Acquire A Fabulous House In Houston Texas With The Help Of Texas Mortgage Pros

How Long Does It Take To Buy A Home In Houston Texas?

new Dallas home bought with an FHA mortgage loan moderate incomeAre you planning to purchase a house in Houston, Texas for the very first time? If you are then over the years you might have heard “rumors” about how long it can take to purchase a house.

Some individuals might have told you it is 30 days and others will say it is 60 days. However, in reality, every individual’s experience is solely based on things such as the state of the Real Estate market when it was purchased, real estate demand, and whether or not a buyer could get pre-approved before looking for a house to buy.

How Long Does Buying A House Take?

Say you know the kind of house in Houston Texas you want to purchase all the way down to the specific area, as well as features and amenities inside of the house.

If that is the case, after you have found a house, and have submitted an offer for it, it can take 30 to 60 days from contract to closing.

Why Does The Process Take So Long?

That’s a good question. Every lender has its own process they follow when it comes to the home appraisal process it can take as long as 30 days for the lender to get their appraisal process completed.

While the lender is undergoing through the home appraisal process, as a buyer you can help yourself by hiring a house inspector on your own to have the house checked from the top to the bottom and also you should review the property disclosure statements to ensure there isn’t anything wrong with the house.

If You Are Just Beginning The House Buying Process

If you just getting started with the house purchasing process, then you should take the time at first in order to identify what you are looking for in a house before hiring a Realtor since that will make the job that your agent is to do help you a lot easier.

Once you know what you want in a house, then you should get pre-approved to get a mortgage loan so that you can move forward with purchasing a home without having any questions regarding the financing of the property.

About Us

The Texas Mortgage Pros

The team at Texas Mortgage Pros is comprised of experienced mortgage professionals all across the state of Texas. We are fully committed to providing the highest quality service to all of our clients for all of your mortgage needs. Multiple loans programs from your local area – San Antonio, Tomball, Dallas, Austin, the Woodlands, Spring, and Houston, Texas are combined with the lowest interest rates. Our excellent mortgage professionals have years of experience and will work closely together with you to ensure you get the home loan that is specifically tailored to meet your expectations and specific situation. So whether you are buying your first house, your dream home, consolidating your debt, or refinancing a loan that you currently have, our highly experienced loan officers can assist you with finding the best loan program for you at the lowest possible rate.

The ultimate goal that we have is to create long-lasting relationships with all of our clients so that we can continue providing outstanding service well into the future. Unlike many big national mortgage companies, we will keep all of your information secure and private. We are a trusted name within the lending community that you can rely on.

To speak with any of our experienced mortgage professionals directly, just give us a call or use any of the interactive tools that are located on our website. We look forward to assisting you. Visit our blog for more related articles on how to execute the best SEO in Houston!

A Closer Look At 2019’s Minimum Requirements For A Mortgage In Texas

2019 Minimum Texas Mortgage Requirements

With interest rates on the rise, you might want to seriously consider purchasing a house sooner instead of later. The next thing that you might be thinking about is whether you can qualify to get a mortgage or not given where interest rates are currently.

Although lenders have somewhat relaxed their standards since the height of the financial crisis that started ten years ago, there are certain minimum standards that you will need to meet in order to qualify for certain mortgages.

Specific financial documents, a decent debt-to-income ratio, and good credit scores are a few things that you will need for applying and qualifying for a home loan.

The specific requirements will mainly depend on the kind of loan you apply for. Therefore, in this guide, we have broken the lending requirements down for several different kinds of loans.

Requirements of FHA Loans

One of the easiest types of home loans to obtain is a mortgage from the Federal Housing Administration. Because insurance is provided on the mortgage by the FHA, quite often FHA-approved lenders can offer terms and rates that are more favorable.

Also, lenders are more comfortable with borrowers who are potentially more riskier given that 90 of the mortgage is backed up by the FHA. FHA mortgages have lower downpayment requirements which make them good for first-time homebuyers who might not have enough money in saving to make the regular 20% downpayment is when buying a house.

For FHA-approved mortgages, the following are the current minimum requirements:

Down Payment

A minimum 3.5% downpayment and credit score of 500 at least. A 10% downpayment may come from your personal bank account, a local downpayment assistance program, or gift from one of your relatives.

Debt-to-Income Ratio

The debt-to-income ratio on FHA mortgages is set by the Department of Housing and Urban Development (HUD). The front-end ratio currently is 31% with a 43% back-end. The front-end ratio only considers housing-related costs, like the monthly mortgage payment, insurance, and property taxes. The back-end ratio considers all monthly debt, which includes housing costs, credit card payments, car loans, and any other forms of recurring debt.

Residence

The house must be your primary residence for the first year at least. That includes whether you are purchasing a single-family house or a four- or two-unit property.

Employment

You are required to have proof of employment and steady income for the past two years, along with explanations if you have frequent employment changes.

Mortgage Insurance

On an FHA loan, you are required to have mortgage insurance no matter how much your downpayment is. On FHA loans you need to pay two different mortgage insurance premiums – an upfront mortgage insurance premium payment and your monthly mortgage insurance payments that are paid each month for the entire life of your loan. The upfront mortgage insurance premium that must be paid is 1.75% of the balance of your loan. It is due at closing and normally financed as part of your loan. Once you make your 3.5% minimum downpayment, then you will need to pay a yearly 0.85% fee of the total amount of your loan. That amount is divided by 12 and then is part of your monthly payments for the life of your FHA loan.

Requirements On Conventional Loans

A conventional 15-year or 30-year mortgage as requirements that are slightly stricter compared to an FHA loan. However, it does come with some longer-term benefits and flexibility.

Down Payment

There are some lenders that might let you make as low as a 3% downpayment in order to qualify to get a conventional mortgage, but you will be required to have mortgage insurance. Some low downpayment programs might have income limits, so make sure you check the address on the properties along with your loan officer to find out if there are any restrictions or not.

Mortgage Insurance

On a conventional mortgage, you are not required to carry private mortgage insurance (PMI) and pay for it every month if you can make at least a 20% downpayment on the property. However, if you pay a lower downpayment, then you will need to pay 0.15 to 1.95% of the balance on your loan in FMI fees every year.

Another benefit that conventional loans offer is that after you have the principle down to 78% of the original property value, the lender is required to stop charging mortgage insurance if you make your payments on time. On an FHA loan, when you make a minimum downpayment, the only thing that you can do to eliminate monthly mortgage insurance is refinancing your loan.

Credit Score

On a conventional mortgage, the minimum score that you need to have is 620. However, there are some lenders that might require a 640 minimum score. Remember that having a better (higher) credit score will allow you to receive a better interest rate along with a lower mortgage insurance monthly payment.

Employment

Proof of regular income is required by lenders and they will look more closely at your earnings and employment history from the last two years.

Debt-to-Income Ratio

Conventional lenders, as of 2018, allow for up to 50% DTIs in certain cases. For any with a debt ratio more than 45, there is one caveat: For people with higher debt ratios, Numerous mortgage companies now require a 700 minimum credit score.

Requirements For VA Loans

The Veteran Affairs Department offers a mortgage for active-duty military personnel, veterans, reservists, and their families. Part of the loan is guaranteed by the VA, which allows lenders to offer military personnel more favorable terms.

Certificate Of Eligibility

In order to qualify to receive a VA mortgage, you also are going to need to get a VA loan certificate of eligibility. It verifies that the military service requirements are met by the applicant in order to be eligible to get a VA mortgage. Certain identification and documents. Veterans and military personnel may apply, by mail, or via a lender after the form is completed.

Down Payment

There is no downpayment that is required.

Mortgage Insurance

There are no PMI fees that come with VA loans. However, a funding fee is charged. It is charged at closing and normally is financed with the loan amount. The funding fee amount will depend on whether or not it is the first time that the veteran is using their eligibility. If an applicant has a disability that relates to her or his military service, then the funding fee might be waived.

Credit Score

There is no minimum credit score requirement on VA loans. However, a majority of lenders funding VA loans do have a minimum 620 credit score requirement. The VA loan program just requires the lender to review the whole loan profile in order to ensure that the veteran applying for the loan has the ability to repay it.

Income

No minimum income threshold must be met, although applicants do need to provide steady income proof.

Debt-to-Income Ratio

It is recommended that your debt-to-income ratio be no higher than 41% to qualify for VA loans. A higher debt ratio might be approved since a VA lender will also look a the residual income of the veteran, which is calculated based on the borrower’s after-tax income, less expense along with a monthly maintenance calculation that is based on the number of members in the veteran’s family and size of the home.

Requirements for USDA Guaranteed Loans

A mortgage program is offered by the U.S. Department of Agriculture to give low to moderate-income families the opportunity to own their own house in designated rural areas. Applicants may relocate, improve, rehabilitate, or build a dwelling that is located in an eligible rural area. 2010 U.S census data on population is used to determine the rural designated areas.

On USDA-guarantee loans, the program backs 90% of the amount of the loan, and that enables USDA-approved lenders to take borrowers into consideration that might not qualify to get a conventional home loan. A 640 minimum credit score is required on UDA mortgage loans to be automatically approved – as long as the other requirements are met as well. However, homebuyers that have lower credit scores still might be considered for a loan that is underwritten manually.

Special eligibility requirements for your state must be met in order to qualify for a USDA mortgage. The USDA online tool can be used to determine whether or not the property is in a designated rural area. You will have to enter the address, city, and state of the house into the tool. That will confirm whether or not the house you are interested in buying is in one of the USDA designated rural areas or not.

The USDA map can be used to choose your state and then determine whether you meet the income eligibility requirements. The income limits vary based on family size, county, and city.

The homebuyer must meet the following basic requirements as well in order to qualify to get a USDA mortgage:

  1. Agree to personally occupy the house as their primary residence. The home cannot be rented out or used as a second house.
  2. Must be either a qualified alien, noncitizen national or U.S. citizen.
  3. Can incur a loan obligation legally. That just means the homebuyer hasn’t been declared to be incompetent and has the ability to enter into legally binding contracts and understand what the debt obligations are.
  4. Has not been banned or suspended from participation in federal programs.
  5. Indicate a willingness to meet their loan obligations on time.
  6. Buys a property that satisfies all of the criteria of the USDA program, including being located in a rural designated area.

Debt-to-Income Ratio

For UDA home loans, the standard DTI ratio is 29%/41% of the gross monthly income of the applicant. On a UDA loan, the maximum allowable DTI is 32%/44% of the person’s gross monthly income, when all of the applications of a loan have credit scores of 680 at least. Under some circumstances, higher ratios are allowed by the USDA on a case-by-case basis. In order to get a waiver for a higher ratio, the borrower must request it from a USDA-approved lender and have it documented by them.

Requirements For HomePossible & HomeReady Loans

HomeReady Loans

The HomeReady mortgage program is offered by Fannie Mae, which is a government-sponsored agency.

Income

The programs are designed to assist prospective homebuyers with low and moderate incomes and limited funds for a downpayment on a house.

Down Payment

A 3% downpayment is required from a gift or the borrower’s own funds.

Credit Score

A minimum 620 credit score is required.

Credit History

For homeowners lacking a credit score due to not having a credit history, a HomeReady loan can be a good solution. They can offer financial statements as a substitute such as on-time rental payments for 12 months or other types of monthly payments such as utility bill payments that don’t appear on a credit report.

Debt-to-Income Ratio

The HomePossible and HomeReady programs may be approved with up to a 50% debt-to-income ratio with strong credit along with other compensating factors like retirement funds or extra savings for reserves.

HomePossible

This program is managed by Freddie Mac.

Income

The HomePossible mortgage is similar to the HomeReady one, but there is one key difference between them. The HomePossible programs allow a borrower to include a non-borrower’s income into the financial calculations – which is income from another individual or individuals who are living in the house to count towards the total monthly income, even when those people are not on the mortgage loan. That can frequently benefit a homeowner who is taking care of a family member who lives in their home who receives Social Security or disability.

Credit

A minimum 620 credit score is required.

Down Payment

There is a 3% minimum downpayment required, and additional flexibility in terms of what the source is for the downpayment. The HomePossible guidelines allow the total downpayment now to come from sweat equity, meaning that the borrower can contribute handyman skills rather than money towards their downpayment.

Debt-to-Income Ratio

There is a 43% maximum DTI, but there are exceptions up to 50% depending on how strong the borrower’s credit and income are, and whether or not they have any extra money in their bank account (reserves) for making future mortgage payments.

Key Mortgage Documents

Before you apply for a mortgage, the process can flow a lot smoother if you organize all of the paperwork and financial documents that are typically required by lenders on the loan application.

They may include:

  • Pay stubs for the past 30 days
  • W-2’s for all jobs that go back two years
  • A signed purchase agreement with the home’s seller
  • Tax returns dating back two years
  • Bank statements for the past 60 days
  • If you are self-employed, 1099 forms
  • Homeowners insurance proof
  • Documented sources of income such as stock earnings and dividends
  • Pension statements
  • Proof of any bonus income
  • If applicable, disability or Social Security income award letters
  • Securities documents like life insurance policies, bonds, and stocks

Some lender might require written verification of your position and salary, printed on the company letterhead of your employer. The might send a form for verifying employment to the human resource department of your employer to complete.

Get Preapproved For Your Mortgage

Before shopping for a house, it is wise to find out the amount you potentially will qualify to borrow. This means you don’t have to waste your time looking at houses that are outside of your price range. When you have a mortgage pre-approval, that means that the lender has examined your current finances, income stability, and credit history, and is prepared tentatively to provide you with a loan on a house.

You will need to provide the following in order to obtain a pre-approval from your lender:

  • Your social security number and identification. 
  • All of the banks on your bank statements from the two most recent months.
  • Employment verification, which consists of either W-2’s for two years (or if you are self-employed tax returns) or a month’s worth of pay stubs.
  • Your credit report will also be pulled by the lender.

Usually, a mortgage pre-approval is good for a maximum of 90 days. Once that time has passed, a creditor will normally want to review your fiance again to see if there have been any changes.

You don’t need to worry about having several inquiries on your credit report if you obtain pre-approval from several different lenders. All of them will count as just one hard inquiry when they are done within a short period of time (typically 15 to 45 days).

Purchasing a house is a major financial commitment and culminates a lifelong dream for many people. Texas Mortgage Pros can assist you with comparing mortgage offers and products. It might be a long road to homeownership, but it doesn’t need to be a rocky one. If you arm yourself with the necessary information ahead of time about various loan programs that are available and what the minimum requirements are for each of them, and the financial documents that you will need to have, then you will have taken the important first steps towards smoother mortgage processing.

About Us

The Texas Mortgage Pros

Our team at the Texas Mortgage Pros is comprised of mortgage professionals all across the state of Texas. We are dedicated to providing all of our clients with the best service possible for all of your mortgage needs. When combined with the lowest interest rates and the multiple loan programs that are available in your local area – Houston, Austin, Dallas, the Woodlands, Tomball, San Antonio, and Spring, Texas. Our mortgage professionals have years of experience and will work personally with you to ensure that you receive a home loan that is specifically tailored to meet your expectations and situation. Whether you are consolidating debt, refinancing your existing loan, buying your first house or dream home, our highly experienced loan officers can assist you with finding the best loan programs at the lowest possible rate.

Our ultimate goal is to develop a lasting relationship with all of our clients so that we can continue providing them with outstanding service for many years into the future. Unlike many large nationwide mortgage companies, we will keep all of your information private and secure. Throughout the entire lending community, our name is a highly trustworthy one.

To speak with one of our experienced mortgage professionals directly, just call us anytime or use any of the interactive tools that we provide throughout our website. We look forward to meeting and working with you.

If you have any questions, please feel free to contact us today!

What To Watch For When Working With A Home Loan Company In Texas

Texas Loan Companies: What You Need To Look Out For

We have all been there. You have an emergency or bills to pay but have no money at all. A personal loan is the first thing that comes in mind when in a tight spot and need cash fast. With dozens of loan companies at your disposal, you are spoilt for choice, or are you? You, however, shouldn’t borrow from the first company you come across.

There are several important factors that one should consider applying for a loan from any company.

Understanding Personal Loans

A personal loan can be defined as money borrowed from a lender to be paid back with interest at a later time. Lenders have to determine a person’s eligibility for a loan before processing or approving a loan application. Lenders will look into an applicant’s:

  • Income
  • Credit history and score
  • Employment status
  • Debts
  • Expenses

After submitting the loan application papers, the lender starts processing the loan immediately, then calculates how much you should pay for the same. You will, however, get these details once the loan has been approved. Should you be unable to repay the loan in full, the lender might choose to use debt collectors or even use legal action against you.

Why Should You Get A Loan?

Most people are eligible for different types of loans. Nonetheless, you should go about applying for loans simply because you can borrow. Financial experts advise against this and only recommend going for one for genuine reasons. Personal loans should, therefore, be treated with the utmost care to avoid building a mountain of debt on yourself. You should also avoid inquiring about a loan too often, as this too can affect your credit score.

Outlined below are some of the good reasons why people get personal loans.

1. To Pay For Medical Expenses

You can never prepare adequately for a medical emergency. Even your medical insurance might not be enough to cover for all expenses. If your savings are running low and unable to settle the medical debt, you can apply for a personal loan. With the personal loan, you should be able to clear the expenses more conveniently. The loan repayment plans are more manageable as compared to having to pay a lump sum at once.

2. For Home Improvement

A home improvement project can help give your home a value boost. That said, some projects can be too costly for the homeowner, forcing him/her to seek financing instead. A personal loan will come in handy in funding some of the expensive projects such as roof replacement or extensions. Some of these improvements tend to pay the loan off in one way or another.

3. Debt Consolidation

There are times when you will have several loans to service. This means some of the loans might end up being forgotten, forcing you to make late payments. Going for a debt consolidation loan can however help you manage these loans at once. The loans are consolidated into one, meaning you only have to think of one loan from that moment on. This reduces the risk of late payments and additional charges that may come with late payments.

4. Significant Purchases

Big purchases may put a huge dent to your savings account. Some investments, such as when you need to replace appliances in the house, or need to buy a car require lots of money. You can take a personal loan to help top up the amount you already have. Many people take loans to pay for their cars and other major purchases in the house. As long as you are confident, you’ll be able to repay the loan on time, then taking a personal loan can be beneficial.

Factors To Consider When Looking For A Loan Company

As mentioned earlier, it wouldn’t be wise of you to apply for a loan from the first company you see. Shopping around can land you a better deal. Here are some of the factors you need to consider when looking for a lender.

1. Interest rates: Check to see how much the company charges in interest. Variable interest rates may seem enticing but are riskier in the end.
2. Reputation: Look for a company reputable enough to stick to the terms of the contract. In addition to this, the company shouldn’t share your information with other companies or advertisers.

3. Repayment terms: Only go for the company offering flexible repayment terms. A trustworthy company will be willing to discuss the repayment terms with the customer.

4. Upfront fees: Some companies will require you to pay upfront fees. Most of these companies aren’t worth it.

5. Customer care: Customer support is critical too. You should be able to reach the company at any time of the day when in need. They should also be responsive to inquiries.

Contact us or call The Texas Mortgage Pros today for more information! Visit our blog for more related articles.

Whats A Loan To Value Ratio?

What is the Loan to Value Ratio 

The Loan-to-Value Ratio is one of the most important basics when it comes to applying for a mortgage.

If you are shopping for a new home or are already applying for a mortgage then you will have heard of the loan-to-value ratio before. The acronym LTV is used a lot in the news, as well, and cropped up frequently when people found themselves in negative equity when the housing market crashed over a decade ago.

No matter what the situation in the housing market, it is important that you understand LTV, and that when you apply for a home loan you get the best deal that you can. Having an LTV that is too high can mean that you have to pay a lot more for your mortgage and that your refinance options and loan eligibility become poorer.

The LTV ratio is easy to calculate:

  • Just divide the loan amount you are applying for by the appraised value of the property.
  • That gives you the ‘loan to value’.
  • The hard part is determining the true value of your home.
  • The LTV ratio is the amount of the mortgage loan, divided by the purchase price or the appraised value of the property (whichever is lower).

If you are refinancing a mortgage, then the LTV is the outstanding loan balance divided by the property’s appraised value.

Lower LTV figures are better when it comes to getting a good rate on your mortgage.

Let’s take a look at a few simple calculations

Let’s calculate a typical LTV ratio:

  • Property value: $600,000
  • Loan amount: $450,000
  • Loan-to-value ratio (LTV): 75%

In the above example, we would divide $450,000 by $600,000 which gives us a result of 0.75, or 75%

You can do calculations like that in your head, or using a standard calculator. There is no need to use an online “LTV Calculator”. The arithmetic is not complicated and it’s a one-step process. It’s something that anyone can do, and it will arm you with some useful information for getting ready to apply for a mortgage.

Once you know your loan to value, that gives you an idea of the equity you hold in the property. In this case, your loan is for 75% of the property, so the remaining 25% of the property is the ownership that you hold.

It is important to know your proposed (or current) LTV so that you can show to the lenders that you actually have some money to put into the property. Lenders like to know how much of a risk they are taking when they allow someone to borrow from them.

Lower LVR ratios mean you own more of the property and are likely to get a better mortgage rate.
The more equity you have or the bigger the downpayment you can put in, the better.
Low LTV means less risk and less interest.

If someone has more ownership then they are less likely to end up falling behind on their payments and the mortgage company is less likely to need to foreclose on them because the homeowner has more to lose.

If they do end up struggling with payments, they could sell the property and not be faced with a massive loss.

Mortgages are tiered, with the tiers based on the LTV ratio. Someone who has a lower LTV ratio will be able to get lower interest rates, and those who have a higher LTV will have to pay a bigger mortgage or more closing costs.

Let’s consider a situation where you have a less than perfect credit score, and lenders want to charge you more interest. The adjustment you are faced with will grow even more if you have a higher loan to value ratio because that means even greater risk.

If you have a loan to value ratio of 80 percent and a poor credit score then that could mean you are faced with a .25 percent higher mortgage rate. If your loan to value ratio was 90 percent then the hit could be 0.5 percent. That might not sound like a lot, but over the term of the mortgage, it could see you paying an awful lot more. It makes sense to find ways to make a bigger down payment and to bring your mortgage as low as possible.

If you can, try to repair your credit score over a few years as well so that you have more loan options open to you, regardless of your equity and downpayment.

The 80% LTV Threshold Matters

It is important to keep your LTV below 80%
That will help you to secure a lower interest rate for your mortgage
It will also help you to avoid Private Mortgage Insurance
Most borrowers will elect to put down a deposit of at least 20%l so that they can avoid mortgage insurance and pricing adjustments

You don’t always need to put down 20% to get the benefits of having a lower LTV, though.

Looking at our first example once more, let’s raise the initial mortgage to $480,000 and add an additional mortgage of $60,000. This gives a combined loan-to-value ratio of 90% since the total amount borrowed is $540,000 on a $600,000 property.

The first mortgage is for 80%, and the second mortgage is for 10%.

Breaking up home loans into ‘combo mortgages’ allows you to keep the loan to value below the threshold, reducing the interest rate and also avoiding the need for private mortgage insurance. Many borrowers opt to do this.

Banks and mortgage companies do have limits on the LTV and CLTV that they allow, so you are not going to be able to borrow more than the property is worth. Many lenders set their thresholds at 80, 90 and 100 percent depending on the value of the property and the credit history of the borrower. These limits were introduced when the credit crunch hit, and they are gradually being relaxed, but it still makes sense to be cautious with borrowing.

If you are looking for a mortgage at the moment, then you are likely to have heard a lot about loan to value ratios. Hopefully, those figures will have cleared things up for you, and you will have some idea of what you should be aiming for. If you want to minimize the interest that you pay and improve your prospects of getting accepted by a good lender for the property of your dreams then you would do well to try to reduce your loan to value as much as you possibly can.

Out of all of the elements of working out mortgage eligibility and how much interest you might pay, figuring out the loan to value ratio is perhaps the easiest. Just divide the amount of the loan by the appraised value to get the LTV.

The hard part is often working out the value of the property.

The loan to value ratio, or LTV, is the value of the being applied for divided by the worth of the property (defined as the lower out of the appraised value and the purchase price).

In the case of an existing mortgage, this is the outstanding loan balance, divided by the most recent appraised value.

The lower the number that you get when you calculate the LTV, the better.

If you are lucky enough to be dealing in fairly round numbers, you should be able to calculate the LTV in your head, for example:

  • Property value: $1,000,000
  • Loan amount: $700,000
  • Loan-to-value ratio (LTV): 70%

All you have to do is divide the loan amount ($700,000) by the value of the property ($1,000,000). This gives us 0.7, or 70%.

You can do this on a calculator, or in your head. There is no need to use a specialist LTV calculator, although if you’re already on a mortgage website then you might want to try it just to use their other tools as well.

The result, 70% is good, because it means that the hypothetical borrower has 30% ownership of the property. This means that lenders will view them as fairly low risk and that they might get a good rate for their mortgage.

To summarize:

  • Lower LTV ratios mean that you own more of the property
  • Lenders see this as a good thing and offer better rates
  • A low LTV means more equity in the property or a bigger down payment
  • More equity means less risk for the lender
  • There are ‘breakpoints’ where if you get the LTV below that level you will be offered more favorable mortgage rates from the mainstream lenders

The lenders know that if someone has more ownership they are less likely to fall behind on their loan repayments and that in the event that they do fall on hard times they are more likely to be able to just sell the property without ending up facing a loss. This means that it is safer to lend to those people and that they will get better prices. In many cases, those with very low LTV ratios will not just see lower interest rates, but also lower closing costs. Keeping the LTV below 80% is valuable too because it helps to avoid private mortgage insurance.

Someone who has a poor credit score should look to avoid a high LTV because they will already be getting charged more for their mortgage. By reducing their overall risk they can reduce the negative impact that their poor credit score is having on them, although improving the score as well will go a long way.

Someone who has a poor credit rating and pays 0.25% more than average for an LTV or 80% would likely end up paying 0.5% more for an LTV that is above 90%. It makes sense, then, for those who have poor credit histories to look for ways to reduce their LTV to below the 80% threshold. The lower the loan to value ratio is, the better, for any borrower but especially for those who have a poor credit rating.

In the long term, building a good credit history is the best option for anyone, whatever their situation. Those who are planning to apply for a mortgage should definitely investigate their credit history.

The Crucial 80% LTV Threshold

  • You should always aim to have an LTV of below 80%
  • This will save you a lot of money
  • Lower LTV ratios mean lower interest rates
  • An LTV below 80% will allow you to avoid private mortgage insurance (PMI) too
  • The traditional way of avoiding higher LTVs is to put down a deposit of 20% when you buy a home so that you can reduce the total amount you pay over the term of the mortgage

You don’t have to do that though, there are other ways to save money on your mortgage and reduce the LTV.

One option is to take out a first and a second mortgage. The total (or ‘combined loan to value ratio’) of the two mortgages may be above 80%, but each mortgage will have a lower loan to value.

For example, you could borrow $800,000 on one mortgage and $100,000 on another, for a combined loan to value of 90% on a $1,000,000 property. The bigger of the two mortgages, however, would still be just 80%. The CLTV would be 90% because the other mortgage has an LTV of 10%.

Combo mortgages can help to keep the LTV on each mortgage below key thresholds, and this will help you to avoid higher interest rates and the misuse of private mortgage insurance. There are limits on the size of the total loan that you can take out and you will not usually be able to borrow more than the total value of the property. Many lenders prefer people to not borrow more than 90 percent of the property value, depending on your credit history.

There are different limits depending on the type of home that you want to buy.

  • FHA loans can often be as much as 96.5%
  • Conforming loans may reach 87%
  • VA and USDA loans are often allowed to be zero deposit/100% LTV

If you are buying an investment property, jumbo or cash-out refi then you are likely to see more restrictions on the total amount that you can borrow. Non-government loans are likely to be more restrictive than a government one as well. Refinances can sometimes be less flexible than loans to purchase a house in the first place.

Loan amounts are increasing. It wasn’t all that long ago that the limit for an FHA loan was 95%, but now Fannie Mae and Freddie Mac are in competition against the FHA which is driving loan amounts up.

Veterans and those who live in rural areas may be able to borrow more than those who are in bigger cities. It is a good idea to shop around, wherever you are buying a property because there are a number of options to buy properties from private lenders that may be willing to offer more flexible financing. There is no need to head straight to the lenders that are advertising on TV. A little legwork could save you a lot of money.

If you have a higher LTV than you would prefer, the good news is that there are a number of ways that you could potentially reduce it.

Borrowers Have Options to Lower Their LTV

For a home purchase loan, use a larger downpayment.
Ask for gift funds as a way of making your downpayment greater.
Break your mortgage up into a combo loan.
Make additional payments or put in a lump sum payment and refinance so that the LTV is lower when you apply.
Wait for amortization and appreciation of the home to reduce your LTV over time.

If you’re purchasing a new property, then the main option is to save and have a bigger downpayment. Yes, that’s not always easy, but it is often possible.

Ask if someone is willing to act as a co-borrower for you or to gift you the money.

Alternatively, look into ways of breaking up the financing into separate loans, and having a first and second mortgage.

With refinancing, you have the option of paying the balance down more aggressively before you apply. Make extra mortgage payments, or wait a bit longer before refinancing.

This could help you if you are close to the LTV threshold, or you need to get below a conforming loan limit.

It’s important to pay close attention to the LTV, because if it is above 80% then you may be paying more than you need to. There are other thresholds, too, where if you can reduce the LTV you may pay less interest.

If you aren’t under urgent need to refinance, then why not take the zero effort approach to reduce your LTV. Just sit back and watch as your house value increases over time. This will lower the LTV in the process. Of course, that isn’t guaranteed to happen. Home values can fall as well as rise.

In general, real estate prices rise over the long term, so your best bet is to be willing to ride out the changes, and to refinance at a time when it is financially suitable for you.

With people who are looking for a cash-out refinance, a jumbo loan, or to acquire some investment property, there are far more restrictions. The Loan to Value is likely to be limited to 70 or 80% at most.

Be aware that if you borrow a lot of money you are taking a big risk. There are borrowers who are now in negative equity because they owe more on their current mortgage than the value of the property today. This can happen for many reasons, and since the housing market is cyclical, you can never be sure that your ‘expensive’ house today will still be in demand in ten year’s time.

Having negative equity (an LTV ratio that is over 100%) is not a problem if you can meet the repayments on your mortgage and you are not planning on moving. It is a problem if you need to move home or if you need to refinance your mortgage. It’s also a problem if you are on a mortgage that is not fixed rate, and the lender charges you more because your LTV is so high.

The Home Affordable Refinance Program has helped a lot of ‘underwater’ homeowners to get back into the black by refinancing on a lower rate without a limit to their LTV. You will need to have a loan that is under Fannie Mae or Freddie Mac if you want to take advantage of that refinance option. There are similar options such as FHA streamline refinance for FHA loans or the VA IRRRL for VA mortgages.

Underwater borrowers can recover. It may take them some time to get back to the same financial standing as someone who bought when the property market was low, but it is possible for them to build equity if they are patient and think long term.

Home buying should not be a hasty decision. It is something that you should work on steadily.

Remember the following:

  • Lower LTV ratios mean bigger savings
  • You will usually get lower interest rates with bigger deposits
  • Long term, you will pay less to repay the mortgage
  • Put more of your money towards paying off the principle by having a low LTV
  • Keep your LTV under 80% to avoid PMI
  • You will have access to more lenders if you have a lower LTV
  • Even people who have a poor credit rating can save money by using a bigger deposit
  • You are more likely to get approved for a mortgage if the lender sees you as being lower risk.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802

What Is An Interest Only Mortgage

Interest Only Mortgage Loans

An interest-only mortgage does not decrease the principal loan amount but rather the installments only cover the interest charged on the loan amount every month. This basically means that you will always owe the same amount to your loan provider as you are only paying the interest. Where there is a small niche market for these type of loans, they are not for everyone.

These type of loans are secured by the property that has been purchased. Although there is an option to pay more than the interest, this option is rarely taken. An interest only mortgage is popular due to the fact that it greatly reduces the monthly installment on the mortgage. However, these types of loans do have a bad reputation and are often made out to be high risk. Just like most types of mortgages, this type of property financing option does have both advantages and disadvantages and when used correctly under the right circumstances, can be highly rewarding.

How Does An Interest-Only Mortgage Work?

The principal loan amount is not taken into account when calculating monthly installments. Only the interest charged on the loan will need to be repaid on a monthly basis. For example:

A principle loan of $100,000 bearing 6.5% interest amortized over a 30 year period would result in a monthly repayment of $627 including both the principal and the the interest (P&I). The interest portion of this amount would be $541.50. This would result in a monthly saving of $85 when taking an interest-only loan.

Different Types Of Interest Only Mortgages

Most types of mortgages that provide an interest-only option do not have an unlimited term. In other words, you cannot continue to only pay the interest forever and after a specified period of time, the principal loan amount becomes fully amortized over the remaining term of the loan. For example, a 5/25 mortgage would allow for interest only payments for the first 5 years of the 30 year term and there after the principal loan amount will be amortized over the remaining 25 years of the original term when both interest and principal amount will form part of the monthly repayment.

To give you a better idea of how this works, look at these to popular options:

  • A 30 year mortgage with the option to pay only the 6.5% interest for the first 5 years on a principle loan amount of $200,000 will result in repayments of $1,083 per month for the first 5 years and $1,264 for the remaining 25 years of the term.
  • A 40 year mortgage with the option to pay only the 6.5% interest for the first 10 years on a principle loan amount of $200,000 allows for an interest-only payment in any chosen month within the initial 10 year period and thereafter, installments will be in the amount of $1,264 for the remaining 30 years of the term.

How To Calculate An Interest-Only Payment

It is easy to calculate interest on a mortgage:

  • Multiply the principal loan amount by the interest rate. In the above example, this would be $200,000 multiplied by 6.5 which is $13,000 in interest annually.
  • Divide the annual interest by 12 months and you arrive at your monthly interest payment on your mortgage. $13,000 divided by 12 equals $1083 which is what you will pay in interest on a monthly basis.

How Can You Benefit From A Interest Only Mortgage?

An interest-only loan is ideal for a first-time home buyer. Most new home buyers do not have the available income to afford to repay a conventional mortgage and therefore opt to rent rather than purchase.

The option to pay the interest-only in any given month provides the homeowner with some financial flexibility when it comes to unforeseen circumstances. In other words, the homeowner does not pay only the interest every month but can choose to do so when they need to during a month of financial difficulty or where an emergency has arisen that prevents them from making a full repayment.

Self-employed individuals or commission earners who do not earn a stable monthly income can also benefit from these type of loans. In high earning months, they can pay more towards the principal amount and in low income months, opt to pay only the interest on the mortgage.

What Does It Cost?

Due to the slightly higher risk that a loan provider may run in offering an interest only mortgage, these type of financing options are often a little more expensive than traditional mortgage options. Most often, the difference is as little as 0.5% in the interest charged on the principle amount.

Additional fees and charges may also apply as may a percentage of a point on the principal amount in order to grant the loan.

Misconceptions And Real Risks

The balance owed on the mortgage will never increase as it does with ARM loans. Increasing the balance is referred to as negative amortization and does not apply to interest-only mortgages.

The greatest risk is when it comes to selling a property which has not appreciated in value. If the principle amount has not been reduced due to paying interest-only, the loan amount will not have changed and therefore the full amount will become due. This will mean that the homeowner will run at a loss.

On the other hand, it is important to note that this is a risk that is run when taking out a conventional mortgage. It is rare that a loan will cover the costs of a selling a property that has not appreciated in value. A significant down-payment will reduce the this risk factor on an interest-only mortgage.

A drop in the property market can result in the loss of equity on the property. Once again, the risks associated with a decline in the property market is run by all homeowners whether they opt for an interest-only mortgage or a home loan that is fully amortized.