## Debt and Housing Ratios- How Do They Affect Your Loan?

Debt-to-Income Ratio (Overall Debt Ratios)

Just as important as the Housing or front-end ratio is the debt-to-income ratio or DTI. This is the amount of your gross monthly income that goes toward paying all debts considered in a loan. Lenders consider 42-48% the golden range for DTI. Lenders will want to see lower DTI’s, but by using disposable income we can sometimes stretch these ratios over the 48%.

DTI can be calculated using the three factors from above and the addition of a fourth:

• Monthly home payment
• Monthly space rent
• Monthly debt payments (car payments, mortgage payments, revolving credit, etc.)
• Gross monthly income

Your monthly debt payments are all added into one number and used in a similar equation. Let’s use the same numbers as before and make your monthly debt payment \$350.  Again, all you need to do is add, then divide to get your DTI. The equation looks like this:

DTI (43%) = (\$720 + \$800 + \$350) ÷ \$4,350

Again, you can use the same equation in the diagram above to see how much income or debt you would need qualify for the range of DTI ratios.

Why are debt & housing ratios considered?

As previously mentioned, housing and debt ratios are considered important to lenders because it shows how likely the borrower can make a loan payment. Borrowers with high DTI and housing ratios are more likely to be denied by lenders because of the possibility of the borrower defaulting on payments.

Calculating the ratios  using the equations above can give you a good idea in advance if you qualify.  We do have our disposable income program which may allow for higher overall debt and housing ratios

To find out more about our loan programs and to see if you qualify for a manufactured home loan, contact our office at 714-731-8080. You can also reach out to us via email at info@santiagofinancial.com

## Debt and Housing Ratios- How Do They Affect Your Loan?

Debt and housing ratios are two important factors taken into account when qualifying for a loan. In part one, we will explore housing ratios:

Housing Ratios (Front-End Ratios)

The housing ratio is used to assess how much income is needed in order to adequately repay your loan. Lenders will look at the housing ratio as a measure of risk. The higher the housing ratio is, the higher the risk that a buyer may default on payments on their loan. Typically, we try and keep the housing ratio in a range of 32-35%.

For manufactured homes, the housing ratio can be calculated using three different figures.

• Monthly home payment (This includes: P&I, TAX IMPOUNDS  and INSURANCE IMPOUNDS.)
• Monthly space rent (This amount will vary depending on the Mobile Home Park
• Gross monthly income (How much you make per month before taxes)

With these three components, we can calculate what percentage of housing ratio you will have.

For example, lets say your monthly home payment is \$720 per month, your space rent is \$800 per month. We’ll use \$4,350 as your income. To find your housing ratio, all you need to do is add, then divide.

Housing Ratio (35%)=  (\$720+\$800)  ÷ \$4,350

By looking at the diagram below, we can see how much income is needed to qualify at a 35% housing ratio.

If you want to find out how much of a monthly payment you can afford, simply take your income and multiply it by 35%.

Lenders may allow for a higher ratio based on disposable income. For more information on disposable income, find out more about our loan programs and to see if you qualify for a manufactured home loan, contact our office at 714-731-8080. You can also reach out to us via email at info@santiagofinancial.com

## Santiago Financial Insurance Services

Being that your manufactured home is likely one of the largest investments you will make, insuring your home and belongings is crucial. One natural disaster or accident could potentially jeopardize your home and most of your possessions, so why risk it? With our simple, free online application, there is no reason not to take the first step in insuring your new manufactured home.

Santiago Financial Insurance Services prides itself on partnering with leading insurance companies to offer comprehensive manufactured home insurance at an affordable rate. Policy coverage protects your manufactured home against sudden disasters, liability, in addition to financial loss and damage. Earthquake is also offered as optional coverage.

For your convenience, we offer free insurance quotes on our simple online application. If you should have any questions regarding insurance or applying for your free quote, please contact Lisa at lrassmy@santiagofinancial.com or (800) 232-3908 ext 112. We look forward to helping you insure your manufactured home!

## What Can I Afford?

You’re interested in buying a manufactured home but as a buyer, you want to know exactly what you qualify for.

### How much down do I need?

If the home was built on or before June 13, 1976, you will need 20% down and the loan term will be 15 years. If the home was built after 1976, minimum down payments start at 5 to 10 percent down with a loan term between 20 and 23 years. This example will help you calculate your down payment, loan amount, and estimated monthly payments.

As an example, you find a home for \$80,000 and it was built in 2002.

Sales Price: \$80,000
Down Payment %: 10%
Now we will calculate the down payment: take the sales price and multiply that by the down payment percentage in this sample that’s \$8,000 down.

\$80,000 x 10% = \$8,000 as the down payment amount

Now subtract the down payment from your initial sales price and that will equal the total loan amount you’ll apply for with Santiago Financial.

\$80,000 – \$8,000 = \$72,000 as the total loan amount

To calculate your estimated monthly payment, multiply the Total Loan Amount by 1%. In this case, it’s \$720 a month. This is a rough estimate and that includes taxes and insurance.

\$72,000 x 0.01 = \$720

\$800 + \$720 = \$1,520 in Total Monthly Housing Costs

You need to make at least 2.5 to 3 times the housing expense to qualify.

\$1,520 ÷ 35% = \$4,342.86 as the Approximate Gross Income Needed

To calculate your total debt ratio, add your monthly payments for any car loans, credit card payments, other debts etc. Let’s say they total \$400 for this scenario.
(\$1,520 + \$400) ÷ 45% = \$4,266.67 as the Approximate Gross Income Needed

So now we have your estimated income range needed to qualify for this example.

Estimated income range \$4,342.86 – \$4,266.67

Important Tips if your income is not within the estimated income range:
● Make sure you used gross income, not net income
● Look into paying off outgoing obligations
● Find a park with a lower space rent
● Increase down payment amount
● Add a co-applicant if they are to live in the home with you

The next step is to call Santiago Financial to complete your credit application and begin your approval process.

## Comparable Sales

Comparable sales reports are a valuable tool in determining the value of a manufactured home in a park to sell or refinance. These reports also help appraisers to determine the value of the home that they are appraising. Lenders use comparable sales reports to confirm home values.

## Sample

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Santiago Financial, Inc. provides two different options for receiving comparable sales reports– Individual Reports and Membership.

For a limited time, we are offering a FREE report to new customers. This limited offer is good until September 25, 2017. Click to order now. Individual reports are usually \$25.00.

Membership for online access to the California comparable sales reports and title information reports is a quarterly paid service that allows you to receive comparable sales reports and title information reports on manufactured homes in California online. We offer membership packages for retailers, realtors, appraisers, brokers, and lenders starting at \$300.

## Appraisal

### What It Is

Manufactured home appraisals or property valuations are the process of determining the market value of a manufactured home. Appraisal reports are used in manufactured home loans. Appraisals are most frequently used in purchases and sales of manufactured homes but are also commonly used in refinances.

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### Why We Need It

Appraisal reports are used in mortgage loans, settling estates, establishing a sale price, and taxation. The amount the manufactured home is estimated to be worth by an appraiser’s physical inspection of the home. This value affects the loan amount our underwriters approve the buyer(s) for. An appraisal also gives the homeowner a good estimation of the value of their home. In the case of purchases and sales, the appraisal is used to determine that the home’s contract price is correct given the location, condition, and features. For refinance cases, the appraisal assures the lender that the amount being loaned is not greater than the home’s value.

### What We Look At

An appraisal review checks that the personal information and home information is correct on the documents as well as basic items about comparable sales. Appraisal value is calculated using comparable sales from the last six months in the park or community and takes into account physical aspects of the home. An appraiser will evaluate all aspects of the home and considers the age, location, quality, square footage, number of rooms, etc. of the home and creates an appraisal value from this information. Anything added to the home such as carpets, porches, awnings, air conditioning, etc. are all taken into account in the appraisal report.

## Approval Documents

• Estimated closing statement from escrow

Provided by escrow, outlines all cost for the buyer and seller. Determines the total cash to close for the buyer.

• One year insurance showing year, make, model, size and complete serial number of home. Also need lender to show as loss payee

Santiago Financial, Inc. has manufactured home insurance in-house for competitive rates. However, the buyer is not required to obtain insurance through Santiago Financial, Inc. but is required by law to obtain a one year policy on the home purchased. If the buyer chooses to proceed with the insurance Santiago Financial, Inc. offers, they have the option to finance the first year’s premium (depending on lender approval). Triad and CU will not finance closing costs normally.

• Signed and Completed Santiago Credit App

Using the information provided from your initial Credit Application, Santiago Financial will generate a Uniform Residential Loan Application, also known as the 1003, for you to initial and sign.

• Copy of Social Security Card
• Mortgage Loan Origination Agreement

Agreement of the mortgage loan origination and written acknowledgment that Santiago Financial, Inc. is the broker. The borrower(s) complete the bottom section acknowledging this information.

• Purchase Agreement (signed by buyer & seller – no digital signatures)

Used to finalize the interest of both buyer and seller in the sale of the manufactured home.

• Copy of Listing Agreement (only if home is listed by a mobile home dealer)

A contract between the broker and the owner of the manufactured home (mobile home dealer) granting the broker the authority to act as the owner’s agent in the sale of the property

• Verification of Income – 2 most recent year to date paycheck stubs

The broker and lender need to verify the buyer(s) income amount(s) to be able to approve of a loan. This is because we must verify that the buyer(s) can pay the loan back.

• Last two years W-2s

Used to determine a 2 year average. If there is a decrease in annual income, then the buyer will be required to provide a Letter of Explanation to clarify the reason for the decrease.

• Verification of Employment – Santiago Financial to obtain

Santiago Financial must verify that the buyer(s) work at their stated jobs to clear income. They must also obtain verifications from all locations that the buyer(s) have been employed for the last 2 years. Borrower Signature Authorization Form is required to obtain any verifications.

• Two Years Tax Return – Federal only – all Schedules

Used to clear income is a buyer is self-employed or receives a 1099

• Source of Down Payment – 3 months complete bank statements showing entire down payment in customer`s account

Buyer(s) must prove that the entire balance of the down payment in their account for 90 days prior to the closing of the loan. If the down payment is a gift, the gifter must provide these documents, as well as a gift letter. All large deposits must be sourced.

• Proof home sold and mortgage paid in full (if applicable)
• Park Approval/Lease showing manager signature, space rent, and park phone number

Document that shows that the buyers are permitted to live in the mobile home park, verifies space rent amount, and is signed by the park manager.

• Invoices (New Home)

Copies of the manufacturer’s invoices are used to determine the value of the home and final loan amount.

• Appraisal

The amount the home is estimated to be worth by an appraiser’s physical inspection of the home. It is calculated using comparable sales for the last six months in the park or community and takes into account physical aspects of the home. This value affects the loan amount our lenders approve the buyer(s) for.

• Copy of Title – Title Search – MCO

A document Escrow requests from the state to obtain all home information and to verify if their are any current liens against the property

• Person to Person Seller Interview

Form to be completed with the sellers information in case of title transfer issues. Two different phone numbers are required.

• Retailer Disclosure Form

Form to be completed by dealer selling a New home.

• Escrow Instructions
• Borrower Signature Form

The borrower(s) completes this form giving us authority to obtain employment information. The form includes a release of the buyer(s) signatures and  the buyer and co-buyer’s signatures.

• Verification of Rent (if applicable)

Cancelled for the requested number of months or a letter from the landlord

• Signed and Completed 4506 Form

The lender can request an electronic transcript of the buyers tax returns directly from the IRS to verify income. Borrower must complete entire top portion, sign, and date.

• Auto Draft (Voided Check)
• Loan Estimate

This document lists basic information about the estimated terms of the mortgage loan. Please note, the terms found on the Loan Estimate are only estimates.

• Signed Broker Disclosure

A written explanation, to be signed by the buyer(s), explaining to the buyer the role that the broker plays in the transaction. Also states the fee that Santiago Financial is charging for their services.

• Signed Appraisal Acknowledgment

This form will be sent to the buyer along with a copy of the appraisal report acknowledging the borrower(s) were provided a copy of the appraisal.

• Tax & Insurance impounds required

An account managed by a third-party, typically a loan servicer, to collect and disburse funds on behalf of the homeowner and lender.

## Cost

The cost of manufactured homes on average is less than traditional homes. Often times, the mortgage and space rent for a manufactured home is even less than renting an apartment or condominium in California. According to Zillow, the median (traditional) home value in California is \$487,700. Manufactured homes cost a fraction of this price for just as much space as a traditional home and much more space than an apartment or condominium.

## Customization

Many manufacturers allow customization on the layout and design of a new manufactured home. Because manufactured homes are modular (have multiple pieces that are manufactured at a factory and brought to the space), a customer has more freedom to customize than if they were to buy a traditional home that was built on-site.

## Community

Manufactured homes in mobile home parks can provide a great sense of community. Afterall, a mobile home park is a community of residents that often share common facilities (pool, club house, etc). This type of neighborhood relationship is unique to private communities and manufactured homes make this type of community much more affordable and attainable.

## Improvements

Many manufactured homes found for sale in parks have renovated living spaces and kitchens. These improvements are comparable to that of the comforts of a traditional home.

## Location

A manufactured home can be placed just about anywhere (given the proper legal and safety constraints), whether in a park or on owned land, giving the customer full freedom to choose where they want to live. There are mobile home parks throughout California and a customer can find the location that is perfect for their budget and lifestyle.

## Ownership

Manufactured homes make homeownership affordable and accessible. For residents who have previously only been able to rent apartments and condominiums, this means that the monthly amount spent on housing will now go toward owning your own home. Homeownership has never been more in reach!

## Space

A manufactured home is much larger than an apartment or condominium with the same monthly payment on average. A single wide manufactured home is generally around 1,000 square feet, while a double wide can be as large as 2,300 square feet for the same or a fraction of the monthly payment on an apartment or condominium.

## Overall Processing Timeline

Apply using the Santiago Financial, Inc. Credit Application online, by email or by fax, or by phone.

Once approved, Santiago Financial will send the agent and buyer an approval package with the list of conditions including the forms Borrower Signature Authorization (BSA), Mortgage Loan Origination Agreement (MLOA), Park Approval, Appraisal Acknowledgement, Purchase Order, Request for Tax Transcripts (4506-T), and 1003 Credit Application. Once received, the forms are to be filled out by the buyer and co-buyer and returned to the Processor.

Next, escrow will be opened and the buyer will make an initial deposit that is considered a portion of the total down payment.

Once we receive the completed documents, the Processor will clear the buyer and co-buyer’s incomes using the requested conditions. An appraisal (COD) is also required prior to order loan documents and will take approximately 1-2 weeks to complete and have our lenders review.

Additionally, Santiago Financial, Inc. has manufactured home insurance in-house for competitive rates. However, the buyer is not required to obtain insurance through Santiago Financial, Inc. but is required by law to obtain a one year policy on the home purchased. If the buyer chooses to proceed with the insurance Santiago Financial, Inc. offers, they have the option to finance the first year’s premium (depending on lender approval). Triad and CU will not finance closing costs normally.

Once all the conditions have been met, the Processor will order loan documents, which will take approximately four days for the lenders to create and send to escrow. The buyer will be notified to contact escrow to schedule an appointment to sign. Escrow overnights the loan documents back to the lender. If required, the Processor will advise the buyer to call for their post-doc interview with the Lender. The loan normally funds approximately four business days after document signing. Upon receipt of funds, escrow is able to close and the buyer is given possession of their new home.

## Glossary

Appraisal: The amount the home is estimated to be worth by an appraiser’s physical inspection of the home. It is calculated using comparable sales for the last six months in the park or community and takes into account physical aspects of the home. This value affects the loan amount our lenders approve the buyer(s) for.

Approval Acknowledgement: This form will be sent to the buyer along with a copy of the appraisal report acknowledging buyer was provided a copy of the appraisal.

Approval Package: Once approved, the buyer and agent (if applicable) will receive an Approval Package containing forms to fill out and return to your processor. These include Borrower Signature Authorization (BSA), Mortgage Loan Origination Agreement (MLOA), Park Approval, Person to Person Seller Interview, Approval Acknowledgement, Purchase Order, and Request for tax transcript (4506-T).

Balance Sheet: Must be completed for all self employed or 1099 paid employees

Bankruptcy: can affect a buyer’s ability to obtain a manufactured home loan for 7 to 10 years from the date discharged. Affects down payment requirement.

Borrower: The applicant (“buyer”) of the manufactured home loan.

Borrower Signature Authorization (BSA): Borrower completes this form giving us authority to obtain employment information

Broker: The firm that goes between the customer/agent and the lender to aid a timely loan application to funding process. Santiago Financial, Inc. is your broker.

Buyer’s agent: Real estate professional or Mobile Home Dealer who represents the buyer throughout the transaction.

Buy for: You can have a relative or friend buy the home you want for you if they have better credit than you or have a better chance of getting approved. This means that the loan and title will be in their name, but you can decide on a payment transfer plan with the purchaser where you gift the monthly payment money to them and they pass it on to the lender. The buyer must be a homeowner prior to the application for the loan and the minimum down payment is 20% of the sales price. Additionally, a 1003 form must be filled out with the information of the occupants.The park management must approve of the Buy For.

Cash out refinance:  Taking equity from your home in the form of cash for the purpose of home improvements, as well as other uses as permitted by the lender. To be approved for a cash out refinance, the customer must have a 700+ FICO score. The limit is \$25,000.

Cash to Close: The total amount that the buyer must bring in of their own down payment for the loan to fund. I.e., down payment, all non financed closing cost.

Chattel Loan (Consumer Loan): A manufactured home loan in a rental or lease manufactured home park.

Clear title: Title to a home that does not have any liens against it.

Co-buyer: An additional buyer of the home, in some cases there can be multiple co-buyers. A cosigner is not the same as a co-buyer. A co-buyer assumes equal financial responsibility for the loan and is required to live in the home. Whereas a co-signer is simply on the loan as collateral.

Comparable Sales Report Request: Request for comparable sales report in a specific park or area.

Co-Signer: Does not live in the home. Is only allowed if the buyer has zero or limited credit history. Both Buyer and Co-Signer must qualify for the payment on their own.

Co-op park: A type of park that involves group ownership and shares. All members of the community own both their house and a share of the assets of that community. We can only lend in a Co-Op if the community is willing to list the lender 1st on the share.

Counter offer: Sometimes the lender will respond to a buyer’s application with a counter-offer. This means that the lender is willing to lend to the buyer, but with a different amount or with changes to conditions. Once received, Santiago Financial will inform the buyer or agent. If the buyer accepts the counter-offer, a relook will be sent to the lender accepting the offer. The lender will send the approval information within 24 to 48 hours, excluding weekends and holidays.

Credit Report: A record of how an individual has paid back credit in the past. Used to show a customer’s creditworthiness.

Credit/FICO Score: A numerical score derived from a person’s credit report that is used by lenders and brokers as an indication of how likely a customer is to pay back a loan.

Debt consolidation refinance: Debt consolidation refinances is using the equity of your home to create one payment of debts rather than multiple. For example, if you have three credit cards with \$8,000 on each, a debt consolidation would group them together to be a \$24,000 debt, with one payment proportionate to the debt. Customers will be asked which debts they wish to consolidate early in the application process.

Debt to income ratio (DTI): A comparison of current debt payments and proposed home purchase compared to the buyer’s income (bills, loan payments, child support, alimony, etc) to help determine an applicant’s loan qualification.

Employment History Form: To be completed if the buyer(s) have fewer than two years on a single job or if they are using overtime pay to qualify the buyer(s).

Escrow: An escrow company is a neutral third party between the buyer and seller that mediates the money involved in the sale of a home. Escrow is the time period between the signing of the purchase agreement and the loan closing.

Estimated Closing Statement: Provided by escrow, outlines all cost for the buyer and seller. Determines the total cash to close for the buyer.

Gift Letter: If any portion of the down payment is a gift, the “gifter” is required to complete, sign, and date this form.

Housing Ratio: A comparison of the estimated monthly mortgage payment and any space rent/HOA fees to the buyer’s income expressed as a percentage.

HUD: Manufactured home built after June 13, 1976.

Insurance Quote Request: Request for an insurance quote on a specific home

ITIN Number: a number supplied by the Federal government to non-citizens in lieu of a Social Security number for the sole purpose of the filing taxes with IRS. In order to use an ITIN to obtain a manufactured home loan the same number must be reflected on all income documents (paystubs, W2’s, tax returns, etc.).

Land/Home combination: Financing a piece of land and a manufactured home in one mortgage.

Loan Term: The number of expected payments to be made throughout the length of the loan.

Mortgage Loan Origination Agreement (MLOA): Borrower completes bottom section acknowledging that Santiago Financial, Inc. is their broker

Park Approval: Written confirmation that borrower is approved to live in the park. The form is to be given to and completed by the park manager.

Person to Person Seller Interview: To be completed by the seller or their agent. The entire top portion is required and must include two phone numbers.

Points: 1 point is equivalent to 1 percent of the loan amount

Pre-approval: Conditional approval that our lender will loan a potential buyer a fixed dollar amount as long as the home is purchased before the pre-approval document expires, the home appraises around the correct sales price, the income verifies as stated on the application, and all conditions are met.

Pre-HUD: Manufactured home built before June 13, 1976. Requires 20-25% for down payment.

Prepayment Penalty: A charge to the buyer if the loan is paid prior to meeting their full term.

Profit and Loss: Must be completed for all self-employed or 1099 paid employees.

Purchase Order: The contract between buyer and seller for the manufactured home transaction. Usually this form is only used when there is not an agent involved in the transaction.

Rate term refinance: A rate term refinance means that the lender will give you a different interest rate, term, or both, depending on what is requested. It can be provided for up to 95% of the original sales price or appraised value, whichever is less. Just the same as purchases, rates cannot be guaranteed by the broker (Santiago Financial), and is up to the discretion of the lender.

Request for Tax Transcripts 4506-T: The lender can request an electronic transcript of the buyers tax returns directly from the IRS to verify income. Borrower must complete entire top portion, sign, and date.

Retailer Disclosure: Form to be completed by dealer selling a New home.

Tax and Insurance Impounds: A percentage of the annual insurance premium and property taxes that the lender collects each month, held in a trust account to be used towards the following and/or future annual payments.

Title Search: A document Escrow request from the state to obtain all home information and to verify if their are any current liens against the property.

W-9: In case the borrower has lost their Social Security Card, this is to be completed and signed. This form can be used as a substitute