Hope everyone has been enjoying my mortgage basic tips this week? With all of focus on mortgage rates and weather it is the right time to get a new mortgage to buy a house or is it the time to re-finance your current mortgage I feel that the basics can help with your decision.
Whatever you may hear in the news, the Indiana housing market is very good. 2008 will be a great year to buy that new home. For folks that enjoy (or have just purchased) it may be the right time to re-finance (I have redone mortgages that were taken out just a few months ago). So by now I am sure that you have learned a bunch about credit, scores, rates, and debt ratio. Let's end Friday with a bang and talk about a little thing vs. a big long blog (hey look, LTV again).
Simply stated loan-to-value (or LTV) while simple to explain is one of the most important factors in your loan process. Remember that the big three things that investors are:
- Credit Score
- Debt-To-Income (DTI)
- Loan-To-Value (LTV)
LTV is used to determine the limits within your housing and debt ratios and where they must fall for you to be approved. LTV also determines whether you must pay Private Mortgage Insurance (PMI and a subject of a future Blog) and if you have to use escrow accounts.
Just remember that the higher the LTV, the higher your rate. When purchasing a home it will also be the determining factor with your down payment. No way around this one!
Your loan-to-value is simply the amount you are borrowing divided by the value of property you are purchasing or refinancing. This give you a simple ratio. For example, a house valued at $100,000 which you intend to purchase with an $80,000 loan (and a $20,000 down payment of your own cash) is said to have an LTV of 80% - That is, the loan represents 80% of the value of the house.
The value of your property is the appraised value (appraisals, Hmm... sounds like another blog post)OR the amount you pay for the property (the market value), whichever is lower. In the initial stages of qualification and approval, your property's value is understood to be an estimate. It will be confirm by a professional appraiser.
So that is it in a nutshell. Or is it? No (didn't see that one coming, did you). Many areas of the country (the bad news Indiana is starting to be effected) by an industry term called "declining value." Due to losses, investors are doing everything they can to minimize risk. It would be like lending two friends $100. One of your friends has a good job, always pays his bills and forgets his wallet. Chances are if you have it you will loan it to them. Your other friend never has money, as far as you can tell does not pays his bills and still owes you $100 from 2-months ago. Chances are you will not do it at all or offer a lesser amount. Declining value is the investor offering a lessor amount. Investors are taking solid, well backed, appraisals and slashing them 5 - 10%. So what this means to you is that you may have to pay a higher rate or PMI, come up with more money to close, or not qualify at all. This has NOTHING to do with your CREDIT, your DTI, or even the HOME VALUE. Once tagged a declining market the rules have changed again. O, by the way, most of the markets are NOT declining they are just tagged that way. It helps the Investor.
So this weekend just go out and do something. Buy a house. Decide to refinance. Call me and I will give you some options.
Tony Grego - Indiana Mortgage Broker
Posts
No comments:
Post a Comment