Ready To Fill Out Your Loan Application? What Information Do You Need?

Home Loan

Home Loan

Have you decided it’s time to take the plunge into home-ownership? Perhaps you’ve owned before, but it’s been a while since you went through the process, or maybe you are looking to refinance an existing mortgage. In all of these situations, you will start with a loan application. Although each lender may have slightly different requirements, most applications are somewhat similar.

When you are ready to fill out an application, you will need to gather some documents first. Federal regulations and banking requirements mean that lenders need to collect a lot of information from you before sending an application to the underwriters. So be ready to buckle down and start a file of paperwork.

If you already feel overwhelmed, that’s normal. The friendly experts at Twin City Lending are here to keep it simple for you. Give us a call today to get started with our concierge lending services.

Why So Many Questions?

When you sit down to begin your loan application, you may feel excited, motivated, and eager. As the questions continue on and on, however, you might start to feel a little bogged down or frustrated. You may begin to wonder why they need so much information from you.

Keep in mind that you are asking the bank or credit union for a substantial amount of money. They have to do their due diligence to make sure you will be able to keep up your end of the mortgage agreement. Also, many of the questions on a loan application reflect legal requirements from the government. The lender has no control over those parts of the process. They must be sure you metaphorically dot your I’s and cross your T’s.

Don’t feel like you have to complete the entire application in one sitting. Carve out 20 or 30 minutes to work on it. Then, if needed, find another chunk of time later on to continue. You will find the process a bit easier if you take some time to gather all of the necessary documents before you begin.

What Information Do I Need To Fill Out the Loan Application?

Paper

In general, a mortgage loan application will ask about three broad categories: employment, the property you wish to purchase, and money. Within each of these topics, there will be subtopics, and your answers will need documentation to support them. Here’s a look at the typical information you will need to supply.

Employment Questions

  • Where do you work?
  • What is your position?
  • How long have you worked there?

In general, a work history of at least two years with one company works in your favor during the loan process. Contract work and self-employment will make the process a little more lengthy. These situations certainly are not deal-breakers, but they do add more work for you in filling out the application.

Property Questions

  • What is the address?
  • Do you plan to live in the home as your primary residence?
  • Will it be a rental property?
  • Is it a multi-unit property?
  • What is the purpose of the loan you are seeking for the property? Is it a new purchase or a refinance?

Single-family dwellings that you intend to live in make for the smoothest application processes. Financial institutions assume you will be highly motivated to make your mortgage payments for a home you live in, and therefore you are less likely to default.

If the property is a rental, you may need to provide a market analysis showing how much you can expect to charge for the lease. If you already have tenants lined up, the lender will love to see documentation of that arrangement.

Money Questions

Home Loan

This section is the biggie, and this is where the lender will dive into your viability as the recipient of their loan. The money questions on a loan application generally fall into three categories:

1. Income

  • How much do you earn at your job? Be prepared to provide W-2s,1099s, and recent pay stubs. You also need to supply the previous two years’ tax returns. In some situations, lenders will require additional returns.
  • Do you have other sources of income? If you have dividends or rental income, include it here and provide documentation to support it. Include any alimony or child support you receive as well.
  • Is your income steady or variable? Variable income can make the loan application process a bit more complicated, but your lender will walk you through any additional requirements.

2. Debts and liabilities

  • How much consumer debt do you have? Be prepared to provide documentation of your credit card and other revolving credit debt.
  • Do you have student loans or car loans?
  • Are there any outstanding financial judgments against you, such as through a court? If so, you probably will need to show documentation of the judgment and payment schedule.

The lender will run a credit report and obtain a credit score for you very early in the loan application process. If you know that you have errors on your credit report, work to get those fixed before you apply for a mortgage.

3. Assets

  • How much money is sitting in your bank account right now? Be sure to have at least two months of bank statements ready to go.
  • Do you have any retirement savings, such as a pension, 401K, or IRA? Again, have your most recent statements available to go into your file.
  • Do you have other investment accounts such as stocks, bonds, CDs, or mutual funds? Be ready with, you guessed it, recent statements.
  • Do you own other property? If you have an investment property or paid-for cars, you may be able to list those as additional assets.

TwinCity Lending Can Help

Buying or refinancing a home is a significant process. But it shouldn’t have to be complicated and confusing for the buyer. The friendly team at TwinCity Lending is here to make your experience perfect. Let our experience and expertise work for you.

With our attention to detail and our ability to simplify the process for you, we will have you on the road to home-ownership in no time. If you’re ready to get started on a loan application, give us a call today. We can’t wait to serve you.

Understanding the Return on Investment (ROI) on Rental Properties

House

House

After buying their first home, many people turn to real estate as an investment. Buying a vacation home can be a good prospect for many people, as you get to rent it out all year long and have the bonus of enjoying the house for your vacations. Others purchase townhomes or condos that they rent out for market rates to cover the cost of mortgage payments and expenses. Later, they can sell the property at a profit or use the equity to finance further investments.

Whether you are buying a rental property in a faraway exotic location or right around the corner in your hometown, real estate can bring a healthy return on your investment (ROI). If you’re interested in joining the ranks of investors who see substantial returns on their rental properties year after year, then it’s time to get started.

The friendly and knowledgeable pros at TwinCity Lending can help you finance your rental property. We also have some tips to help you understand the positives and negatives of rental property game and how to be sure your investment is paying off.

What to Know Before You Buy a Rental Property

If you want to know how to buy a rental property, work with a real estate agent and lender who specialize in the business.

Establish an LLC

In most cases, you’ll want to form a limited liability company for your real estate investment properties to keep them separate from your personal assets, such as your own home. Setting up an LLC will cost between a few hundred to a few thousand dollars, depending on where you live and whether you use an attorney to handle your affairs.

Qualifying for the Mortgage

Just like when you purchased the home you live in, you will need to qualify for the mortgage for the rental property. Your lender will evaluate your credit score, debt-to-income ratio, overall debts, salary, and payment history to offer you a loan and interest rate.

To be approved for the new mortgage, you prove you can afford to pay it every month whether or not you have any rental income. You cannot rely on having a tenant at all times. Even when the rental property is vacant, you are still responsible for the mortgage, property taxes, insurance, and maintenance.

Your lender can help you find a mortgage that will work with your specific financial situation. You may be able to borrow against the equity in your primary residence to obtain your down-payment for your rental property purchase.

Consider Rental Property Expenses

Of course, it’s more than just paying the mortgage on your rental property every month. Just as with your primary residence, you will be responsible for the taxes, insurance, maintenance, and repairs on your investment property.

If the HVAC unit dies or the roof leaks, you’ll have to pay to have them repaired or replaced. You’ll also have to budget for replacement of items in the home that depreciate over time, such as carpet, plumbing, and appliances. You’ll need to keep the house in good shape, with painting, gutter cleaning, pest control, and lawn maintenance.

Unlike your primary home, however, a rental property can incur additional expenses. You may have to pay legal fees if you need to evict a tenant or go to court. A bad tenant can cause damage to the property that you must pay to repair. And of course, the most substantial risk to your ROI is if the property sits without a tenant, meaning no income is coming in for you.

Managing the Property

Pool

If you buy a rental property, you’ll have to determine who will handle it. If the tenant has a problem, such as maintenance or pest-control issue, who will they contact? Will they call you directly, or will you hire a property manager? Will that person be an individual, a maintenance company, or a firm that specializes in managing rental properties for their owners? You’ll typically pay property management firms 10% of the rent you receive from your tenants, so you’ll want to factor that expense into your investment calculations.

Tenants want their landlords to be accessible and responsive. They leave reviews for your property and your management online that affect other people’s desire to rent from you. Think carefully on how you will manage your rental property so that you aren’t woken up in the middle of the night about a water leak, or unavailable to your tenant while you travel for work or are on vacation.

You’ll also want to think about Homeowner’s Association fees and how those costs will be recuperated. In many cases, the owners must pay HOA fees — that’s you — and not the tenant. However, you may wish to incorporate those costs into your monthly rental charge, if the rental market in your area will support the increased price.

Utilities and sanitation services are another concern to consider. Will you include those costs in the rent? Will they remain in your name or will the tenant be responsible for setting up their accounts? A combination of both? There are many details to consider when buying and managing a rental property.

A property management firm can also help you market the home as available for rent as tenants come and go, and manage communications with your renters.

What is a Good ROI on Real Estate Investment?

If all goes well and you have responsible, long-term tenants and expenses that meet your budgeted expectations, you’ll enjoy the increased monthly income from your rental properties and the growth in equity from your investment.

Experts cite 10% per year as a good ROI for real estate investments. That’s about 7% rate of return plus 3% inflation. You might not make that return in your first year, but once things settle down and you get better at pricing and managing your property, it’s a good bet that you can make that ROI with your rental.

If you’re ready to join the ranks of rental property investors, give us a call at TwinCity Lending. We’ll be happy to be your partner and adviser in this process. We’ve helped many area real estate investors, and we look forward to putting our expertise to work for you.

What is Mortgage Insurance and How does it Work?

Buy Home

Buy Home

If you’re a homeowner, you’ve probably been on a crash course to learn all the various terms and conditions of getting a mortgage and closing on a house. From escrow to deed-in-trust to points to PITI, you likely haven’t had to memorize so much jargon since high school geometry. We haven’t even talked about insurance.

There are several new types of insurance you’ll need to know about and consider as a homeowner. These include homeowners’ insurance, which protects your home and its contents against loss in case of a fire, theft, or another event, such as a storm. Other coverage you may not have heard of before is mortgage insurance, of which there are two kinds. At TwinCity Lending we will help you understand these various insurances, and walk you through how mortgage insurance works.

What is Primary Mortgage Insurance (PMI)?

Primary mortgage insurance, or PMI, is a policy you are required to have by most lenders if you owe more than 80% of the balance of the mortgage. This mortgage insurance protects the lender should you default on the loan. PMI allows lenders to make riskier loans, which means that more people can get approved for mortgages and become homeowners.

Loan applicants who have a down payment of at least 20 percent of the home’s selling price have a statistically lower risk of having trouble making mortgage payments or defaulting on their loan. But it can be difficult for many home buyers to save up tens of thousands of dollars for a 20-percent down payment. PMI makes it possible for people to buy homes with as little as three percent down, or in some cases, no down payment at all.

PMI is paid directly to your lender every month as part of your mortgage payment. You pay a PMI insurance premium each month until the amount you owe on your loan drops below 80 percent of your home’s current value. As you pay your mortgage principal down — and your home’s value goes up — you will reach this threshold and can petition to have PMI removed from your loan. After years of on-time mortgage payments and getting your loan-to-value percentage to 80 percent, you will have joined the group of lower-risk homeowners and no longer need to carry PMI.

If you want to buy a home but don’t have a sizeable down payment, talk to us at TwinCity Lending about private mortgage insurance. PMI is an additional monthly cost, but it can make homeownership possible. We will work with you to calculate how much your monthly payments will be and help you determine how much home you can afford.

The other type of mortgage insurance protects you, the homeowner, should you lose your job, become disabled, or die. This mortgage insurance is called mortgage protection insurance, or MPI, and it can be a good investment for some homeowners to ensure they can make their mortgage payments or do not lose their homes if an unplanned event or accident occurs.

What is Mortgage Protection Insurance (MPI)?

Insurance

After you signed all the mortgage paperwork and moved in, do you ever wonder what would happen to your home and your family if you became injured, disabled, or died? How would your family pay the mortgage if you lost your job, could not work, or were not around? If you’re worried about this situation, Mortgage Protection Insurance (MPI) may be right for you.

Mortgage Protection Insurance is an insurance contract, similar to life insurance or disability insurance, that will pay a percentage of your mortgage payment for a certain period if you lose your job or become disabled. Most MPI also pays the balance of your mortgage directly to the lender — paying off your loan — if you die. That means your family will then own the house free and clear, and not have to worry about a mortgage refinancing or home sale after your death.

MPI can be useful for people who have risky jobs or health issues that make it more difficult or more expensive to qualify for life insurance — which many people also use to pay off their mortgages in case of their death. Unlike life insurance, however, mortgage protection insurance is easy to obtain. Many people with chronic health conditions or a previous catastrophic illness such as cancer are not approved for life insurance, or the premiums are too high to be cost-effective.

Other times, life insurers won’t issue a policy to someone whose job puts them in higher-than-average danger. Without the ability to get life insurance, your options for a payout that would ensure your family can stay in their home after you die can be slim. Mortgage Protection Insurance provides a solution.

If you’re wondering how much mortgage protection insurance is, the answer is that it varies. The cost of mortgage insurance varies from person to person, just as life and disability insurance do. The benefits of your policy also differ — MPI is not a one-size-fits-all product. You can opt for benefits that pay a smaller amount per month to assist with mortgage payments for a longer period, or a larger monthly payment for a shorter period, for example. Everyone’s financial and family situation is different, so MPI policies are flexible to help protect your unique needs.

At TwinCity Lending, we offer mortgage protection insurance to our clients as part of our portfolio of services. Mortgage protection insurance helps give you the peace of mind that you or your loved ones will have the stability of your home even if tragedy strikes.

Contact us at TwinCity Lending to discuss these two types of mortgage insurance and how they will impact your ability to buy a home. If you’re already a homeowner and you’re interested in adding MPI to protect your home and your family, we can help you with that too. Give us a call and let our experienced and friendly staff help you make sense of the mortgage jargon and protect your most significant investment.