DTI is an abbreviation for debt to income ratio. These ratios are based on the borrower’s gross monthly income vs. their monthly debt. DTI’s are important because they are one of the primary factors used to qualify a loan. There are two types of DTI ratios referred to as the “top” and “bottom” ratios.  The “top” end ratio is the borrowers total-housing expenses divided by their monthly income.  The “bottom” ratio is determined by calculating total housing expenses plus all other monthly debt divided by income.

PITI / Gross Monthly Income = Top Ratio
PITI + Remaining Monthly Debt / Gross Monthly Income = Bottom Ratio

LTV is an acronym for Loan to Value. Loan to Value refers to the percentage of loan in correlation to the value of the property. As an example, let’s look at a home worth $100,000. If the buyer wants to put 10% of the properties purchase price as down payment, this will result in a 90% LTV.  The formula for determining LTV on any property is to divide the loan amount by the value of the property. The ratio is a key factor in determining the lenders risk associated with each property and borrower.

The LTV plays a role in determining what programs will be
available to the borrower.

Loan Amount / Property Value = LTV

PITI is the acronym for Principle, Interest, Taxes and Insurance. This is opposed to a PI quote which is only Principal and Interest. When shopping for a mortgage, it is important for the borrower to compare apples to apples and make sure that the quotes they are receiving are in the same context.

PMI is Private Mortgage Insurance. PMI is insurance used by lenders to decrease exposure on higher risk loans. Private mortgage insurance is required on all conventional loans that exceed 80% LTV. There are combination loans available that can eliminate PMI by reducing the first mortgage to an 80% or lower LTV by coupling it with a second mortgage. For example, John wants to buy a $100,000 home but has only 5% to put toward down payment. With a conventional loan, John would be at 95%
LTV and PMI would be required. An alternative to this would be that John takes a first and second mortgage. By taking an 80% LTV as a first mortgage would get rid of PMI while the remaining funds to close are from a 15% second mortgage. These loans are commonly referred to as 80/15’s. Other combinations are available.

A consumer credit report includes: 1. A list of debts, such as credit cards and car loans, and a history of how you have paid them. 2. Any bills that have been referred to a collection agency. This can include items like phone and medical bills.

3. Public record information, such as tax liens or bankruptcies, even if these happened several years ago.

4. Inquiries made about creditworthiness. An inquiry is made when borrowers request credit. Many times a report will also show if credit was granted based on the inquiry.

5. Borrower’s scores are influenced by long-term payment history.

A good property for appraisal and inspection purposes is critical, but often realtors and sellers forget the importance of seasoning. Seasoning is the amount of time that a seller has owned the home that will be sold. When a borrower buys a home that was purchased less than 12 months ago by the seller it is essential that the seller has fully documented all improvements to the property. If they have not, this could result in a reversion to the original
purchase price. Lenders will especially scrutinize sub-prime
borrowers purchasing the home to ensure appraised value is accurate.

HUD has long recognized the important role that nonprofit
agencies play in providing affordable housing opportunities.

1. The combined amounts of the first and second mortgages cannot exceed the applicable loan-to-value ratio and the maximum mortgage limit for the area.

2. The repayment terms of the second mortgage must not provide for a balloon payment before ten years (or other such term acceptable to FHA), unless the property is sold or refinanced, and must permit prepayment by the borrower, without penalty, after giving the lender 30 days advance notice.

3. The required monthly payment under the insured mortgage and the second mortgage or lien, plus other housing expenses and all recurring charges, cannot exceed the borrower's reasonable ability to pay. Any periodic payments due on the second mortgage are due monthly and are substantially the same in amount.

4. The required monthly payment under both the insured
mortgage and the second mortgage or lien, plus other housing expenses and all recurring charges, cannot exceed the borrower's reasonable ability to pay.

5. The second mortgage when combined with the first may not exceed the estimated value of the property including all closing costs.

6. The source, amount, and repayment terms must be disclosed in the mortgage application and the borrower must acknowledge that he or she understands and agrees to those terms. If the secondary financing includes restrictions on transferability under the new rule, such as occupancy requirements or resale restrictions, those requirements must comply with the new rule (as discussed below). Permitted restrictions may be enforced by requiring repayment of the secondary financing. The secondary financing itself is not a restriction under the rule merely because it is due on sale of the home.

Federal agencies and government-sponsored enterprises (e.g., the Federal Deposit Insurance Corporation (FDIC), the Federal National Mortgage Corporation (Fannie Mae), the Resolution Trust Corporation (RTC), the Federal Home Loan Mortgage Corporation (Freddie Mac) that administer affordable housing programs may also provide secondary financing under the terms described above. (HUD 2004).

AmeriDream provides down payment or closing cost assistance – up to 10% of the purchase price of a home – in the form of gift funds to qualified buyers. The gift does not have to be repaid.

www.ameridream.org

AmeriDream is just one example of a down payment assistance program. We are not affiliated with this organization and information presented here is for example and information purposes only.

Many borrowers ask, “Will my loan be sold?” This question is legitimate and not to be feared. If the borrowers loan is sold or transferred to another lender the terms and payment of the loan will always remain intact. The only change to the borrower will be where they send their payment.

Title insurance is required by the lenders to insure that the
property will be taken with a clean record. Title companies insure both buyers and sellers that the exchange of a property will be lien, and encumbrance free; and that the property is equitable. Many times borrowers as well as industry professionals over look the importance of different public documents. The process of selling and buying a home is a legal transaction; therefore the
proper execution of all documents is critical to secure the lenders interest as well as the sellers. Always read the title report.

Overview of the title process:

• The Seller releases property to buyer via Warranty
  Deed/Quitclaim (depending on the state).
• The Seller releases any liens against property with a payoff from buyer’s funds.
• The buyer’s new lender secures a lien against the property to protect the lenders investment in the property, via Deed of Trust.
• The Release, Note and Deed of Trust are all recorded at the county to make the transaction official.
• Buyers now own property and sellers are released from previous mortgage.

When a borrower buys a home from an investor, many times the lenders scrutinize the property in a different manner. The general rule is that homes sold within the last 12 months receive the most scrutiny. If possible obtain receipts and cost breakdowns from the seller before making an offer.

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. One of its purposes is to help consumers become better shoppers for settlement services. Another purpose is to eliminate kickbacks and referral fees that increase unnecessarily the costs of certain settlement services. RESPA requires that borrowers receive disclosures at various times.

Some disclosures spell out the costs associated with the
settlement; outline lender servicing and escrow account practices and describe business relationships between settlement service providers.

RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring homebuyers to purchase title insurance from a particular company.

Generally, RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD's Office of Consumer and Regulatory Affairs, Interstate Land Sales/RESPA Division is responsible for enforcing RESPA.

Here at Midwest Capital Mortgage we subscribe to better business practices and adhere strictly to all applicable laws and regulations.