About 75% of home purchases in Las Vegas require mortgage financing and there are a plethora of lenders to fill that need. Banks, credit unions, mortgage companies, and builder/developer financing arms are everywhere and they aggressively pursue good borrower prospects. The good news from your standpoint is that these lenders not only want your business, they are simultaneously competing against the other lenders in the market for that business. By contacting a handful of lenders, you’ll find that while loan programs offered may vary by lender, rates offered on similar loan products will be fairly close. That being the case, let’s focus on what you should keep in mind when shopping for a lender.
As 60% of mortgage loans are conventional loans, most lenders will offer those types of loans. However, if you’re not sure what would work for you, it makes sense to work with a lender that offers many types of programs such as FHA (Government guaranteed and offering lower down payments and allowing lower credit scores) or VA (available to veterans).
Long gone are the days of no documentation/low documentation mortgage loans. Housing prices began to slide in late 2006, followed by the banking crisis in 2007, and the Great Recession in 2008. Aggressive, esoteric lending strategies are gone and you can expect a much more traditional approach to getting approved for a loan. Specifically conventional lenders will analyze the following information closely:
- Gross monthly income and expenses – lenders will add up your monthly debt payments and divide that number by your total income to get what’s known as the debt-to-income (D/I) ratio. While there is no industry wide D/I requirement for conventional loans, most lenders set the limit somewhere around 45 – 50%.
- Employment history – industry standard is typically 2 continuous years of employment.
- Other assets, such as savings, property, retirement accounts, etc.
- Property that is being purchased – typically, single-family residence mortgages are the least risky; however, that’s not to say condo loans or construction loans are out of reach. You will just have to jump through a few more hoops.
- Down Payment – the larger the down payment, the lower the risk of default to the lender. Keep in mind, with less than 20% down, conventional loans will require private mortgage insurance, an additional monthly payment on top of your principal and interest.
- Credit Score – your credit score, sometimes referred to as your FICO score is a major determinant of not only your credit worthiness but also a factor on the rate that you receive. FICO scores range from a low of 300 to a high of 850. Generally speaking, a FICO of 670 is considered good, while a score above 800 is exceptional. An 800 credit score can typically get an interest rate .5% to .75% lower than a 670 score.
When choosing a lender, see if they can provide guidance to you in getting your credit score higher. There are companies that specialize in improving your credit score for a fee. Many mortgage lenders will do it as a part of their service to you. Old boyfriend left you on the hook for a 4 wheeler that he crashed in the dessert? Talk to your lender, that conversation may be able to help you improve your score and wash away memories of a lapse in judgement.
Let’s do a little comparison of three different mortgage products..a 15 year fixed, a 30 year fixed, and a 30 year fixed bi-weekly. A bi-weekly is basically a 30 year fixed where you split the payment and deliver it to the bank every two weeks instead of monthly. In essence, you’re making 13 monthly payments every year.
I’ve plugged in the median price of a Las Vegas single family residence, $305,000, and one glaring difference shows up – total interest paid over the life of the loan. You’ll pay $63,332 in interest on the 15 year mortgage, over $100,000 less than with the standard 30 year mortgage. By increasing your monthly payment by 50%, you can reduce your total interest payments by 61% and pay off your loan 15 years earlier! With the 30 year bi-weekly you’ll save $24,866 and will pay the loan off in 26 years.
In conclusion, it pays to shop around for a lender. Work with a lender that not only offers a variety of products but is willing to work with you to find the mortgage that best fits your needs.
|Mortgage Details||15 Year Fixed||30 Year Fixed||30 Year Fixed Bi-Weekly|
|% Down Payment||20.00%||20.00%||20.00%|
|Term – Years||15||30||30|
|Principal & Interest||$1,707.41||$1,134.16||$567.08|
|Total Interest Paid||$63,332.96||$164,297.49||$139,431.14|