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Understanding Mortgages

The RMS Mortgage Process

RMS takes pride in educating our clients, so they make wise decisions when selecting financing for their home. Our goal is to position our clients for long term financial success. From the very first call, we are dedicated to providing you with step-by-step guidance throughout the home financing process. Learn about our RMS mortgage process and experience the RMS difference.

Loan Officer:

The Loan Officer’s primary job is to provide clients with expert advice, so they can make an informed decision regarding their mortgage loan. Our Loan Officers update clients at each milestone throughout the home financing process. This keeps borrowers informed of the loan’s status and makes sure they are aware of any next steps. Our Loan Officers at RMS work solely on a referral basis, so it is vital to them that every transaction result in a happy client.

Loan Officer Assistant:

Loan Officer Assistants make sure all the proper documentation has been gathered and is ready to move to processing. They prep the files to make sure the fees are accurate for the loan disclosures. They also let the appraisal desk know when to order appraisals (usually when the file is ready to go to processing).

Processor:

The Processor assists with submitting the loan to the underwriter, but their primary role is to help collect the financial documentation after the loan is conditionally approved. Additionally, they manage the timeline to ensure a timely closing and keep you in the loop. They also work closely with the title attorney and the RMS closing department to create the settlement statement and other closing documents.

Underwriter:

The Underwriter evaluates your application and documents, double checks the loan guidelines and, if all is in order, issues an Approval. In order to meet the loan program rules underwriters may often ask for clarifications and sometimes even more documentation.

Appraisal:

An independent third-party appraiser is called upon to help estimate the value of the subject property (if an appraisal is required). This appraised value helps to assure both you and RMS that the property is worth the price it’s being offered at.

An Appraiser determines value by:

  1. Comparing recent home sales within the surrounding neighborhood.
  2. Looking at the replacement cost of property.
  3. Identifying obvious defects with the property.

Clear to Close:

Once the client’s loan is “clear to close” that means the mortgage has been fully approved and final documents are ready to be prepared.

Closers coordinate with the settlement agents and attorneys to make sure the documentation is wrapped up, accurate, and that all the terms of the loan are met.

Welcome Home:

After the final walk-through and all documents have been signed, it is time to move in.

RMS is dedicated to finding the mortgage package that is just right for you. Our focus is on you and finding the right mortgage solution for your unique needs. We are ready to guide you home.


Understanding Mortgages

6 Questions and Answers About Construction Loans

Although there are lots of beautiful homes to choose from - and in many price ranges - you may be finding the ones in your desired locationaren't quite what you had in mind?

If this sounds like you, a construction loan can provide you with the funds you need to make the house of your dreams into reality.

There are many elements to a construction loan to consider before you put pen to paper, shovel to dirt and hammer to nail.

Here is a little bit more about construction loans that can help you dig into the details.

1. What is a construction loan all about?

Perhaps the best way to describe how a construction loan works is how the average home is built: It's put together pieces at a time, starting with the foundation, then the framing, clapboards and so on.

Unlike a purchase loan, in which the seller receives a lump sum from the lender, with a construction loan, the developer receives the funds to pay for the parts and labor over time in installments or "draws." Paying out the funds in stages - rather than all at once - provides greater clarity and assurance that production and progress is taking place on an ongoing basis. 

In addition to the proceeds of a construction loan paying for the cost of building and development, the funds also go toward the purchase of the land, assuming that the land isn't already owned by the borrower.

In terms of when or how these funds get distributed, much of this depends on the lender's arrangements with the builder and homeowner. Generally speaking, though, it is contingent upon progress and hitting benchmarks. In other words, if the builder requests more funds, the lender will send someone out to assure that work is complete. If things are going as planned, the added funds are released.

2. How much can you borrow with a construction loan?

From a total acquisition perspective - meaning the cost of land in combination with the expenses associated with development - some lenders can provide loans for up to 95% of the purchase price.

However, just because a lender can lend as much as 95% doesn't mean it actually will. The actual amount is largely contingent on the borrower's creditworthiness as well as the project's market value upon completion. A larger down payment may be required, equivalent to 20% or 25% of the price, for instance.

3. What type of construction loans are there?

Construction loans come in many different types or offerings. The one that most people think of are called construction-to-permanent. Much like its name suggests, a construction-to-permanent loan provides the funds necessary to build the home as well as the permanent mortgage financing once the home is complete. Occupancy for a construction-to-permanent loan is primarily for owner occupied residences. Construction loans are taken out assuming that the home will be the primary residence of the borrower. In some instances a vacation home or investment property requires additional considerations.

Other construction loan options include construction-only, FHA 203k, owner-builder and renovation loans. While a construction-to-permanent loan is for projects that are large in scale and scope - starting at the ground floor - a renovation loan is designed for projects that are much smaller in terms of work as well as actual financing. So if you're looking to refurbish your bathroom or kitchen, replace carpeted flooring with hardwood or add a second floor, a renovation would likely be a better option than a construction loan.

4. Can you take out a construction loan if you're the one doing the building?

In a do-it-yourself era, evidenced by DIY Network and HGTV - many people are looking to save money by doing the labor themselves. However, construction loans aren't for DIY enthusiasts.

Home construction projects are a huge undertaking and lenders must be certain that developers have the appropriate qualifications, certifications and licensure that corroborates their ability to complete the project on budget and on time. Thus, you'll need to find a builder to construct the house on your behalf. There may be some exceptions that apply. If you're in the industry as a general contractor, have the means and technical capability, you may be able to helm the project.

5. How does interest work on construction loans?

There isn't much of a difference between construction loans and regular purchase loans from an interest perspective. The interest that you pay is predicated on your credit history and what the market is for interest rates, which is influenced by the Federal Reserve. Rates can be fixed - where the interest remains the same for the life of the loan - or adjustable, which vary over time. Variable rates typically start out very low, which is why they remain highly popular.

As far as when you will start paying monthly mortgage payments with the attached interest, it all depends on when the project actually begins. Usually, it's while building is ongoing, rather than once the house is fully completed. At RMS the Borrower typically pays Interest-Only payments during the build phase, then switches to a fixed-rate, principal and interest, amortizing loan in the permanent phase.

6. What's the biggest distinction between a traditional loan and a construction loan?

As previously mentioned, a distinguishing characteristic of construction loans is how they're paid out, in phases rather than as a lump sum. They're also unique in that they’re on the shorter side when it comes to payment period. Typically, purchase loans run for around 30-years, which is the amount of time you have to pay them off. Construction loans aren't nearly as long. This is definitely something you'll want to keep in mind prior to applying, as once the project is completed, the balance of the cost will be due.

If the houses up for sale in your area simply won't do, a construction loan can make your homeownership dreams come true. Contact RMS to learn more.


Understanding Mortgages

Is an FHA 203k loan for you?

Whether you're looking to make some modest updates in the bathroom, or a major overhaul of a kitchen in severe need of modernization, home renovation allows you to put your own personal stamp on your home. In a way, the assembly process is akin to Play-doh - you can shape it, mold it and recreate it in any number of ways, all guided by creativity, imagination and skilled handiwork.

If only the cost of a home makeover was in the same range. Depending on the material used and the magnitude of the restoration project, home renovations can cost tens of thousands of dollars, an amount that few families have readily available.

That's where an FHA 203k loan can make sense. You may have heard of this mortgage offering before and wondered what it was all about. Well, wonder no more. Here are more details about this loan product and how you can use it to design your new house into the dream home you've always wanted.

What is an FHA 203k loan?

When you're in the market to purchase a home but would like to also do some rehab work in the process, an FHA 203k mortgage may be just the product that can help. Backed by the Federal Housing Administration, this loan variety has been around for well over 30 years, but has received renewed interest recently - since the early 2000s - due to the popularity of television programs like "Fixer Upper," "Flip or Flop" and "Property Brothers." In these shows, the hosts may participate in the physical labor portion of rehabbing an existing home or document what the process is like with a different couple in each episode. Viewers get to witness just how beautiful a home can be when you have the resources to make the desired adjustments and seek to replicate what they've seen on TV.

What these home improvement shows don't typically detail, however, is how the projects are actually paid for. While there are a variety of mortgage products that can make sense for home renovation, an FHA 203k loan is among the most popular, particularly among new buyers by allowing them to buy and restore a house with a mortgage that's rolled into one.

What are the qualifications needed for an FHA 203k loan?

Applying for such a mortgage is a fairly straightforward process and requires the type of documents that you would need for most other home loans, These include two years' worth of tax documents, Social Security information, pay stubs from your employer that corroborate how much you earn, a copy of your credit report and a bank statement that details the funds you have available. This paperwork is needed, of course, to ensure you have the financial capability to borrow money that will pay for the home and accompanying renovation work.

Those who are new to the housing hunt often assume that they need to come up with a large down payment in order to buy their house. Given that FHA 203k loans are often more extensive than a standard VA mortgage or USDA-RD mortgage, you may think a 20% down payment is mandatory. It isn't. In fact, you can pay as little as 3.5% down and still be approved.

It's difficult to say with precision the kinds of qualifications you will need in order to get the go-ahead, largely because each applicant is different, as are the plans in place for renovating a property. Generally speaking, though, your credit score should be higher than 500 and you'll need to be current with your other major expenses. For instance, if you're delinquent on any federal tax debt, this could complicate your eligibility. You also need to be a U.S. citizen or an eligible non-citizen and not experienced foreclosure on any loans within the past three years.

Are there any other requirements?

Just as your financial standing entails a formal review process, the same can be said for the project you'd like to have completed. For example, FHA 203k mortgages break down into two categories: limited and standard. The latter of these - standard - requires that the renovation cost no less than $5,000 and that it be overseen by a consultant who's affiliated with the Department of Housing and Urban Development. A limited loan is typically used for larger projects and provides for financing up to $35,000.

There are also general rules that serve as guidelines for what FHA 203(k) loans can be used to pay for aside from the property itself. Here are a few bullet point examples of what the funds can go toward, as detailed by NerdWallet:

  • Install or replace flooring, be it hardwood or wall-to-wall carpeting.

  • Repair, restore or overhaul ceiling or the roof.

  • Introduce new plumbing, electrical or sewer systems.

  • Enhance aesthetic appeal to improve physical features and resale value.

  • Increase energy-efficiency with green-friendly installations and appliances.

  • Most exterior modifications involving landscaping.

However, some major renovation projects may be outside of an FHA 203k loan's purview. For example, if you want to install an in-ground pool, this mortgage product typically doesn't allow for such a project. Similarly, outdoor kitchens usually aren't eligible. It never hurts to ask, though, so speaking to your lender is the best way to know for sure.

What is the maximum amount you can borrow?

FHA 203k loans vary when it comes to how much the mortgage will actually pay for in order to purchase and restore a property. That will depend on where you live as well as your financial capabilities and where your would-be property is. For example, in some counties, the maximum loan amount is cut off at $314,827, but in others, it may be as high as $726,525. Again, you'll want to talk to your loan officer to find out for sure.

Things to keep in mind

There are many working parts to an FHA 203k loan. In addition to your mortgage provider and the party you're actually buying the property from, you're also dealing with the company that will be in charge of the renovation project itself. It can get confusing. Here are a few key elements to remember to keep everything straight.

Need to hire licensed contractor - Generally speaking, you can't be the one who is making the home improvements. A trained and officially licensed contractor needs to do the labor. It's always best to leave fixes to the experts, especially since the updates are designed to make the home more valuable.

Project must be finished within a prescribed period - Another advantage to hiring a professional is timeliness. Your lender will work out a schedule for when the project will begin and conclude, but most require it to be finished within six months. 

Must use property as a primary residence - FHA 203k mortgages are designed exclusively for those who are upgrading a house that they will live in, so flippers and other real estate investors may have to seek a different loan product. It also usually is for rehabbing a single-family residence as opposed to a condominium or townhouse. 

If this sounds like a mortgage that is in keeping with your homeownership goals, Residential Mortgage Services can help you get there. Contact us to find out more about this and other renovation mortgages.


Understanding Mortgages

Busting the biggest conventional loan myths

Busting the biggest myths about conventional loans

When it comes to buying a home in today's real estate environment, certain facts and falsities have proven the test of time. Chief among these truisms is the direction of asking prices. They seem to be going up with each passing month. In fact, they've continuously risen for the last 91 consecutive months, according to the National Association of Realtors.

In contrast, mortgage rates seems to be staying low. While it's true that rates can go up and down due to market fluctuations, they've remained in historically affordable territory for the last several years, as detailed weekly by Freddie Mac. This has led to a surge in applicant activity for various mortgage products, especially for conventional loans. These offer a tremendous amount of flexibility to buyers, but because they're not backed by a government entity - such as the Federal Housing Administration or Veterans Administration - the eligibility standards tend to be a bit more rigorous, particularly in terms of credit score requirements and a few other aspects.

20% down payments are not mandatory

20%
DOWN
PAYMENT

This raised standard may explain what's given legs to one of the oldest myths in the mortgage world: that a conventional loan requires a down payment of 20% or more.

It's time we put this fallacy to rest once and for all. And here's the truth: Down payments come in all sizes. The numbers speak for themselves. In 2019, the median down payment in the U.S. was 12% among all buyers, according to the most recent statistics available from the NAR. For those who were in the market to buy for the first time, the median was 6%.

Meanwhile, for families who had purchased a house previously but were looking to purchase again, their median down payment in 2019 was 16%.

Here's an example that can provide added context, based on the real estate market as it currently exists. Nationally, a median-priced house in September 2019 cost the average family approximately $272,100, according to NAR. With a down payment of 6% - which was the typical percentage among first-time buyers - that equals out to $16,320.

This may seem like a lot, but it's considerably lower than the 20% many people wrongly assumed they need to come up with to be approved for a conventional loan. Using the previous example, a 20% down payment would be around $54,420.

Here's the cool part about conventional loans, though: The down payment can be even lower than 6% - even 3%. This means you could put down as little as $8,163 and still be approved after your other qualifications are examined.

While polls show that most people actually prefer saving to buying, the cost of living makes putting money aside a bit of a struggle. Indeed, according to a recent survey analysis conducted by Gallup, Americans are spending higher dollar amounts on various common expenses today than they have since 2009. Over one-third of respondents said as much, up from 30% in a similar poll last year and double that of 2009, when 17% indicated their costs were higher than normal.

Down payment can come from gifts

The fact that you can reasonably afford a down payment should hopefully provide some sense of assurance that a conventional loan isn't as restrictive as you might have been led to believe. But here's another myth-buster: Down payments don't necessarily have to come from you. In other words, if you were given a large sum of money as a gift from a friend or family member, you can use that as a down payment if you'd like. In 2019, 1 in every 3 first-time homebuyers received help from friends, siblings or parents in order to pay for the down payment on their home loan. This included those for conventional mortgages.

None of this is to say that you shouldn't go with 20% or more as a down payment. If this amount is something you can reasonably afford, by all means go for it. In doing so, it allows you to pay off your mortgage in a potentially quicker time period and also spend less per month over the life of the loan. A 20% down payment may also enable you to avoid purchasing mortgage insurance, which is typically a prerequisite for down payment sizes below this threshold.

Debt-to-income (DTI) ratio standard is 43% or lower

Here's another encouraging aspect of conventional loans: As with most other loan products, the debt-to-income ratio cut-off is 43%. Some believe that since private lenders take on more risk because conventional loans aren't backed by the government, lenders will require you to have a smaller DTI ratio. Not necessarily. Every applicant is different so your qualifications will be considered in their entirety.

There are a lot of myths floating around out there about down payments and how hard it can be to be approved for a mortgage. Hopefully this has helped set the record straight and shown that you have what it takes to be approved. Find out for sure and contact RMS today. We'll guide you home.


Understanding Mortgages

Planning for the New Year

It is the time of the year to start planning for 2020. If buying your dream home is your New Year’s resolution, you can start taking the steps you need to reach your goal now. Saving, Consumer Credit Opt-Out, and Pre-Approval are things that you can do before you start shopping for a new home.

Start Saving:

If you are planning on purchasing a home in the new year, it is important to start saving. There are more upfront costs than just the down-payment on your home.

You should also be prepared to pay for closing costs, which occur when the title of property is transferred from the seller to the buyer.

There could be extra expenses for household items that you may need to purchase like tools, new locks and keys, and things to take care of your yard. Keep that in mind as you start saving for your new home.

Consumer Credit Opt-Out:

When a mortgage inquiry is logged on your credit report, your personal information is then automatically added to lists that are being sold by Experian, Trans Union and Equifax to certain kinds of mortgage lenders.

Predatory lending is a serious issue, especially in times of economic downturn, when unscrupulous mortgage lending companies become more aggressive in luring in home-buyers with bait-and-switch tactics. Additionally, the more companies that have your personal credit data, the greater the risk that you will become the victim of identity theft.

Consumer Credit Opt-Out is a preventative measure that you can take to protect yourself from predatory lending, hassling telemarketers and lower potential risk for identity theft.

Call 1-888-567-8688 or go to www.OptOutPrescreen.com to complete the process.

Pre-approval:

Once you have mapped out your saving strategy and done the credit opt-out, it is time to get pre-approved. A pre-approval saves everyone involved time and money. It is a review of your financial situation and of available loan programs in order to arrive at preliminary determination that you qualify for a loan under the specified criteria. A pre-approval will give you many benefits:

  • You will learn how much you can confidently offer when you find the right home.

  • You’ll be considered a more serious homebuyer by sellers’ agents.

  • You can prepare how much you’ll need for down payment and closing costs.

  • Discover any credit issues to clear up before you become formally involved in the loan process.

Click here to get started on your pre-approval today!

Meet with a real estate agent:

After the pre-approval, you are ready to meet with a real estate agent to help you find that dream home!

Remember, at RMS we're ready to guide you home every step of the way.


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