LENDING 101: THE MORTGAGE LENDING PROCESS

Aspects to a Mortgage

Income

Needs to be documented
Employed borrowers – current pay stub & last two years W-2’s
Other income – retirement, social security, disability income, alimony, child support
2 year employment history, not necessarily the same job. 2 year history for part time work
Self employed borrowers – last two years personal tax returns

Debt

Current debts that carry a monthly balance
Need current balance and monthly payment
Installment accounts like car payments, jewelry loans, boat loans, credit cards, school loans, furniture loans (Best Buy, Sears, etc.)
Child support and alimony payments

Assets

Debt Ratio

Housing Ratio – 28% to 30% of gross income, includes Principal, Interest, Taxes, and Insurance (PITI)
- House payment (PITI) should not be more than 30% of gross income
Total Debt Ratio – 38% to 41% of gross income
- All bills combined should not be more than 41% of gross income

Credit

Lenders pull a full Credit Report from all three credit bureaus
Look to see how you have handled your credit and paid your bills in the past (discussed earlier in credit session)

Property

Private Mortgage Insurance

Lender required insurance for loans considered being “high risk”
Also call Mortgage Insurance (MI)
Loan to value in the property is more than 80%
Protects the lender against loss in a foreclosure
Ordered by lender with an approved PMI company
Rates & Coverage vary depending on:
- Credit Scores, Loan to value and type of Property
Can be terminated once loan to value reaches 80% or less
Tax deductible – Mortgage insurance will be fully deductible for taxpayers earning up to $100,000 for joint filers and $50,000 for single filers

Closing Costs

Loan origination fees, discount points, commitment fees, credit report, appraisal, etc. (bank fees)
Attorney fee, title search and title insurance, recording fees, courier fees
Escrows for next year’s taxes and insurance and 1 yr. homeowner’s insurance
Home inspection, termite inspection, and survey fee
Totals about 3% of loan amount

Documents Needed at Application

Lending Programs

Veterans Administration – (VA) offers 100% financing for qualified Veterans
North Carolina Housing Finance Agency – offers 1st time homebuyers up to 96.5% financing for qualified borrowers (income and price restrictions)
Federal Housing Administration – (FHA) offers 96.5% financing
Wilmington Homeownership Pool – (HOP) Offers First and Second Mortgages – 100% Financing
USDA 100% - Rural
Bank specific in house loan programs

$8,000 Tax Credit

Amount of Credit – 10 % of the cost of home, not to exceed $8,000
Eligible Properties – Any single family residence (including condos) that will be used as a primary residence
Refundable – Reduces income tax liability for the year of purchase. Claimed on tax return for that tax year
First-time Homebuyer Only – Purchaser (and purchaser’s spouse) may not have owned a principal residence in the last 3 years
Recapture – Only if home is sold within 36 months of purchase date
Effective Date – Purchases under contract by April 30, 2010 and closed by June 30, 2010
Phase out - of credit for Tax Payers above $125,000 singles & $225,000 for joint filers
Client should consult with a Tax Professional

Current Owner’s Tax Credit

Amount of Credit – 10 % of the cost of home, not to exceed $6,500
Eligible Properties – Current home owned and occupied for 5 (consecutive) of the last 8 years
Refundable – Reduces income tax liability for the year of purchase. Claimed on tax return for that tax year
Income – Same as First time buyer tax credit
Client should consult with a Tax Professional

*Provided by the Partners for Affordable Homeownership (PAH) Committee of the Wilmington Regional Association of REALTORS®