Everything you need to know about home loans in Utah. 

Understanding home loans in Utah can be challenging and intimidating, especially for first-time home buyers. However, as a local homeowner and full-time discount real estate agent, I recognize the need for a better mortgage guide than most real estate agent websites offer.

This interview will explain the best loan types, the home loan process, how to lower your interest rate, and why you should avoid cash bank deposits. 

After reading this article, you'll know the right questions to ask your loan officer and how to avoid typical mistakes homebuyers make during a home loan process.

This is an interview with an experienced local Loan Officer, Daniel Paris.

What is a Loan Officer?

A loan officer is a licensed mortgage broker or a licensed mortgage lender that helps you secure financing and get pre-approved to buy a home.

[DiscountAgent.com]
What's the difference between a lender and a broker?

[Daniel]
A mortgage broker like myself is somebody that's going to shop around and find the borrower the best deal.  I can shop the rate from twenty to thirty different banks.

A mortgage lender works directly for one bank and has limited loan options available to offer the borrower.

What is a Loan Officer looking for in a buyer?

The main things mortgage lenders are concerned with are the borrower's credit score, income, and debt-to-income (DTI).

Down Payment Requirements To Buy A Utah Home

Types Of Home Loans

[DiscountAgent.com]
What are the different home loan programs buyers should be familiar with?

[Daniel]
The most common loan types to buy a Utah home are Conventional, FHA, VA, USDA, & Jumbo loans.

What is Debt-to-income (DTI)?

[DiscountAgent.com]
You mentioned debt-to-income (DTI) ratios. What is DTI, and why should borrowers care?

[Daniel]
Debt-to-income is the percentage of your gross monthly income required to make your monthly debt payments, such as a mortgage, credit card, car payments, alimony, and child support.  

The borrower's debt-to-income (DTI) tells the lender how financially maxed out they are. The borrower should care because their debt-to-income (DTI) percentage will determine if they qualify for a home loan.  

A borrower's debt-to-income (DTI) ratio is calculated by dividing an individual's monthly debt obligations by their monthly gross income (before tax).

For example, if your mortgage is $2,000, you have $800 a month for a car loan and $500 a month in credit card debts, and your monthly debt payments are $3,300. ($2,000 + $800 + $500 = $3,300.) If your gross monthly income is $7,500, your debt-to-income ratio is 44%. 

($3,300/$7,500 = .44)

What is included in the mortgage payment?

Principal, interest, property taxes, mortgage insurance, homeowner's insurance, and home owner's associaton (HOA) Fees. 

Mortgage Insurance PMI vs. MIP

[DiscountAgent.com]
What is the difference between private mortgage insurance (PMI) and mortgage insurance premium (MIP)?

[Daniel]  
So private mortgage insurance (PMI) and mortgage insurance premium (MIP) are both insurance products that the borrower pays for to protect the lender in case of default.

PMI is required for conventional loans with less than a 20% down payment. The homeowner can request their PMI be removed once their loan to value reaches 80/20.

MIP is required for FHA loans and lasts for the life of the loan. The only way to have the mortgage insurance premium (MIP) removed is to refinance to a conventional loan.

VA loans don't have a mortgage insurance premium (MIP).

home loan Process

Pre-Approval Vs. Pre-Qualification

A pre-approval is when Utah mortgage lenders verify the buyer's information by completing an application, checking the borrower's credit, and running an automated approval (Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Prospector).

Sellers should feel comfortable accepting a purchase offer from a pre-approved buyer.

Pre-qualification is a lender's best judgment based on the information the borrowers have provided. The information has not been verified and should not be relied on for a home purchase contract.

Cash Isn’t King

We've all heard the saying cash is king. Well, that is not true when getting a home loan. In fact, banks hate your cash deposits. It's weird to think that the US dollar has no value to a lender if you want to use your recent cash deposit as your down payment.

If lenders see large bank deposits, they will require the borrower to provide a paper trail. You need to be able to document where your funds came from, and you really can't paper trail cash.

[DiscountAgent.com]
What are seasoned funds? How long does a cash deposit need to be in your bank account to be considered seasoned funds?

[Daniel]  
As long as cash deposits don't show on the bank statements in the past 60 days, they are considered seasoned funds. The standard seasoning period is 60 days.

Cash funds deposited into your bank account more recent than 60 days won't be considered seasoned funds and will not be available to apply towards the buyer's downpayment.

Conditional Approval Vs. Final Approval

So conditional approval is when the underwriter has reviewed all the documents submitted in the file but they don't meet all Fannie Mae or Freddie Mac requirements.

For example, the borrower has not provided documentation for large bank deposits.

Final approval is when all the documents have been reviewed by the underwriter, and all loan conditions have been met. At this point, the buyer is clear to close.

the three C's of mortgage underwriting

Capacity
Lenders want to know if the borrower has the ability to make future mortgage payments. They will look at gross monthly income, debt-to-income ratios, and assets such as 401k.

Credit
The borrower's credit score is used to determine how likely the borrower is to pay the loan off. If you did pay your debts on time in the past you're unlikely to pay your debts on time in the future.

Collateral
The collateral is the property being purchased. The lender places a lien on the property until the borrower has paid the loan in full.

What are discount points?

Discount points are voluntary upfront fees to buy the mortgage interest rate down. They are pre-paid interest.

What Is A Fixed Rate?

A fixed interest rate will stay the same for the life of the loan. However, that doesn't mean your monthly payment is fixed.

Your monthly payment will change in direct proportion to fluctuating property taxes and homeowners insurance costs.

Mortgage Rate Vs. APR

So mortgage rate is, is the rate of interest you're paying on your home loan.

The annual percentage rate (APR) is the mortgage rate plus all fees and closing costs.

Lenders are legally required to disclose APR on advertisements for interest rates. This is so the client knows how much in fees they're paying to get that rate.

The APR has nothing to do with how you calculate your payments or pay your loan back.

What Is An Escrow Account?

An escrow account is money to pay your property taxes and homeowner insurance once a year. 

Your escrows are usually part of your monthly payment, and your lender pays the property taxes and homeowners insurance for you.

FHA and VA loans require an escrow account.

Conventional loans do not require an escrow account, but I'm not sure why you'd want the responsibility of paying those bills annually.

[DA] The money in the escrow account is the owner's money, right?  

[Daniel] Yes.  The unused portion of money in the escrow account is returned to the owner when they sell the home.

What Is A rate lock?

Mortgage rates are constantly moving up and down.  When a home buyer likes a rate, they can guarantee and prevent the stress of not knowing what their rate will be by locking it. 

Rates can be locked for 30 days or as long as 12 months. 

[DiscountAgent.com]
How much do rate locks cost?

[Daniel]
Rate locks vary significantly based on the loan amount, the length of the lock, and the rate the borrower selects.

If they choose to lock the par rate (rate without discount points or lender credits), there's no extra cost for that lock.

Most locks between 30 and 60 days won't require any upfront fees. Instead, the cost of the lock will be paid at closing or financed into the loan.

For rate locks beyond 90 days, the buyer will likely be required to pay an upfront fee to the lender.

down payment Gift Money

[DiscountAgent.com]
Who can gift the down payment to the borrower?

[Daniel]
Relative, a friend just about anybody can gift them any amount money for down payment.

A real estate agent can not gift the buyer money for a down payment.

A gift letter form is required to be signed. 

Closing Cost Vs. Pre-Paids

Pre-paids are escrow accounts for property taxes, homeowners insurance.

Closing costs are costs such as title document and recording fees, title insurance, appraisal fees, and loan origination fees.

What is a Closing Disclosure (CD)?

Utah mortgage lenders must provide the borrower with Closing Disclosure at least three business days prior to closing on the home. The CD details all the closing costs and terms associated with the loan.

Don't Quit Your Job

Do NOT quit your job before closing even if your new job pays more money. The lender will re-verify employment right before closing.

Do NOT go on a shopping spree before closing on the loan. The lender will pull your credit before closing to make sure your debt-to-income (DTI) ratios still meet your loan requirements.

When are mortgage payments due?

Payments are due on the 1st of the month and late after the 15th. If your monthly payment is past 30 days late, it may negatively impact your credit report.

Typical late fee is 2-3% of the monthly mortgage amount, not on the loan amount.

Credit score required for the best rates? 

[Daniel]
The best interest rates on conventional loans require a credit score of 760 or higher.

For FHA & VA loans you'll need a credit score of 720 or higher to receive the best available interest rate.

Jumbo loans have the highest credit score requirements. You'll need a credit score of 800 to enjoy the lowest rates.

What is an appraisal waiver?

[Daniel]
When the loan officer requests approval through an automated underwriting system (computer program) on the property the borrower is purchasing, Fannie Mae or Freddie Mac waives the requirement for an appraisal based on comparable real estate sales.

You can get an appraisal waiver on home refinances and purchases.

Down payment amounts can also influence the appraisal waiver results. The higher the down payment, the lower the risk for the bank, which increases the likelihood of receiving an appraisal waiver.

How do you have lower rates?

[DiscountAgent.com]
What are you doing differently from other Utah mortgage lenders that you can offer such low rates?

[Daniel]
We've got all of our contracts with all the banks that we get yields spread premium from set lower than the banks

Unlike the larger lenders, we don't have a high overhead.

Other lenders have expensive leases, underwriters, funders, and all their in-house staff. All these costs add up and get passed on to their clients. They need to make more money on each loan just to stay afloat.

The purpose of this post is to simplify the very confusing world of home loans in Utah.  Now you should have a basic understanding of the types of home loans available, down payment requirements, and the necessary credit scores to qualify for the mortgage that best meets your home-buying needs.