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Educational Resources

As always, Garden State Home Loans wants to be your resource for all things mortgage related. Below you will find educational resources to help you during the mortgage process.  If you have any additional questions, reach out to us at info@gardenstateloans.com.

Understanding Mortgages

Conventional

  • A conventional mortgage is a home loan that isn’t backed by a government agency, such as the FHA or VA. Conventional mortgages often meet the down payment and income requirements set by Fannie Mae and Freddie Mac, and they often conform to the loan limits set by the Federal Housing Finance Administration (FHFA).

FHA

  • An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate-income borrowers, FHA loans require a lower minimum down payments and credit scores than many conventional loans.

VA

  • A VA loan is a mortgage loan available through a program established by the United States Department of Veterans Affairs (previously the Veterans Administration). The VA sets the qualifying standards, dictates the terms of the mortgages offered and guarantees a portion of the loan, but doesn’t actually offer the financing. VA home loans are provided by private lenders, such as banks and mortgage companies, instead.

The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage. Typically, loan assessments with high LTV ratios are considered higher risk loans. Therefore, if the mortgage is approved, the loan has a higher interest rate.

An LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage.  Most lenders offer mortgage and home-equity applicants the lowest possible interest rate when their LTV ratio is at or below 80%.

Closing costs refer to the fees you pay to your mortgage company to close on your loan. Cash to close, on the other hand, is the total amount – including closing costs – that you’ll need to bring to your closing to complete your real estate purchase.

Closing Costs- The specific closing costs you pay depend on your loan type, state, down payment and how much you borrow. A few common fees you might pay are listed below.

  • Appraisal Fees
  • Attorney Fees
  • Title Insurance
  • Application Fees
  • Origination Charges
  • Private Mortgage Insurance
  • FHA, USDA Or VA Fees
  • Pest Inspection Fee

Cash To Close Cash to close includes the total closing costs minus any closing costs that are rolled into the loan amount. It also includes your down payment, and subtracts the earnest money deposit you might have made when your offer was accepted, plus any seller credits. It also includes any refunds for overpayments and other credits.

The debt-to-income (DTI) ratio is a personal finance measure that compares an individual’s monthly debt payment to his or her monthly gross income. Your gross income is your pay before taxes and other deductions are taken out. The debt-to-income ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments.  A DTI of 43% is typically the highest ratio a borrower can have and still get qualified for a mortgage, but lenders generally seek ratios of no more than 36%.

The interest rate is the rate you agree to pay for your mortgage loan. It is used to determine the interest portion of your monthly payment. The annual percentage rate (APR) includes your interest rate and prepaid finance charges to give you an average yearly rate.

Absolutely.  We will get your credit report before deciding to approve your application so it is smart to check it on your own ahead of time. Doing so allows you to clean up any issues and improve your credit before applying for a loan.

A quick conversation about your income, assets and down payment is all it takes to get prequalified. To get pre-approved you will have to get your credit pulled and verify your financial information. A preapproval takes a little more time and documentation, but it also carries a lot more weight when buying a home.  Most Real Estate Agents will make sure a buyer is pre-approved before showing the house for sale.

Check to see which tax form you use — some examples of tax documents for self-employment income include:

  • Schedule C (Sole Proprietorship)
  • K-1/Form 1065 (Partnership)
  • K-1/Form 1120S (S-Corp)
  • Form 1120 (C-Corp)

You can also include income you earn from a W-2 issued by your company. These earnings should be reflected on your business returns, but if we can’t identify them clearly we may ask for copies of your W-2s from the past two years.

The pay off is always higher because you are always a month behind on your mortgage, i.e. when you make your current mortgage payment you are paying the previous months interest as the interest is paid in arrears.

3 Common Types of Mortgages

Conventional

  • A conventional mortgage is a home loan that isn’t backed by a government agency, such as the FHA or VA. Conventional mortgages often meet the down payment and income requirements set by Fannie Mae and Freddie Mac, and they often conform to the loan limits set by the Federal Housing Finance Administration (FHFA).

FHA

  • An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate-income borrowers, FHA loans require a lower minimum down payments and credit scores than many conventional loans.

VA

  • A VA loan is a mortgage loan available through a program established by the United States Department of Veterans Affairs (previously the Veterans Administration). The VA sets the qualifying standards, dictates the terms of the mortgages offered and guarantees a portion of the loan, but doesn’t actually offer the financing. VA home loans are provided by private lenders, such as banks and mortgage companies, instead.
What Are Points?
LTV

The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage. Typically, loan assessments with high LTV ratios are considered higher risk loans. Therefore, if the mortgage is approved, the loan has a higher interest rate.

An LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage.  Most lenders offer mortgage and home-equity applicants the lowest possible interest rate when their LTV ratio is at or below 80%.

Closing Costs VS Cash To Close

Closing costs refer to the fees you pay to your mortgage company to close on your loan. Cash to close, on the other hand, is the total amount – including closing costs – that you’ll need to bring to your closing to complete your real estate purchase.

Closing Costs- The specific closing costs you pay depend on your loan type, state, down payment and how much you borrow. A few common fees you might pay are listed below.

  • Appraisal Fees
  • Attorney Fees
  • Title Insurance
  • Application Fees
  • Origination Charges
  • Private Mortgage Insurance
  • FHA, USDA Or VA Fees
  • Pest Inspection Fee

Cash To Close Cash to close includes the total closing costs minus any closing costs that are rolled into the loan amount. It also includes your down payment, and subtracts the earnest money deposit you might have made when your offer was accepted, plus any seller credits. It also includes any refunds for overpayments and other credits.

Third Party Fees
What is DTI

The debt-to-income (DTI) ratio is a personal finance measure that compares an individual’s monthly debt payment to his or her monthly gross income. Your gross income is your pay before taxes and other deductions are taken out. The debt-to-income ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments.  A DTI of 43% is typically the highest ratio a borrower can have and still get qualified for a mortgage, but lenders generally seek ratios of no more than 36%.

Escrow Account
Interest Rate vs APR

The interest rate is the rate you agree to pay for your mortgage loan. It is used to determine the interest portion of your monthly payment. The annual percentage rate (APR) includes your interest rate and prepaid finance charges to give you an average yearly rate.

Should I Check My Credit Before Applying?

Absolutely.  We will get your credit report before deciding to approve your application so it is smart to check it on your own ahead of time. Doing so allows you to clean up any issues and improve your credit before applying for a loan.

Pre-Qualified vs Pre-Approved

A quick conversation about your income, assets and down payment is all it takes to get prequalified. To get pre-approved you will have to get your credit pulled and verify your financial information. A preapproval takes a little more time and documentation, but it also carries a lot more weight when buying a home.  Most Real Estate Agents will make sure a buyer is pre-approved before showing the house for sale.

How do I know if I qualify as self-employed?

Check to see which tax form you use — some examples of tax documents for self-employment income include:

  • Schedule C (Sole Proprietorship)
  • K-1/Form 1065 (Partnership)
  • K-1/Form 1120S (S-Corp)
  • Form 1120 (C-Corp)

You can also include income you earn from a W-2 issued by your company. These earnings should be reflected on your business returns, but if we can’t identify them clearly we may ask for copies of your W-2s from the past two years.

What Is Included In My Mortgage Payment?
Why Is The Payoff Amount Higher Than The Balance On My Mortgage Statement?

The pay off is always higher because you are always a month behind on your mortgage, i.e. when you make your current mortgage payment you are paying the previous months interest as the interest is paid in arrears.

Additional Resources