TRANSACTION COORDINATOR Prepares paperwork Works with escrow TOUR COORDINATOR Schedules tours Prepares paperwork ASSOCIATE AGENT Takes you to see homes Sees 50+ homes a week
  6. 6. Understanding the Buying Process
  7. 7. Are You Ready to Buy? ● Do you have a family and need room to grow? ● Do you expect to own the home for 5 or more years? ● Have you saved up a down payment? ● Can you rent for less?
  8. 8. Overview of a Purchase Research Neighborhoods Real Estate Agents Mortgage Options Preapproval Consider your needs Search Define Preferences Saved Search Home Tours Open Houses Offer Comparables Draft Offer Docs Negotiate Mutual Acceptance Closing Earnest Money Inspection Loan application Title Review Appraisal Financing Approval Closing
  9. 9. Mortgages
  10. 10. Local Recommended Lenders *In no way does Redfin benefit financially from recommending lenders – we just think they’re great lenders!
  11. 11. Review Your Financial Situation ● Pull credit report, look for errors ● Establish comfort level for monthly payment ● Figure out how much monthly income goes towards debt - typically 28 – 40% healthy ● Pay down credit balances to 1/3rd of high limit ● Don’t open any new lines of credit ● Don’t buy any big ticket items ● Determine source of funds ● Current employment status
  12. 12. Pre-qualification vs. Pre-approval Loan pre-qualification is a BEST GUESS at your housing affordability. Pre- qualification is typically based upon a verbal conversation with potential borrowers and a lender and does not include formal underwriting or proof of documentation to support the borrower’s loan request. A loan pre-qualification is not a commitment to lend. Loan pre-approval is a COMMITMENT TO LEND. It comes after a formal underwriting of a borrower’s loan request. Loan pre- approval is achieved with a complete mortgage loan application. Documentation, such as pay stubs, bank statements, and/or IRS tax returns, are typically required to support the loan request.
  13. 13. Get Pre-Approved • Factors of Pre-Approval • Gross Income • Income before taxes and any other deductions • Net income if self-employed borrower • 2 year employment history in similar field, may include education • Debt • Loans listed on your credit report • Child support or alimony • Credit • Minimum of 12-24 months “clean” credit with no new adverse activity • Minimum of 3-4 tradelines maintained for at least 12-24 months • Cash • Total funds available for the purchase (downpayment, closing costs, etc) • Reserves • Final Loan Approval • Collateral (review and approval of appraisal)
  14. 14. Facts on Getting Pre-Approved ● Applications are usually free and credit checks should not cost more than $20 ● You will get a better idea of any other action items you need to complete before you can buy ● Gives you a chance to discuss different financing options ● For every $100 you decrease your other debt, and are therefore able to increase your house payment, you can afford up to $20,000 more in sales price on a 30 year amortization loan. ● Your pre-approval stays valid as long as your income, debts, credit history, and assets remain the same or better ● The application does not bind you to a lender, loan or rate ● Being pre-approved is required by sellers to consider offers
  15. 15. Calculating what you can afford… Monthly income (gross): $4500/month Maximum debt to income ratio (percentage) = 40-43% Calculation Example: $6500 x 43% = $2795 maximum debts allowed - $450 auto loan - $100 minimum payment on credit card(s) = $2245 is the most you may spend on a monthly mortgage payment PITI: Your Monthly House Payment P= Principal (amount of payment going toward original balance of loan) I= Interest (amount of payment going toward interest on the loan) T= Property Taxes I= Insurance Hazard/Homeowner’s Insurance: Replacement value, liability, possessions Mortgage Insurance: Covers lender against loss unless 20% equity/down NOTE: Homeowner’s Dues must be added for a condo or townhome.
  16. 16. Credit History and Credit Scores • 3 credit bureaus: Equifax, Experian, TransUnion • Credit score range: 350- 850 • Most lenders use the middle score numerically: • Primary wage earner’s mid score or lowest of both/all mid scores • Minimum credit score for most loan programs is 660 • “Best” credit score for most loan programs is 740 • Factors of credit scoring • Past delinquencies • Revolving debt ratio • Age of credit file • Debt diversity • Inquiries Credit Rating 35% 30% 15% 10% 10% Past Delinquencies Revolving Debt Ratio Age of Credit File Debt Diversity Inquiries
  17. 17. Cash to close: Your Good Faith Estimate Down payment Non-recurring costs Prepaid Items 3.5-5.0% minimum down Title insurance Escrow Appraisal Credit Report Flood Certification Tax Service Fee Underwriting Fee Discount Points Per diem interest Insurance Property Taxes HOA/Condo DuesImportant! A Good Faith Estimate is a breakdown of your total cash-to- close. The estimate will include downpayment, non-recurring costs, and prepaid items. Make sure you understand the total cash required of you to close!
  18. 18. Organize Your Assets ● Get ready for the down payment ● Cash accounts (liquid funds) ● 401 (k), stocks, other investment ● Gift funds? (Max. allow caries) ● Move funds around before you start shopping
  19. 19. Choose a Loan Program • Conventional: As low as 5% down, can be gifted Higher credit standards (680+) Mortgage insurance can be paid up front, monthly or a combination Up to $417,000 loan amount ** ** Up to $506,000 in Seattle SMSA • Federal Housing Administration Loan (FHA): Min 3.5% down, can be gifted Minimum credit score 640, most lender Up front and monthly mortgage insurance required If condo, must be FHA approved. Verify at www.hud.gov Up to $417,000 loan amount ** Up to $506,000 in King and Snohomish
  20. 20. Choose a Loan Program cont… • VA: Active duty or reserves only No monthly mortgage insurance Can be 0 down up maximum guarantee • Jumbo: Loans over $506,001 Minimum credit of 700+ Minimum of 20% down with most investors ** ** Can do 10% down with a combined loan scenario
  21. 21. Key Loan Choices ● Types of Loans: ► Fixed Rate: 15,20,30 year terms ► Adjustable Rate Mortgage (ARM): 3/1;5/1;7/1;10/1. “Hybrid” Fixed Details of ARM: Index; Margin; First, Annual & Lifetime Caps i.e. Index: 1 YR LIBOR; Margin: 2.75%; Caps: 2/2/6 ● Interest Rates ► Points are the price of interest rates, 1 point = 1% of the loan amount ► Points paid buy down an interest rate ► Locking a rate occurs after you have a signed and accepted offer on a home ► What is the Annual Percentage Rate (APR)? Rate Price (points) 4.50% 0.0 (closing costs only, no points) 4.25% 1.0 (closing costs + 1 point) A good lender helps borrowers calculate their break-even to determine if paying points is right for them– doesn’t just focus solely on the interest rate!
  22. 22. Interest Rates and Pricing ►Investors use “risk-based” pricing ►Factors include, but are not limited to:  Middle credit score of borrowers (lowest of all borrowers)  Loan to Value (LTV) & Combined Loan to Value (CLTV)  Loan amount and Loan Program (FHA, VA, Conventional, Jumbo) a) Conforming: Up to $417,000 b) Expanded Conforming: $417,001 - $506,000 (King, Snohomish, Pierce)** c) Jumbo: $506,001 and higher  Loan type: Fixed vs. Adjustable Rate Mortgage (ARM)  Loan term: 15, 20, 30 year amortization  Type of property: Single family home, townhome, Condo  Number of units: 1-4 units  Occupancy: Owner occupied, vacation home, investment ** Loan limits set for 2014.
  23. 23. Where Are Rates Headed? Type of Loan July 24, 2014 June 5, 2014 30-Year Fixed 4.13% 4.14% 15-Year Fixed 3.26% 3.23% 5/1 ARM 2.99% 2.93% 1-Year ARM 2.39% 2.40%
  24. 24. Where Are Rates Headed?
  25. 25. After Class… Please fill out the survey that was handed out at the beginning of class. We appreciate the feedback! Questions? Get in touch: Mark Riede mark.riede@redfin.com Check out our upcoming classes and events at: www.redfin.com/events