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With June being National Homeowner Month, it seems like a good time to welcome a seasoned Mortgage Loan Officer to Discover Lafayette. Home Bank’s Sandy Cormier, NMLS# 493798, Member FDIC/Equal Housing Lender, joins us to discuss the types of loans available to consumers who are looking to build or buy their dream home, as well as what you need to do to qualify for a loan.

Sandy has been with Home Bank for 25 years and with that time comes a depth of experience that is hard to beat. Whether its helping first-time homebuyers, people seeking construction loans, or individuals wanting to upsize/downsize their current home, Sandy along with her peers in the Home Bank Mortgage Lending Department are available to assist in providing your best option.

When you begin shopping for a home, it is advantageous to get guidance from an experienced mortgage lending professional, such as Sandy, to determine what you can afford and what you will be ultimately be qualified to borrow. People frequently get two things confused: “prequalified” vs. “preapproved” for a loan.

When you prequalify, the mortgage lender does a basic credit check to see where you stand on the ability to repay a mortgage. You get an idea of where your credit score ranks, but this does not certify to third parties that you are actually ready to get approved for a mortgage loan.

When you get pre-approved, a more extensive background check occurs that unveils your true ability to repay a mortgage loan. A letter can be issued to show realtors and sellers that you are ready to purchase, and the letter is good for six months. The lender will first pull your credit scores from the trifecta of credit reporting companies (Transunion, Equifax, and Experian) to obtain your average credit score based upon the information the three companies provide. These credit agencies pick up on any recent delinquencies (within the past 24 months) you may have experienced in paying your bills. Note that older delinquencies don’t affect your credit score in the same way that recent ones in the past two years do. Also interestingly, the credit agencies don’t report on utility payments, and more recently, don’t report on deliquencies in medical bill payments. The lender also obtains your W-2’s for the past two years, conducts asset verifications (your bank statements and reserve savings).

If you are thinking about opening your own business after being an employee of a company, note that the lender will verify what you earned the past two years while being self-employed, so opening your own company may delay your ability to be pre-approved or pre-qualified for a mortgage loan.

When you are looking to qualify for a home mortgage loan, lenders look at three major categories of information:

First, lenders work up your “debt to income analysis” by looking at your gross monthly income (before taxes) and your current debt commitments (car loans, revolving credit, etc.) so that you can come up with a projected mortgage payment that will cover the cost of owning a home in your price range. Sandy says that 43% debt to income ratio is what you want to achieve, i.e., when you total up your current debt, and include your projected mortgage payment, your debt should be just 43% of your gross income. If you have a high credit score, this percentage may be adjusted a bit, but it is a good frame of reference.

Sandy also recommends that if you know you are looking to be approved for a home mortgage loan, it is not a good idea to go out and buy a car or get into other debt that weighs you down. If you own a car and have less than 10 payments left on your loan, this information is not filtered into your ability to repay a loan. But if you go out and buy a new car, you have drastically increased your debt to income ratio. It is also not a good idea to go out and open up several new revolving credit accounts such as at TJ Maxx (and all other retailers), furniture stores, or other credit cards.

Second, lenders pull your credit scores from the three major credit reporting agencies. You will need a minimum score of 620 to qualify for most loans, and the lower the score, the higher your interest rate may be. The earlier you talk to a lender on this issue, the better. You and your spouse/partner may need to improve your credit score to be approved for a mortgage loan and your lender can assist with tactics to make this happen. Note that many consumers get their credit score from Discover, but Sandy says that this is not the same as what the three major credit reporting agencies may reflect on your credit history. Also note: too many credit inquires may adversely affect your credit score. If you go out and apply for several credit cards at various retailers, this damages your score each time you apply. It is best, according to Sandy, to have one major credit card for use at all retailers. Sandy did note one exception: if you are shopping for a car, you can look at several dealers and their credit inquiries are collectively contained within a period of time as “one,” thereby not adversely affecting your credit history.

Third, lenders want to see what ‘reserves’ you have. Do you have savings? A 401K or IRA account? You don’t need liquid savings, Sandy says, but you do need to show that you have equity to fall back upon if you hit hard times and have the capacity to make your payments.

Most people are nervous when considering the prospect of borrowing money for a home loan. Sandy puts them at ease by first telling them about the various type of mortgage loans available at Home Bank.

Types of Mortgage Loans:

• Conventional Loan: You don’t need 20% down payment to qualify. From Freddie Mac or Fannie Mae, a 3% down payment and 620 minimum credit score is needed. Private Mortgage Insurance is paid until you reach 20% home equity on your payments.
• FHA Loan: Backed by the Federal Housing Administration. 3.5% down and a 580 minimum credit score. But you’re on the hook for mortgage insurance premiums (MIP) until you refinance to a different type of mortgage, move, or pay off your loan.
• VA Loan : This is only available for for veterans and service members, and there is no down payment required. Minimum credit score varies by lender but is often 620. No ongoing mortgage insurance after closing. These are arguably the best mortgages available.
• First Time Homebuyer Loans: The City of Lafayette has a First Time Homebuyer Program for middle to low-income buyers. You can get closing costs covered with these programs, and there are grants available for qualified buyers who meet requirements.
• USDA (Rural Development) Loan: For those on low-to-moderate incomes buying in designated rural areas (which in Lafayette Parish includes the towns of Broussard, Scott, Youngsville, etc.) Zero down payment is required. Credit score requirements vary by lender but often 640.
• CRA loans: Community Reinvestment Act loans which help persons of low to middle income levels (less than 50% of area median income) purchase homes. 100% financing is afforded to these income-restricted individuals.
• Construction Loans (1 time closing): Helps reduce closing costs by signing only one set of documents. Upon completion, you may have the option to reduce your interest rate if lower. You know your interest rate going in to construction and can lock in your loan rate at beginning of construction.

First time homebuyers have a multitude of grants/second mortgage programs available to help cover closing costs and meeting their downpayment needs. Sandy recommends that young buyers as well as those of all ages who have never owned a home to visit with her to determine available resources.

While you may be able to calculate your mortgage note insofar as your principal and interest are concerned for the life of your loan, there are several other costs to factor in when determining what your mortgage payment will ultimately be. Mortgagors (home buyers) will also have to pay into escrow along with their monthly payment costs such as their homeowner and flood insurance, property taxes, and potentially Homeowner Association Dues. Sandy recommends that all applicants shop their home/flood insurance rates prior to being approved so that a true assessment of what their monthly note will be.

There are a couple of other obligatory professionals that assist in your home closing experience alongside your mortgage lender. First, an attorney is needed under Louisiana law (and best practices) to conduct a real estate title search and confirm that you are receiving clear title to your home. Appraisers are also required by the bank to confirm that the value of the home equals what you have agreed to pay. Additionally, some people use surveyors (at their discretion) to get a flood elevation certificate to determine how susceptible the home will be to flooding. This information may help you lower your flood insurance premium.

Home mortgages may be taken out in periods of repayment over 15, 20 or 30 years. The interest rate for each type of loan is not substantially different in the long run; with a shorter term loan, you are just paying back the principal balance over a lesser period of time thus saving overall interest payments over the course of your loan. Sandy recommends that first-time homebuyers go for 30 year loans; once they confirm there is no prepayment penalty, they can always pay off the principal balance before the final due date and save substantially on interest costs. If you start out with a smaller monthly payment with a 30 year note, you have the flexibility to make larger payments over the course of the loan to reduce your principal balance. Sandy does advise that you tell your lender that the extra payments you are making are to go directly to principal balance reduction. As an example, if your note is $1,000 and you send in $1,500, alert your lender that the extra $500 payment is to go directly to principal balance reduction; otherwise, some of the payment will be attributed to interest payments.

What if you don’t have a credit history, i.e., you are young or just have never borrowed money or bought a house? Home Bank offers a Credit Builder Loan, where you can borrow just $500 which you can put into a savings account and repay the note over one year. Credit reporting agencies pick up on this activity and it helps you build your credit score. Sandy also recommends opening up one credit card and pay your balance in full each month. Even if you just charge small amounts, say for gas fillups in your car, your positive payment activity is reported to the three major credit agencies. It is never too soon to start building your credit score, as well as learn ways to improve your score so that you are ready to buy your dream home.

Sandy is a mom and wife, and understands the challenges every family faces. We thank Sandy Cormier, NMLS# 493798, Member FDIC/Equal Housing Lender, for joining us to share her insights on building your future.

It’s always best to think ahead about big purchases such as your home. For more information on your ability to qualify and get pre-approved on a loan, please visit https://www.home24bank.com/personal/home-loans.