Dollars and Dwellings

Mortgage 101- The Key Elements of a Mortgage Approval

November 26, 2023 Regine Etienne Season 1 Episode 2
Dollars and Dwellings
Mortgage 101- The Key Elements of a Mortgage Approval
Show Notes Transcript

In this episode I go over  the key elements of what is needed to get a pre-approval letter.  This letter is what you need to start shopping for a home. In subsequent episodes, I will go more in depth on explaining each of these key elements.

The key elements to get a mortgage pre-approval are:

  • Credit. Know your credit! Request a free credit report from Annual Credit Report.com to verify what is on your credit and address incorrect or negative information. 
  • Income and Income Verification. 
  • Down payment. Most lenders require you contribute to the loan in the form of a minimum down payment. This can come from your savings, gifts, grants, down payment assistance, silent loans etc.
  • Debt-to-Income Ratio, this very important number is the percentage of your income that you use to pay debt. It is that number that tells us what mortgage payment you are able to afford along with all the other debts that are reported on your credit. 
  • Mortgage type that you qualify for. The most common are FHA, Conventional, VA, USDA but there are other loan type like DSCR, Bank Statement Loans, ect.
  • The Pre-Approval letter, this is the letter you get from a lender, it gives you a clear budget and tells realtors and sellers that you are serious. 

If you have any questions or suggestions for a podcast please feel free to send me an email at REtienne@rhfny.com or on Whatsapp at 516-253-4865

Regine:

Hello, ladies and gentlemen. Welcome to dollars and dwellings the podcast that unlocks the secret of financial success and homeownership. I'm your host Regine Etienne. and today we're going to talk about a topic for anyone. dreaming of owning their own piece of Real Estate. Getting approved. a for mortgage. So you found your dream home, but how do you turn that dream into reality? It starts with the mortgage. So today we're going to break down the key elements you need to secure that coveted mortgage. So let's get started step. Step one, know your credit score. Lenders use. That three digit number to. Evaluate your credit worthiness. The higher, the score, the better your chances of approval. So if your credit. needs a boost consider taking steps to improve it before applying. Well you can apply me what I do with my borrowers. I encourage them to apply because my belief is that in order to get in the game, you need to know where you stand. So what I do, usually I look at their credit I do a preliminary of the credit app one file. And then that tells me where they stand right now. And I, and then I give them ways to improve the credit for mortgage purposes, because it's not everything that's on your credit. That you need to pay off., We're going to do a podcast just on credit, but right now I want you to know that you need to know your credit. So go ahead. There is an annual credit report.com do not use, credit karma. Credit karma is not for mortgage. You can pull your credit on annual credit report.com and that will give you, from all three bureaus. And then you'll be able to evaluate. What your credit is like, if you want to do score, usually you have to pay for it, but I don't need the score. You know, I wouldn't need the score right now. I would need to see what's on your credit. And that would tell me. As far as history. Payment what's on your credit where you stand so first, know your credit. So go to annual credit report.com and pull your credit. So step two it's income and employment verification. Lenders want to ensure that you have a stable income to make those monthly payments. And, and prepare to have your pay stubs. We asked for like one month. Worth of pay stub. All your W2's for the past two years. If you self-employed. Prepare your tax returns. For the past two years and other income documentation that proves your financial stability. So if you are on social security, that's income. If you on disability, that income, if you have child support, that can be used as income, you know? They all have their own guidelines. But it could be used at income and annuity. You know, all these things, we can look at it and there's a lot of things that can be part of your income. You know, a good loan officer will ask you more questions. You know about, about things, because sometimes you might not think it's income and it is so believe it or not. Unemployment can be income, if you are someone who works a seasonal jobs. And after, you know, you let's say you work nine months out of the year and. The next three months, you do get unemployment check. And this is something that has been going on for at least two years, then unemployment can be income. Step three. Down-payment so saving for a down payment is a significant milestone. Most lender require a percentage of the home purchase price of front. So that's your contribution to the loan. And the more you can put down, the more favorable terms you'll get, because the more you invest in yourself, the most secure the lender gets, because believe it or not. I mean, most people don't understand that it's two of you buying the house. It's you. And the lender. The lenders investing most of the money. But the more you can invest with you the more, the better the terms That you're going to get. Cause that that's a thing that factors into the rate also. So how do you save. I tell people, um, You know, Income is something that either you have to create by. Doing something. On the side. Or you have to take side hustles or use the talent that God gave you and make something out of it. Or if you do make money on our people make money, but they spend too much. So look at your bank statement. What do I spend money on that I do not need to spend. Um, one time I had a borrower, I said that would making a lot of money. But then we're not saving a lot of money. And I was like, Can I don't want to see all Ben's statement. Let's go over your bank statement for the best. For the past three months. So, you know, people have to be pretty, people have to have a life and enjoy life. Yes. But when you have a goal to buy home, you have to shift your mindset. So the luxury goods out. The eating out every day out. You know, Starbuck is gonna need to turn into coffee at home, um, or, you know, the weave and the nails and the lashes. All these things you might have to go with what God gave you for awhile. You know, and make it pretty. Uh, so those are the things that we had to do for her to save some money and believe it or not. By cutting down. She was able to buy the house within a year. So that's, you know, saving, there are strategies to saving and. All the things I'm talking about today. We going to have a podcast just for that to break it down. Because it's, this is why, now this is just the surface. There's so much. That goes into each one of those, you know, steps, key elements of buying a house. And then step four days, the debt to income ratio. So the lender, we look at your debt in relation to your income. So we tell all borrowers, you have to keep your ratio as low as possible by paying down existing debt. And this way it shows the lenders that you know how to manage additional financial responsibilities. It is by your habit on credit that a lender knows you. They do not know you. you know, from Adam and Eve, so they know you on paper, they know you through your bank statement. They know you by how you work your job. They get to know you. through how you pay things on your credit. So, this is a way where a lender can objectively. Learn of someone's character. Because we can't get to know everyone, you know, I can't be a friend, you know, even when I'm doing. Your mortgage. I I, as much as I love you, I'm I'm your friend. You're my, you're my best friend. I have to judge you by what is paper. So. manage. Debt to income ratio, right? So it is how much of your income. Or you using to pay your debt? Some people make a hundred thousand,$200,000 a year. And they cannot buy a house. Because they have so much back in end debt that's on there. Credit that they are paying. The car. The line of credit, the, all the credit cards, the. The vacation, um, you know, timeshare. You know, all these things go into your debt to income ratio. They would call it back end ratio. Sure. That's that's not something that's related to the house that you paying, but it's something that's related to your debt. That's on your credit report. So that's called back end ratio so for. Uh, for example, 46%. I'm like nine, nine of your income. Is what we allocate to pay your house. So that's for the FHA loan, conventional loans have a different ratio. It's 50. It's 50. So that means that if you're making a hundred dollars, W convened conventional stage, you can only use$50 to pay your, all your debt. Alright, all your debt together. So they give you a limit. They make a budget for you. That's why some people can pay. All right. But they cannot pay a mortgage because. Rent do not factor your debt to income ratio, but mortgage does. So they do have a budget that deep for you that they have to, um, abide by. So it is, you have to be mindful of what how you spend your money and how you use your debt. So debt to income ratio is very important. That's one of the factors that a lot of time make somebody do not qualify. It's not that you're not making money. It is that you are spending too much money. Paying down debt. Um, so. Be mindful of that. So we'll, we'll w I. I I'll show you what it looks like as well. Cause I'm going to make videos. That you know, where I show you visually. Are you going to see my face? You're going to see slides. And I'm going to show you visually of what it looks like. So look. Uh, on our Facebook, um, and Instagram and, you know, social media pages. And you'll be able to see those as well. And I'll do some podcasts that are video, um, that'll video as well. So you guys can meet me in person and see and see what, um, what I'm talking about visually. And also you have. The step four. That's step five, step five. You have to choose the right mortgage. There are many mortgage options. There is the FHA loan. There is the conventional loan within conventional we have HomeReady and home possible. You can take a loan and within the loan, you can also fix your house. There is VA loan USDA loan. So there's all top of loan, programs to help a borrower. And it's, uh, it's the job of all loan officers to tell to. You know, to guide you as to which are better for you, they have to give you a choice. So understanding the differences will help you select the loan that aligns with your financial goals. So step six So before you can go house hunting. It's good to have a pre-approval letter. This is the letter that tells you. Okay. Well, based on what we see right now, this is what you can do. Um, and it depends on the area too, because every single house, every single house have their own. Tax their own, you know, homeowners insurance. No nothing is, is cookie cutter in mortgage. So that's why I tell people do not listen to what other people tell you because your mortgage is very, very personal. It is not because someone has a, this mortgage went through this experience that you're going to go through the same thing. Mortgage rules or not cookie cutters. We have guidelines that we have to go by. But a good loan officer like me, we know how to. Navigate through the guidelines and get you home. It's crucial to consult a mortgage loan, professional for personalized advice. Because, like I said, Mortgage is very, very personal. It is not your mother's mortgage. It is not your cousin who just bought a house. It's your mortgage. It's your circumstances. Because no, you don't need to be working two years to buy a house. The minimum is six months. We'll go over those things. When I talk about. Income. When I delve deeper into what income and what type of income and how we calculate the income. So, yeah, so this is today's. So this is what we got, we, we talked about. So the key elements of a pre approval is credit. know, your credit. It's income. So save those pay stubs. I know that, you know, technology, nobody really would look at their pay stubs anymore. They know they get paid. It's good to look at your pay stub. Because, we see a lot of things in a pay stub. So save your W2's for the past two years if you are self-employed or if you have a house that you're renting, if you have. Other income that goes into your tax returns, save all pages of your tax returns. Save your business tax returns. If you're on social security, we want to see your award letter. If you there is child support, save those child support papers from the court we don't want it. Verbally, we need paperwork save all that. So, um, we look at downpayment saving, Debt to income ratio. We analyze the data and we tell you what your debt to income ratio. We always do. Is, does it fit if it doesn't fit? Always to make it fit. We'll tell you. And also choose the right mortgage type. Because not every, some mortgage required the we present. You can get all conventional alone. At 3%. It's possible. We will tell you what's available based on what we see when we do the analysis. But it's good to learn. It's good for you to know. So you can know, is, is the mortgage loan officer giving me the right information. It's also good to shop around. I want to teach you guys how to get in a position to get a mortgage and to know when somebody is giving you the right information. And I want to encourage you to also go look up these things for yourself keep your credit. If you want to get the best rate. the best rate somebody can have with the 740 credit score can be one thing one day and tomorrow is a different thing. Same thing for somebody who has a 580 credit. I hope that I was clear, but if you have any questions, feel free to call me. My number is available. I find don't answer. I do leave a message. And my email address as well. You can send me a message and I'll do my best to return it in a timely manner. But I will return it. If I do get the message. So, um, so thank you for tuning in today for dollars and dwelling, and we hope this episode brings you one step closer to unlocking the door to your dream home. And join us next time for more insight into the world of finance and home ownership. Until then this is Regine your host. Signing off. See you next time on dollars in dwellings. Have a blessed day.