Monthly Archives: February 2019

Some people have plenty of money for a down payment. For those that don’t, there’s mortgage insurance. If you have already determined that you can’t afford a standard down payment on a home (usually 20% for conventional loans) but you still want to buy, don’t worry. Mortgage insurance exists to help make you a more attractive candidate to lenders.

What is Mortgage Insurance?

Mortgage insurance protects the lender in the event the borrower defaults on the loan. Defaults include failure to make payments because of death, medical bills and job loss. Mortgage insurance can be provided by a private mortgage insurance company (PMI) or by a government agency such as FHA or VA. As a borrower of the loan, you pay the premiums and the lender is the beneficiary.

PMI Insurance with Conventional Loans

Typically, borrowers making a conventional loan down payment of less than 20 percent of the purchase price of the home will need to pay for mortgage insurance. Mortgage insurance may allow you to qualify for a loan that you might not otherwise be able to get. But, it increases the cost of your loan. If you are required to pay mortgage insurance, it will be included in the total monthly payment that you make to your lender, your costs at closing, or both.

Private mortgage insurance premium rates vary based on the loan-to-value ratio on the home, your credit score and whether your mortgage is fixed-rate or variable-rate. The better your credit, the lower your PMI payments will be. The more money you use as a down payment, the less you have to borrow and the more favorable this ratio is in the view of the lender.

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Once you’ve found a house, made an offer, and been pre-approved for a mortgage, you’re not done quite yet. Next, you have to go through the mortgage underwriting process. The mortgage underwriter will ensure your financial profile complies with your lender’s guidelines and loan requirements and will make the final decision to approve or deny your loan.

What is the Role of a Mortgage Underwriter?

Your mortgage underwriter plays a huge role in whether or not you can finalize the last step in the home buying process and move into your home. Therefore, it’s important to set yourself up for success during the underwriting process. A mortgage underwriter is responsible for analyzing your risk to determine if the terms of your loan are acceptable. The underwriter will review your application and other documentation with a fine tooth comb. They are double-checking to make sure everything you listed is truthful and accurate.

What Are Underwriters Looking For?

While assessing risk, underwriters look at three main components:

Capacity

This aspect helps the underwriter determine whether you are able to repay the mortgage by calculating your debt-to-income ratio. The underwriter will analyze your monthly income against your current debts and the future housing expenses to make sure you currently and will continue to be able to manage your mortgage payments.

Credit

Your credit is one of the most important factors in the loan approval process. It allows the underwriter to determine how you’ve managed debt in the past in an attempt to predict your future behavior. The underwriter will review your credit score to see how you have handled past bills such as car loans, […]

One of the terms often used during the mortgage process, especially during the closing of a mortgage loan is “escrow” or “escrow account.” Escrow accounts provide for the timely payment of taxes and insurance on your home. This prevents tax liens, loss of property and any lapse of insurance coverage. Every month, the deposit amount for your escrow account will be added to your total mortgage payment. These funds are held and paid out as bills come due. For example, if taxes are $5,000 and insurance is $1,000 for a total of $6,000, you’ll pay $500 (1/12th of the annual cost) into escrow each month. The balance will build until an outgoing payment is made. This amount is determined at closing based on your insurance premium and annual property taxes.

You may be wondering why you pay your lender these payments rather than paying them on your own. This is because an escrow account is for your own protection. For some homeowners, it may be difficult for them to keep up on their insurance and taxes on their own each month. Your lender adds your escrow account payment to your mortgage payment to ensure that every month there is money deposited into the escrow account.

They may request the following documents:

• All loan documents
• Title insurance policies
• Tax statements
• Insurance policies
• Requests for payment of any items to be paid from the escrow funds
• Terms of any seller-assisted financing

To learn more about escrow accounts and the process contact First Ohio Home Finance today!