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Mortgage Calculator Malfunction

Posted on June 25, 2017 by Deana Manzanares. Tagged: , , , , , , , , ,

Looking for a mortgage calculator to give you the magic answer?  What exactly is the magic answer?  The answer you are looking for is seeing how much home you can afford. What amount are you pre-qualified for to purchase?

What the mortgage calculator doesn’t give you is the expected interest rate for you. Same for PMI. If you don’t know what numbers to plug in how can you expect it to be accurate? This is where you will have mortgage calculator malfunction, user error!

Every day I get calls stating that they would like to know how much they can qualify for in buying a home.  Then they discuss how they are unsure where to start.  Then the questions shift to asking what are our rates and fees.  This is a loaded question.  For us, the lender we are unable to give you an answer to this question without knowing a few major key components.  Which would be:

  1. What is your FICO score (not CreditKarma)?
  2. What is your gross monthly income?
  3. How much do you plan to put down (down payment)?

Now let’s break down the “WHY” lenders need these:

  • FICO Score & Credit Report- We are not only looking at your FICO score, we also have to calculate your monthly liabilities, any negative credit history (late payments, judgments, liens, collections, bankruptcy, foreclosure, write-offs, etc.).  Your monthly liabilities factor in for your DTI (debt-to-income) ratios.  Your FICO score helps determine what type of loan that would be best for you (FHA vs. Conventional).
  • Gross Monthly Income- Paystubs, Tax Returns & W2’s need to be reviewed in order to calculate your “qualifying” income.  Pay stubs show if you have commissions, bonus, overtime, vacation, etc.  Tax Returns show if you have any “other” income you may be receiving.  W2’s are needed because we have to verify the income to your tax returns.  Once we have your qualifying income we can then determine your DTI with a mortgage payment.
  • Down Payment-  The amount you able to put down determines what type of loan options that may be available to you.  Figuring out which loan options are available to you, this helps the lender view the mortgage rates for those loan options. For example, if you are needing down payment assistance (DPA) and/or DPA grants, you can expect a higher mortgage rate.

Without the answer to these, we can’t give you a quote on rate and fees.  As you can see a lot goes into just running your credit.  We understand you don’t want to have every lender running your credit because it will affect your credit score.  The truth is if you want real, solid answers on determining how much home you can afford and what your mortgage payment will be then you will need to have your credit pulled.

Paystubs are critical because many times what we know our income to be could be different for what our “qualifying” income might be.  Which ultimately is extremely important in order to figure out DTI and what monthly payment you qualify for.

Knowing your down payment (3%, 3.5%, 5%, 10%, etc.) determines loan options and also determine rates.

Last but not least is we are unable to provide a quote without knowing the loan term.  Are you looking for a 30 year fixed, 15 year, or perhaps an Arm?  This plays a big factor when searching for rates.  You also may not have any idea on what would be best. This is where it helps to discuss goals and plans with your lender.

There is much more involved when figuring out mortgage rates and your monthly mortgage payment.  It helps to reach out to a lender, ask questions, and look at your complete financial picture.  This is the era of instant gratification, getting immediate answers.  One thing I can say is you don’t want an “estimate” or an “approximate” when looking to purchase a home.  This is one of the biggest investments you make in your lifetime.  Take your time, research your lenders, learn about them and then work through the process with them.  There is much more to a lender than just rates and fees.

If you would like to talk through this and learn more about the process, give us a call.

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