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What is the Mortgage Underwriting Process?

Lenders will not approve a mortgage without first conducting their own due diligence. A mortgage underwriter reviews, confirms and analyzes every loan application to minimize risk to the lender. Some mortgage applications get approved almost immediately while others may face denials and suspensions that can prolong the approval process for weeks or even months.

Generally speaking, larger mortgage companies can accept a higher level of risk than smaller companies. The underwriting process begins as soon as a completed application is submitted to the lender. The underwriter will review the application for clerical errors, inconsistencies and risk factors. They will contact an applicant’s employer, confirm credit reports, research assets or liabilities, and make sure that the application falls under the company’s approval guidelines. 

After completing the process, which usually takes a week, the underwriter will decide as to whether the application will be approved, suspended or denied. If the application is approved, the borrower is able to meet any additional conditions and move ahead with the closing process. There are eight common issues that may affect the underwriting process. These include:

  • Income Discrepancies: Borrowers may be tempted to pad their income information to secure an approval. Underwriters compare tax returns, W2s, bank statements and other documents to assess a borrower’s true income.
  • Tax Documents: Tax documents must back up other financial information for a loan to be approved. 
  • Missing Information: Underwriters need a complete set of information before they can review the information. Missing signatures or documents will prolong the process.
  • Employment Issues: Employment stability is essential for the mortgage approval process. Underwriters want to see a long term commitment to make sure a borrower can repay a loan. 
  • Credit Issues: A credit history of late payments, too many lines of credit and high balances will hurt your chances of getting a loan approved.
  • Funding Issues: Underwriters must see evidence that there are available funds for the down payment, closing costs and cash reserves. They also need to know the source of the funds, how long the funds were available and where they originated. 
  • Appraisals:  A low appraisal value can change the entire agreement so price reconciliation with buyers and sellers is fundamental.
  • Letters of Explanation: If there are outstanding or unusual circumstances, complex asset arrangements or other unexpected concerns, a letter of explanation can go a long way in helping underwriters understand a borrower’s personal situation.

If you understand the most common issues mortgage underwriters face, you can take steps to avoid any pitfalls. Superior Mortgage Company is dedicated to consistently expanding our knowledge of the mortgage industry by keeping abreast of every change, revision or new regulatory provision because we know that an informed client is the best client. Whether you are purchasing, refinancing or in need of a home equity loan, we can help you. Contact the company that can answer all your questions. Call us at 845-883-8200.  

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Avoiding Costly Mortgage Mistakes

A mortgage will probably be the biggest debt you will ever have, and a home is probably the most expensive purchase you will ever make. To lessen the stress of this important decision, it is vital to avoid the usual pitfalls such as letting a bank decide how much you should spend on a home. A mistake like this may cause you to pay more than you need, prevent your loan from closing, or may even lead to foreclosure or bankruptcy.

Smart mortgage choices are made every day, especially at Superior MCI. Home loans are available with great interest rates, low fees and pre-determined monthly payments. By doing your homework, making a budget ahead of time and thinking about your long-term plans, you can avoid getting in over your head.

Speak to mortgage professionals who can answer all your questions. For example, because fixed-rate loans are no longer at a record low, you may be tempted to get an adjustable-rate mortgage (ARM). If you are not planning to move within the next five to seven years, a fixed-rate loan may be better as you do not need to worry about refinancing a fixed-rate loan. Although an ARM offers a lower payment now, it will reset in the future, usually at a higher rate. There is a lot of risk associated with getting out of an ARM at exactly the right time. You may be unable to refinance or afford the new payment once the rates increase and the housing market at that time may make your home difficult to sell. 

The true cost of home ownership is not just the price of the home. It is important to look at the mortgage amortization schedule to determine the total amount of principal and interest you will pay. For example, borrowing $250,000 for 30 years at 4.3% will amount to $445,384. It is also vital to understand the property tax system where you live to see when taxes may increase and by how much. Property taxes add thousands of dollars to the cost of your home every year. You will also be responsible for homeowner’s insurance, possible mortgage insurance, plus all the ongoing costs of furnishing and maintaining a home while paying for things you may not have paid for as a renter such as water and trash.

If you rely on a bank to tell you what you can afford, you are making a mistake. Banks are in the business of maximizing their earnings and don’t care much about making sure you are not over-extended. Banks qualify you based on your gross (pretax) income. They don’t count monthly expenses such as insurance, utilities, child care, etc., when determining your maximum approval amount. It is best to create a budget and determine a comfortable monthly payment. A general rule is to not spend more than approximately 28% of your pretax income on principal, interest, taxes and insurance. Lenders usually assume that you can spend 36% to 45% of your pretax income on all of your debts including your home, student loans, credit cards and car loans.

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available. Whether you are purchasing, refinancing or in need of a home equity loan, and regardless of any credit problems, we can help you. Contact the company that can answer all your questions. Call us at 845-883-8200.  

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Home Appraisal Tips to Maximize Home Value

There are several things sellers can do to pump up the value of their home. The best advice is to be prepared before the appraisal takes place. Tips for increasing the value of your home include:

  • Vetting the Competition:  Research what homes are selling for in your area. You can access public property records through sites such as ‘Open Listings.’ Look at homes that are similar to yours that have sold in the last six months. Stay within a few miles radius of your home and look for homes with comparable square footage, layout, upgrades and condition. 
  • Completing Minor Repairs and Fixes:  If you have a list of projects that need to be finished, do them now. These may be a running toilet flush, a squeaky door or a non-working garbage disposal. Although these are small details, they add up to the overall condition of your home. Take a tour around your home with a pad and pencil and take note of needed repairs.
  • Improving the Look of the Outside:  Your home’s exterior plays an important part in assessing its value. Always think of your home’s curb appeal. Repair any loose roof shingles or clogged gutters. Make sure the pathway to the garage and front door are clutter-free and well-lit. Make sure your lawn is mowed the day before the appraiser is due to arrive and think about adding some decorative finishes to your doorway.
  • Making Cosmetic Upgrades:  There is always the possibility that if you invest a lot of money into remodeling your home, you may not recoup your investment in added value. However, smaller cosmetic upgrades are always worth the effort. You can add a fresh coat of paint, replace a damaged bathroom vanity and get newer fixtures with little money or effort. With a small investment of time, your home will get a new and updated look. 
  • Documenting the Improvements:  Make a note of all the improvements you have done over the years and make a list of any big upgrades and the dates they were done. Save the paperwork from the upgrades as it helps to validate your statements as well as help the appraiser assess the quality of work that was done.
  • Cleaning Your Home Thoroughly:  Generally, a clean house will rank higher in terms of overall condition than a home that appears dirty.
  • Giving Your Appraiser Space:  You may be tempted to give him or her a tour of your home and point out all the improvements you have made. Resist this impulse as professional appraisers do this every day and know what to look for. If you follow them around, you may run the risk of annoying them or revealing too much about the home. Be polite and cordial and available to answer any questions they may have during, or at the end, of the appraisal. 

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available. Whether you are purchasing, refinancing or in need of a home equity loan, and regardless of any credit problems, we can help you. Contact the company with the answers you need. Please call us at 845-883-8200. We look forward to hearing from you. 

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What Happens During a Home Appraisal?

Getting appraisals for your home when you are buying or refinancing can be challenging. If the appraisal comes in higher or lower than the sale price, both parties will need to negotiate accordingly. Therefore, it is important to know what home appraisals consist of and what sellers can do to move the process along successfully. 

If the home you want to buy appraises for less than your offer price, you may choose to:

  • Make up the price difference by finding the additional funds to pay the amount between your down payment and your loan. The seller may also agree to lower the listing price but in today’s competitive market, this is becoming more uncommon.
  • Cancel the deal if you have an appraisal contingency. If the appraised value comes in less than the agreed on purchase price, and you do not have the necessary funds to pay the difference, you may be able to get back your deposit if you have met the terms and deadlines of your offer.

During a home appraisal, a licensed appraiser conducts an inspection of the property. If you already have a loan, the lender usually orders the appraisal as they are the ones to bring the most money to the purchase. During the home appraisal, the appraiser will review ‘comps.’ Comps for a property refer to nearby, similar properties that have recently sold. This helps the appraiser to understand the local real estate market and factor it into the property value. During the property visit, the appraiser will consider the other aspects that affect property value such as the property’s condition, value-adding or detracting features, upgrades, additions and lot size. When the appraiser is finished inspecting the property and area comps, he or she will put their findings into an appraisal report. Most importantly, they will finalize the appraised home value. 

If you are tasked with finding a reliable appraiser, find one that bases their opinion on a mix of experience and education and writes their report in a way that conforms to the Uniform Standards of Professional Appraisal Practices set by the Congress-approved Appraisal Foundation. It may be helpful to begin the search process at the federal government’s Appraisal Subcommittee Website, which provides links to state government websites that list state-certified appraisers. Check to ensure that their certifications are still valid and search the national registry to check if they have been a subject of any disciplinary actions. Contact the appraisers you are interested in and ask for references. You will want to select the appraiser with whom you feel the most comfortable based on references, pricing and the rapport you may have established.

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available. Whether you are purchasing, refinancing or in need of a home equity loan, and regardless of any credit problems, we can help you. Contact the company with the answers you need. Call us at 845-883-8200.

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Jumbo Mortgages

A jumbo mortgage may be the best way to finance an expensive home. It is the type of mortgage loan whose principal balance is more than the loan limits for Fannie Mae and Freddie Mac, which at this time is $484,350 for a one unit property and $931,600 for a four unit property, depending upon where you live. Jumbo mortgage interest rates are competitive with more conventional loans. There are also higher limits for two to four unit properties. However, income credit score and appraisal requirements are usually stricter.

If the loan amount on a home you want to purchase exceeds the above limits, you will probably need to obtain a jumbo mortgage. Because these loans aren’t eligible to be purchased by Freddie Mac or Fannie Mae, they represent a bigger risk to lenders and have stricter requirements, including:

  • A strong credit history, which typically means a FICO credit score or 700 or higher.
  • You can get approval for a jumbo mortgage with a debt-to-income ratio as much as 45%, but the loan will often have higher reserve requirements then conforming loans.
  • With a conforming loan, you can make a smaller down payment if you obtain private mortgage insurance (PMI). You cannot do this with a jumbo loan so you will probably have a down payment requirement of at least 20%.
  • As in a conventional mortgage loan, the property’s appraisal may justify the price you’re paying for the home. However, some lenders require two appraisals as opposed to one appraisal for a jumbo mortgage loan.

The advantages of a jumbo mortgage include being able to borrow more than you could with a conventional loan, which allows you to purchase a bigger and more expensive property that you may not have been able to afford with a conventional loan. It is important to remember that there are no low down payment options. With a conventional loan, you may be able to put down a low down payment such as 3% or 5% and with an FHA loan, the down payment may be 3.5%. With a jumbo loan, you can expect your lender to require 20% or more as a down payment. 

It is imperative to work with a lender that understands your needs and provides all the information you need to make a good decision. At Superior Mortgage Co., Inc., we approve 10% down up to 1.5 million with no mortgage insurance. We accept bank statements as income and we approve jumbo loans at 100% for our veterans. We work with investment properties up to 4-family with 15% down as well as loans for second homes. We also offer ARM products. 

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available. Whether you are purchasing, refinancing or need a home equity loan, we can help. Choose a company that knows the best way to provide you with the information necessary to make this important decision. Contact us at 845-883-8200.  

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The Pros and Cons of Reverse Mortgages

A reverse mortgage converts the equity in your home into cash. Depending upon your particular situation, you can receive a large sum all at once, establish a line of credit to draw on, or receive payments in monthly installments. Paying the loan back would proceed the same as with any other type of loan. If you choose to receive monthly installments, you are able to collect those for the remainder of your life as long as you continue to live in your home. However, there are pros and cons to getting a reverse mortgage. Some of the benefits of these types of loans are:

  • You can remain in your home.
  • You can pay off the existing mortgages on your home.
  • No monthly mortgage payments are necessary as long as your home is your primary residence, you pay the required property taxes and homeowner’s insurance and keep the home according to Federal Housing Administration requirements. If you fail to meet these requirements, you may trigger a loan default that could result in foreclosure.
  • You receive payments on flexible terms, including monthly payments, a lump sum distribution, a credit line for emergencies or any combination of these terms.
  • A reverse mortgage cannot go ‘upside down’ so your heirs will never be liable for more than the home is sold for.
  • Your heirs will inherit the house and keep the remaining equity after the balance of the reverse mortgage is paid off.
  • Loan proceeds are not taxed as income.
  • Your interest rate may be lower than traditional mortgages or home equity loans.

Some reverse mortgage cons include:

  • Fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage. The largest costs are the FHA mortgage insurance and the loan origination fee.
  • The balance of the loan gets larger over time and the value of the inheritance can decrease over time.
  • Reverse mortgages usually don’t affect your eligibility for Medicare, Social Security benefits and other entitlement programs. However, need-based government benefits such as Medicaid and SSI may be affected by a reverse mortgage loan. 
  • The program is not easily understood by many individuals. This is where Superior Mortgage Company comes in. We will explain every aspect of your loan and will tell you everything you need to know.

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available. We will be happy to speak with you and answer any questions you may have. Whether you want to purchase, refinance or take advantage of a home equity loan, we can help. Contact us at 845-883-8200.    

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Home Construction Loans

Many people dream of building a brand new home to their exact specifications. However, home development is complicated and challenging if you need to get a loan to pay for it. 

A construction loan is usually a short-term, interim loan necessary to pay for building a house. As work on the home progresses, the lender pays out money in stages. The short term usually has a maximum of one year with variable rates that go up and down depending upon the prime rate. The loans rates are higher than typical permanent mortgage loans. To get approval for the loan, the lender will review the construction timetable, detailed plans and a realistic budget. When approved, the borrower will be put on a bank draft schedule that coincides with the project’s construction stages and will only make interest payments during construction. There are two main types of construction loans, including:

  • Construction to Permanent Loan – After borrowing to pay for the construction costs to build your home and you move in, the loan is converted into a permanent mortgage, making it a two-in-one loan. The borrower then has only one set of closing costs to pay. During the construction phase, you pay interest on the outstanding balance on a variable interest rate which fluctuates up and down. With a permanent mortgage and a possible loan term of 15 to 30 years, the payment covers a fixed or variable interest rate as well as the principal amount.
  • Construction Only Loan – These are two separate loans; one for the home’s construction, which is usually a year or less, and a mortgage loan to pay off the construction. With this type of loan, your down payment can be smaller. This is a good option for people that own a home and are building another home. Although cash is temporarily limited in the present, once the home sells there will be more money to pay the mortgage on the completed house. You have two separate sets of fees for these loans and if your financial situation becomes unstable, you may have difficulty qualifying for it. 

Qualify for a home construction loan may be more difficult than qualifying for a traditional mortgage. With traditional mortgages, your home is your collateral, meaning that the bank can seize your home if you default. In a home construction loan, the bank cannot do this so their risk is much bigger. To offset the risk, there are more stringent requirements to get the loan, including good to excellent credit, a stable income, a low debt-to-income ratio and a 20% down payment. Your lender may want detailed information about the lot, house size, materials used and which contractors will be working on the house. 

If you want to build a new home, the road ahead may be challenging. The more you know, the easier the challenges. All the more reason to work with Superior Mortgage Co., Inc. We specialize in residential and commercial loans, will answer all your questions and proudly provide the best products and services available.  Whether you want to purchase, refinance or take advantage of a home equity loan, we can help. Contact us at 845-883-8200.    

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Tips to Getting the Best Mortgage

Lenders and brokers are able to offer different prices for the same loans to different consumers, even if those consumers have the same loan qualifications. The most likely reason is that loan officers and brokers are sometimes permitted to keep some or all of the difference as extra compensation. The difference between the lowest available price for a loan product and a higher price the borrower agrees to pay is called an overage. When overages occur, they are built into the prices quoted to consumers. They occur in both fixed and variable-rate loans and can be in the form of points, fees or the interest rate. Whether quoted to you by a loan officer or a broker, the price of any loan may contain overages.

Always ask the lender or broker to write down all the costs associated with a loan and once you are informed, ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. There’s no harm in asking lenders or brokers if they can give you better terms than the original ones they quoted. Once you are satisfied with the terms you have negotiated, get a written lock-in from the lender or broker. The lock-in should include the rate that you have agreed upon, the period the lock-in lasts and the number of points to be paid. Lock-ins can protect you from rate increases while your loan is being processed. However, if the rate falls, you may wind up with a higher rate.

When buying a home or commercial property, remember to shop around, compare costs and terms, and negotiate for the best deal. Remember that ‘Fair Lending’ is required by law. The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status and age. The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status or national origin.

Under these laws, a consumer cannot be refused a loan based on any of these characteristics, be charged more for a loan or offered less favorable terms for the loan.

Don’t assume that credit problems or difficulties stemming from unique circumstances, such as illness or a temporary loss of income, will limit your loan choices. If your credit report contains accurate but negative information, but there are good reasons for trusting you to repay a loan, explain your situation to the lender or broker. If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories. Don’t assume that the only way to get credit is to pay a high price. Ask how your past credit history affects the price of your loan and what you should do to get a better price. Always review your credit report for accuracy before applying for a loan.

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available.  Whether you are purchasing, refinancing or need a home equity loan, and even if you have credit problems, we can help. Contact us at 845-883-8200.

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