I'm starting to see lots of the same questions so here I go!
I want to start by saying if you are doing a refi make your current mortgage payment. Too many times I talk to people and they tell me that the broker told them not to make a payment. You can skip two month! What they don't tell you is that no loan is for sure and it can screw you up if things go bad!
If your payment is due on the first you have a 15 day grace period and you're late. The lender does not report till the end of the month. So you would need to make your payment if your loan does not fund it time. JUST MAKE YOUR PAYMENT!
Prime, Subprime or maybe in the middle? Don't worry you fit somewhere!
Prime (A paper) starts at 620 fico and up. Lenders look at everything from collections to credit card payments. You can have one 30 day late on you mortgage but no rolling lates well maybe, no repos, and must have all collections paid off. BK needs to be discharged or dismissed for 5 years and NO LATES or COLLECTIONS after that date. If you have lots of reserves and the BK is less then 5 years you can still get an a paper loan.
Prime follows Fanniemae guideline and you can go to
http://www.fanniemae.com/index.jhtml to learn more. With prime you have
Conforming(Fanniemae) and NonConforming. With NonConforming you can get exceptions and that how you can get around things. With Conforming you can't and that why you get a better rate.
Alt-A and Subprime fall under NonConforming
Alt-A is when your fico is below but you meet everything else. Maybe you were very subprime but cleaned it up over the past few years. So you're almost A-paper without the fico and did get approved prime. Alt-A can turn into a prime loan. (more to this but I could go on forever)
Subprime is when you have not so great credit. You can get a subprime loan 1 day out of BK of or 0 - 3 years out of a NOD or Foreclosure.
What do lender look at? Not only do they look at your credit but they look at employment, income, assets, mortgage or rental history, and your loan to value.
Credit... Lenders will use your mid fico. Let say you have a coborrower... Thats where it's tricky. For Subprime they use your mid fico and or the mid fico of the primary wage earner. For prime they also use your mid fico but when you have a co-borrower they use the lower of the two mid ficos. Now lets say you have a 650 fico and you need a co-borrower but they have a 550 fico. If that was the case then they will use the 550 but we have ways around that and I will get to that. I know New Centry would just use the higher mid fico but they are not doing home loans any more. I wonder why? Hmmm.
Employment and income... Two years is the of employment is what the lender looks at. If you have a gap you need to write a letter. If you were in school for under water basket weaving and got a job as a weaver you will be fine. If you list a lot of different jobs in the last 2 years they need to be in the same field if you want to go prime. The lender will also do a verification of employment if you have had more than one job.
As for income... For prime they will look at your year to date and the last two W2's. For Conforming if have been at the same job you can use the higher of and for NonConforming it can be just the same field. For Subprime they will look at your year to date and last W2 and you can use the higher of after July 1st.
What if im 1099/self employed, 25 percent plus in commission or tips? To go Full Doc on 1099/self employed you need to show tax returns for the last two years on prime and one for subprime. For subprime if you make tips you can go W2 stated or all other subprime just stated. For prime you have Full Doc/Alt Doc, Fast & Easy, Reduced, No Ratio, SISA, and NINA.
Doc type - Full doc is always the best way to get a lower rate. Any time risk is involved the rate will go up. See examples below.
Reduced - Stated income, Employment and Assets verified (prime)
No Ratio - Employment and Assets verified, Income NOT stated or verified (prime)
SISA - Stated income, Stated assets but Employment verified (prime)
NINA - No Income, No Assets, Employment NOT verified( prime)
Stated - Income Stated, No assets needed, CPA letter or W2 stated or below 65 LTV. (subprime)
Assets - 3 to 6 months in the min... If you have a lot of assets you can get a prime loan at 52% DR and I say 52% because that is the highest I have ever done. For subprime you do not need assets for a refi or purchase below 90 percent.
DR (debt to income) - To be prime you need to be at 38% or less but you can get away with 45% and I have even seen one at 52 percent but they had low LTV with 500K in the bank. For subprime you need to be below 50 to 55 percent. The crazy thing is Alt-A you can be at 65 percent.
NDI (Net Disposable Income) Well this is the cash you have after you pay all your bills. For family of 1 you need 700 and 100 per family member. ALT-A it does not matter.
Mortgage and Rental Histroy... Again we need two years or a letter from a family member (rent free letter) Going Conforming you can have 1 late and Non maybe a rolling. Rolling is when you are 30 days late more than 1 month in a row and up to 6 is counted as 1.
Loan To Value... Depending on your score! For subprime full doc you can go up to 100 percent and stated 90 percent. As for prime you can go up to 100 percent on a conforming program but full doc. All other doc types depend on your credit score. Keep in mind that no all bank can go 100 percent on subprime and
So is prime better or subprime? Every person is different and sometimes it is better to go subprime but very rare.
PMI and TAMI... Private Mortgage Insurance and Tax advantage mortgage Insurance is only for Prime loan. PMI is a separate payment and TAMI is added into the rate. What is better? Thats up to you!
Keep in mind that all this could change tomorrow and that other companys may do it other ways. I hope this helps you. Like Dionlawoffice said... Do what is best for you. A good loan officer will give you options and work have to take you prime or get you an uplift. Always ask for a Good faith est and get the ASK for the HUD before you go to the closing table. After reviewing the HUD take it with you to the closing table and if it is off just don't sign and walk away. The loan will still be there. Check the NOTE for the rate and prepay at the closing. REMEMBER you have 3 day to cancel the loan on a refi. Make sure you ask for the fax number to the title company and for the loan officer. As for a purchase... When you sign you're done.
What if I listed my home on MLS and now I want to refi? You must remove the sale sign and remove the listing from MLS. On Conforming you can not refi till after six months and Nonconforming you can lock in your rate right after.
Second Mortgage...Fixed or Heloc? I think a lot of people get the Heloc mixed up with a fixed 2nd. They are both seconds but a Heloc is a 25 year I/O and a Fixed 2nd is P/I or I/O and can be 5,10,20,15,20, and 30 Years.
Im just making up rates and I have no idea what you will get in a year...
Lets say you get a Heloc for 20K at a 8.25% 25 Years I/O... Your payment will be $137.50 I/O. You can pull out and put back as much or as many times as you need to. Your min payment on the balance is Interest/Only. To pay it off in 5 years you need to pay 407.93 and that if the interest does not go up. Rate will only go up when prime rate goes up.
Lets say you do a fixed second for 20K at a 8.25 percent 30 Years P/I... Your payment will be $150.25 P/I. You will get 20K and if you make a 10K payment you payment will still be $150.25 P/I. To pay it off in 5 years you will need to pay $407.93 just like the Heloc but the rate will never change.
For a Heloc shop around because lots of banks are well below prime rate. Keep in mind Heloc's have little fee and even no closing cost option.
A Fixed Second will have a higher rate and start at zero points but you can buy down the rate. That's up to you on points and not the bank! The closing cost on a fixed is higher. As for the term... Price out a all terms and see what rate is better but most of the time they are just about the same. If a fixed 30 or year term is the same... I would take the 30 and make the 5 year payment but that's because the way I'm paid.
You really need to think how long you need to money for.
As I think of thing I will add to this. To be continued.
Check Out Tuscani's Credit 101 at http://ficoforums.myfico.com/fico/board/message?board.id=ficoscoring&thread.id=2654
Message Edited by OneMortgageGuy on
06-27-2007 11:44 PMMessage Edited by OneMortgageGuy on
06-27-2007 11:45 PM
