Step 1 - Determine Your Purchasing Power

The first step in obtaining a loan is to determine how much money you can borrow.  In case of buying a home, you should determine how much home you can afford even before you begin looking. By answering a few simple questions, we will calculate your pur hasing power, based on lender guidelines specific to your purchasing scenario.  You may also elect to get pre-approved for a mortgage which requires verification of your income, credit, assets and liabilities.  It is recommended that you get pre-approved before you start looking for your new house so you: 

1. Search for properties within your range.
2. Be in a better position when negotiating with the seller (seller knows your mortgage is already approved).
3. Close your mortgage more efficiently and swiftly

LTV and Debt-to-Income Ratios
LTV or Loan-To-Value ratio is the maximum amount of exposure that a wholesale lender is willing to accept in financing your purchase. Wholesale lenders are usually prepared to lend a higher percentage of the value, even up to 100%, to proven creditworthy borrowers. Another consideration in approving the maximum mortgage amount for a particular borrower is the ratio of monthly debt payments (such as installment loans and revolving debt) to income. Rule of thumb states that your monthly mortgage payments should not exceed one-thrid of your gross monthly income. Therefore, borrowers with high debt-to-income ratio need to pay a higher down payment in order to qualify for a lower LTV ratio.

FICO™ Credit Score
FICO™ Credit Scores are widely used by almost all types of wholesale lenders in their credit decision. It is a quantified measure of proven creditworthiness of an individual, which is derived from mathematical models developed by Fair Isaac and Company in San Rafael, California. FICO™ scores reflect proven credit risk of the individual in comparison with that of general population. It is based on a number of factors including past payment history, total amount of borrowing, length of credit history, search for new credit, and type of credit established. When you begin shopping around for a new credit card or a loan, every time a creditor runs your credit report it may adversely effect your credit score. It is, therefore, advisable that you authorize any mortgage broker and/or originator to run your credit report only after you have chosen to apply for a mortgage through them.

Self-Employed Borrowers
Self-employed individuals often find that there are greater hurdles to borrowing for them than an employed person. For many conventional lenders the problem with lending to the self-employed person is documenting an applicant's income. Applicants with jobs can provide the mortgage originator and/or processor with pay stubs in which wholesale lenders can verify the information through the borrower(s) employer(s). In the absence of such verifiable employment records, wholesale lenders rely on income tax returns, which they typically require for two years.

Source of Down Payment
Wholesale lenders expect borrowers to come up with sufficient cash for the down payment and other fees payable by the borrower at the time of funding the loan. Generally, down payment requirements are made with funds the borrowers have saved. If a borrower does not have the required down payment they may receive “gift funds” from an acceptable donor with a signed letter stating that the gifted funds do not have to be paid back.

Step 2 - Choose the Appropriate Mortgage

Which Mortgage is Right for You?

There are a number of different types of mortgages available to you, and it can pay to familiarize yourself with them. Luckily we’re here to help you choose the best type of mortgage for your needs. Alliance Realty & Financial wholesale mortgage products include qualified and non-qualified mortgages. Ask one of our Alliance Originators for more infomation. Home loans come in many shapes and sizes. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each.  Whether you are buying a home or refinancing, there are 2 basic types of home loans. Each has different reasons you'd choose them.

Fixed Rate Mortgage

The traditional fixed rate mortgage is the most common type of loan program, where monthly principal and interest payments never change during the life of the loan. Fixed rate mortgages are available in terms ranging from 10 to 30 years and in most cases can be paid off at any time without penalty. This type of mortgage is structured, or "amortized" so that it will be completely paid off by the end of the loan term. Even though you have a fixed rate mortgage, your monthly payment may vary if you have an "impound account". In addition to the monthly "principal + interest" and any mortgage insurance premium (amount charged to homebuyers who put less than 20% cash down when purchasing their home),  some lenders collect additional money each month for the prorated monthly cost of property taxes and homeowners insurance. The extra money is put in an impound account by the lender who uses it to pay the borrowers' property taxes and homeowners insurance premium when they are due. If either the property tax or the insurance happens to change, the borrower's monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are very stable and predictable. Fixed rate mortgages usually have terms lasting 15 or 30 years. Throughout those years, the interest rate and monthly payments remain the same. You would select this type of loan when you:

• Plan to live in home more than 7 years
• Like the stability of a fixed principal/interest payment
• Don't want to run the risk of future monthly payment increases
• Think your income and spending will stay the same

Adjustable Rate Mortgage

Adjustable Rate Mortgages (ARM)s are loans whose interest rate can vary during the loan's term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions. The initial rate on an ARM is lower than on a fixed rate mortgage which allows you to afford and hence purchase a more expensive home. Adjustable rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All ARM loans have a "margin" plus an "index." Margins on loans typically range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value. The index is the financial instrument that the ARM loan is tied to such as: 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). When the time comes for the ARM to adjust, the margin will be added to the index and typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. That rate will then be fixed for the next adjustment period. This adjustment can occur every year, but there are factors limiting how much the rates can adjust. These factors are called "caps". Suppose you had a "3/1 ARM" with an initial cap of 2%, a lifetime cap of 6%, and initial interest rate of 6.25%. The highest rate you could have in the fourth year would be 8.25%, and the highest rate you could have during the life of the loan would be 12.25%. Adjustable Rate Mortgages (often called ARMs) typically last for 15 or 30 years, just like fixed rate mortgages. But during those years, the interest rate on the loan may go up or down. Monthly payments increase or decrease. You would select this type of loan when you:

• Plan to stay in your home less than 5 years
• Don't mind having your monthly payment periodically change (up or down)
• Comfortable with the risk of possible payment increases in future
• Think your income will probably increase in the future

By carefully considering the above factors and seeking our professional advice, you should be able to select the one loan that matches your present condition as well as your future financial goals.

Interest Only

A mortgage is called “Interest Only” when its monthly payment does not include the repayment of principal for a certain period of time. Interest Only loans are offered on fixed rate or adjustable rate mortgages as wells as on option ARMs. At the end of the interest only period, the loan becomes fully amortized, thus resulting in greatly increased monthly payments. The new payment will be larger than it would have been if it had been fully amortizing from the beginning. The longer the interest only period, the larger the new payment will be when the interest only period ends. You won't build equity during the interest-only term, but it could help you close on the home you want instead of settling for the home you can afford. Since you'll be qualified based on the interest-only payment and will likely refinance before the interest-only term expires anyway, it could be a way to effectively lease your dream home now and invest the principal portion of your payment elsewhere while realizing the tax advantages and appreciation that accompany homeownership.

As an example, if you borrow $250,000 at 6 percent, using a 30-year fixed-rate mortgage, your monthly payment would be $1,499. On the other hand, if you borrowed $250,000 at 6 percent, using a 30-year mortgage with a 5-year interest only payment plan, your monthly payment initially would be $1,250. This saves you $249 per month or $2,987 a year. However, when you reach year six, your monthly payments will jump to $1,611, or $361 more per month. Hopefully, your income will have jumped accordingly to support the higher payments or you have refinanced your loan by that time. Mortgages with interest only payment options may save you money in the short-run, but they actually cost more over the 30-year term of the loan. However, most borrowers repay their mortgages well before the end of the full 30-year loan term. Borrowers with sporadic incomes can benefit from interest-only mortgages. This is particularly the case if the mortgage is one that permits the borrower to pay more than interest-only. In this case, the borrower can pay interest-only during lean times and use bonuses or income spurts to pay down the principal.

Graduated Payments

A graduated payment mortgage is a loan where the payment increases each year for a predetermined amount of time (such as 5 or 10 years), then becomes fixed for the remaining duration of the loan. When interest rates are high, borrowers can use a graduated payment mortgage to increase their chances of qualifying for the loan because the initial payment is less. The downside of opting for an smaller initial payment is that the interest owed increases and the payment shortfall from the initial years of the loan is then added on to the loan, potentially leading to a situation called "negative amortization." Negative amortization occurs when the loan payment for any period is less than the interest charged over that period, resulting in an increase in the outstanding balance of the loan.

Step 3 - Apply for the Mortgage

Step 4 - Search for the Property

Step 5 - Contract Offer and Acceptance

Using one of our Alliance  REALTORS® to access property and navigate the real estate purchase process is essential to a successful and seamless property purchase. Our Alliance agents have a plethora of experience while exuding professionalism and customer-driven focus. Our knowledgeable agents will reseach and put together the appropriate documentation to make a reasonable and acceptable offer, ensure compliance throughout the purchase process, and through to closing with any possible addendum and amendments that may arise from due diligence. Immediate due diligence out of pocket expenses that typically arise from purchasing property include:

• Application Fees (Alliance does not charge one)
• Appraisal Fees
• Inspection Fees (House, Pest, etc.)
• Survey Fees

Step 6 - Processing & Underwriting

Although the majority of wholesale lenders conform to standards set by government agencies, mortgage approval guidelines vary depending on the terms of each borrowing scenario. In general, approval is based on two factors: your ability and willingness to repay the mortgage and the value of the property. Once your mortgage application has been received and a fully executed purchase contract, we will start the mortgage approval process immediately. Your mortgage originator and/or processor will verify all of the information you have provided. If any discrepancies are found, either the mortgage processor or originator will troubleshoot to ensure all information provided is factual and accurate.  This information includes:

Income/Employment Check

Is your income sufficient to cover monthly payments? Mortgage industry guidelines are used to evaluate your income and your debts.

Credit Check

What is your ability to repay debts when due? Your credit report is reviewed to determine the type and terms of previous loans. Any lapses or delays in payment are considered and must be explained.

Asset Evaluation

Do you have the funds necessary to make the down payment and pay closing costs? 

Property Appraisal

Is there sufficient value in the property? The property is appraised to determine market value. Location and zoning play a part in the evaluation.

Other Documentation

In some cases, additional documentation might be required before receiving a final underwriting mortgage approval.

In order to improve your chances of getting a final underwriting mortgage approval:

1. Fill out your mortgage application completely. Use our online application to expedite the process.
2. Respond promptly to any requests for additional documentation especially if your rate is locked or if your mortgage is to close by a certain date.
3. Do not move money into or from your bank accounts without a paper trail. If you are receiving money from friends, family or other relatives, please prepare a gift letter and contact us.
4. Do not make any major purchases until your mortgage is closed.  Large credit purchases cause your debts to increase and may have an adverse affect on your current mortgage application.
5. Do not go out of town around your mortgage closing date. If you plan to be out of town, you may need to sign a Specific Power of Attorney.

Step 7 - Closing & Funding

After your mortgage is approved, you are ready to sign the final closing documents. You must review the closing documents prior to signing and make sure that the interest rate and mortgage terms match the final underwriting approval. Also, verify that the name and address on the mortgage closing documents are accurate. The signing normally takes place at a title attorney's office in front of a notary public. There are also several fees associated with obtaining a mortgage and transferring property ownership which you will be expected to pay at closing. Title agents will determine the appropriate method to source funds in an escrow account for the down payment and closing costs when required by contractual timing. Personal checks to source the escrow account are normally not accepted. You also will need to show your homeowner's insurance policy, and any other requirements such as flood insurance, plus proof of payment. Your mortgage will normally fund and disburse to all parties shortly after you have signed the closing documents. On owner-occupied refinance mortgage transactions federal law requires that you have three days to review the documents before your mortgage transaction can disburse any funds.