Residential real estate is property that people own and live in. Most people think of a single family home, but residential real estate refers to several property types: townhomes, condos, cooperatives (aka co-ops), and multi-unit buildings that have up to four residential units.

A mortgage is money that is borrowed to buy real estate and the loan is secured with that property. Almost no one can buy a home outright so people who want to own a home have to borrow money to make that idea a reality. A borrower must qualify for a mortgage and that process identifies what you can afford.

A mortgage broker (that’s us!) works with various financial institutions (including some banks), who lend money for people to own a home. A broker receives rates daily from these financial sources and determines which financial product best fits the needs of their clients.

Banks offer mortgage financing using their own funds and are restricted to their institution’s guidelines and business needs.

Because brokers have access to many sources and multiple financing options, they can analyze your specific needs and find the most competitive rates that fit your needs. Banks only have access to their funds and are limited to their guidelines.

As much a lenders wants to approve every mortgage, one must fit a loan request within the parameters that lenders have set up. There are three basic parameters: income, assets, and credit.

Income
The mortgage industry uses gross income, not after-tax income. The general guideline is that 28% of your gross income can be used to cover the cost of the mortgage payment which is defined as the principal, interest, property taxes, and homeowners insurance. The industry refers to this payment as PITI. You can learn more details below under the ‘Income’ section.

Assets
There are two components to asset requirements for a lender. First, they want to see enough money for the down payment plus the cost of the loan. Second, they want to ensure that enough money, called reserves, is left over after the transaction closes. Typically, they want to see two to three months of PITI in post-closing reserves.

Credit
Are you a safe investment? That is the question lenders ask on every loan. To determine your credit-worthiness, the financial industry created a numerical value called a FICO score. The better the score, typically 720 and higher, the more options you have and you can qualify for lower rates. There are ways to improve a FICO score, but it takes time and strategy.

While the above information are general guidelines, GoAhead Finance offers programs that have flexibility in all of these categories. Contact us today or apply online to get specific answers to your personal needs.

The first thing to understand how the mortgage industry analyzes income is that they use gross income, not after tax income. If you are an employee, like most of us, then what is stated on your W-2 is a good starting point. If you are self employed (or have a side business and want to use that income), then you would have to supply two years of tax returns and a current profit/loss statement to determine income. There are other sources as well like pensions, investments, and real estate income so if those situations apply to you, give us a call and we can help decipher your income to navigate your mortgage needs.

The mortgage industry does not need to see every penny you have saved, but they do want to see enough funds to be able to close a mortgage and have some reserves leftover… typically two months’ of mortgage payments, or PITI. Those reserves don’t have to be in a checking or savings account; they could also be in a retirement or whole life insurance account. Additional funds beyond the guidelines can be used to offset other risks in a loan application like a low credit score. Unconventional assets like gifts from a family member can also be used.

Credit refers to money you have borrowed from banks or financial institutions and how you paid those debts over time. Typically these are student loans, car loans, credit cards, and mortgages. A so called FICO score between 350-850 is given to your credit situation and performance. The higher the score, the better it demonstrates your ability to handle and pay credit obligations without any issues. In the mortgage industry, the standard minimum is 620, but most underwriters want to see 700 or higher. If you have a score less than 620, there are still ways to get a mortgage, but the rates and conditions may be higher.

If your credit is an issue, do not despair! There are ways to structure a loan that meets your immediate needs and also construct a pathway to implement that over time will “clean up” your credit. If you feel your credit may be an issue, we are happy to help. We can walk you through that process.

An amortization schedule is the timeline to pay back the mortgage in full. A 30-year fixed rate mortgage is amortized over thirty years, and a 15-year mortgage over 15 years. In some cases, the term of the loan is different than the amortization schedule. For example if one had a 10 balloon mortgage, that mortgage would be amortized over 30 years, but after the 10th year, the remaining balance would be due. An ARM, or Adjustable Rate Mortgage, is fixed for a certain number of years, after which it is adjusted to current market conditions and re-amortized on an annual basis for the remaining years. For example, a 5/1 ARM, is fixed for 5 years with a 30-year amortization schedule. After the fifth year, it adjusts to the current rate and amortized over the remaining 25-years to keep the life of the loan limited to 30 years.

If a loan is greater than 80% of the value of the property (known as 80% LTV), then private mortgage insurance is required to protect the lender’s investment if they have to take possession of the property, known as a foreclosure. Once a loan amount is 80% or less than the current market value of the property, an owner can remove or cancel the PMI. To learn more about PMI, contact GoAhead Finance and learn how to navigate or even avoid it altogether.

An owner occupied property is what it says: property that you live in. Most people think of a single family home or a condominium, but it can also refer to property that has up to 4 residential units that one rents out.

A non-owner occupied property is a property that you own, but isn’t your primary residence. This might be a second home or a property that is rented out. There are two types of rental properties: A property that has one to four apartments where people live. This type of non-owner occupied property is subject to residential underwriting laws. The other type is if there is retail space, five units or more, or otherwise used for income purposes, it is considered commercial or investment property and subject to commercial underwriting laws. GoAhead Finance can help with both types of mortgages.