• Learn the 3 Rs of Mortgage Approvals: Ratios, Rates, and Requirements • June's Home Value Improver • About Us

Learn the 3 Rs of Mortgage Approvals: Ratios, Rates, and Requirements

As any new homebuyer knows, entering into the mortgage market looking for an approval can seem like a secret cult with its own crazy language and acronyms. DTI and PMIs are enough to get your head spinning. And you thought you were savvy because you knew what FSBO was (for sale by owner)!

The reality is that if you know these three Rs of mortgage approvals, you'll be in good shape:

The debt-to-income (DTI) ratio in the mortgage approval process is like the apples in apple pie. It is not the only ingredient, but it's the one that all others rely on. Your DTI can be an important figure to know for your personal monthly budgeting purposes.

Your DTI simply compares what you earn to how much you owe. One interesting detail of this is that it considers your gross pay, not your take-home. So your DTI is not the same as what some might call your disposable income. Below is a simplified example of someone's DTI calculation.

Gross monthly pay: $10,000
Gross debt payments:

  • Car payment: $1,000
  • Student loan: $1,000
  • Credit card: $1,000
  • Proposed PITI* payment: $2,000
* principal, interest, taxes, and insurance

Total: $5,000

In this case, your debt to income ratio is about 50%. Lenders are looking for ratios not to exceed 42% in most cases, but other compensating factors like really strong credit and significant reserves can get you a higher ratio.

Trying to get the best mortgage rate can make people go crazy! You think missing out on a good sale is bad. Try telling a client he or she did not get the mortgage rate she wanted. Don't let worrying about getting the absolute lowest mortgage rate distract you from the main goal: finding, buying, and affording the home you want at the best price. See our recent newsletter on things to consider when committing to a mortgage program.

There's a reason I saved this one for last. It's the trickiest of all of the mortgage Rs. What the mortgage companies require from you to get your mortgage can seem like a lot and includes:
  • Down payment
    To get a good rate, the buyer needs at least 20% down, but they can get away with less. Back in the day, 5% used to do, but as we know, times have changed. While you can get a mortgage with less than 20%, to get the best rates, you need the full 20.
  • Credit score
    In order to get any type of financing, lenders are looking for a FICO credit score of at least a 640 these days. To take advantage of the best rates, you need at least a 730. Of course, there is some wiggle room in there if something in your credit score can be easily explained. Everyone should be aware of his or her credit score. If you don't know it, you can get one at www.freecreditreport.com.
As I say every month, while there are lots of rules and regulations, each situation is different.

June's Home Value Improver

4 Steps to Turn Your Outdoor space into Living Space

Visiting friends in the Bay area one year, I was struck with how well they seemed to live in such a small house. They explained that in their wonderful climate, they considered their back yard a part of the house. As such, it had all the comforts of the inside, and throughout our visit, we spent most of our time there, around a large round table in comfy padded chairs in a shady area.

I was recently thinking about them as I looked at my back yard. After a long, hard winter, we are all finally enjoying getting some time outside. After tromping around on ice for months, it feels so good to absorb all the outdoor air and light as possible. I'm surprised at how many people have fabulous outdoor spaces in their homes, yet sitting in those spaces leaves much to be desired. Take advantage of your outdoor space by making it as comfortable as it can be.

A quick trip through your local home retailers shows you that some people are living it up in their outdoor space. Decorators advise people to think of their decks as living space, similar to the rooms in the interior of the house. Like any decorating, a methodical step-by-step approach is best.

Look at the basics.
Is it a nice place to be? Not if a dripping air conditioner is humming above your head or the light needs to be replaced. Take care of any obvious issues so that you actually enjoy being out there.

What will your outdoor time look like?
Will your family be dining out there? Or will it be primarily for after dinner coffee and reading? Make sure that when you head out to get some outdoor furniture, you know what you are looking to find.

Plan what type of furniture would work best.
Do you prefer wrought iron or wicker? Is your space covered, and therefore able to accommodate thick, comfy cushions? Or is your space totally exposed to the elements? Dragging cushions into the house every time it rains is not too much to ask of some people. For others, it's a deal breaker.

Remember the sun.
Consider where the sun will be hitting your space. I once rented a house near the beach with a deck that had a beautiful view of the bay. The deck was fabulous in the morning, but as the sun beat on us, we were forced to retreat further and further back into the shadows until we had only a tiny corner of shade. A table umbrella or awning will be your best friend if you will be using the space during the high sun hours.

Westchester Mortgage

June 2011

Before I dig into the topic of mortgages, I wanted to share the exciting news that my husband, Kevin, and I welcomed our second child, Sophie Olivia Hill, on June 7! We couldn't be happier!

You know by now that it's not as easy as it once was to get a mortgage, that all lenders are choosier when it comes to handing out loans. It can be overwhelming and confusing to understand what exactly a potential lender is looking for amidst the myriad acronyms and technical terms. Financing a home is getting more complicated so it is important to work with someone you know, like and trust.

That's why we are offering you some basic education on the three Rs of mortgage approvals. I hope you find them helpful! I also hope that you will always reach out with your specific home financing questions, I'm here for you!

Best regards,
Debbie Siegel
Westchester Mortgage

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