There are many types of services required when you buy a home and each of them incur costs, only a part of which come from the lender. Lender costs include any points you may pay, plus fees for appraisal, credit report, processing, documents, floor certification, and others. In addition, there will be escrow or settlement fees, and title insurance, plus some miscellaneous fees from both the title company and the escrow or settlement agent. Depending on your choices, you may also have fees for property inspections, homeowner's warranty, pest inspection,and homeowner's association related fees. Then there are "prepaid" expenses which will depend on whether your loan is impounded or not, the loan-to-value of your loan, and what type of property you buy. Prepaid expenses include items such as mortgage insurance, homeowner's insurance, property taxes, and pre-paid interest.
You can get in the ballpark. There are a variety of "calculators" all over the web that can help you figure out what payment you qualify for, and knowing the payment, you can calculate backward to calculate the purchase price. However, there are a lot of variables that you may not be aware of. Depending on where you may buy, there may be homeowner's association fees or higher property tax rates that have to be included in the calculation. Different loan programs have different guidelines. If you are making a larger down payment, guidelines may be more elastic. With a smaller down payment, the guidelines may be stricter. In determining what loan amount you would qualify for, you should make certain assumptions about what your taxes, insurance and HOA fees (if any) might be. Once you think you are close, you should also talk to a lender.
Absolutely. One thing you should realize is that the term "lender" can refer to either the lending institution or to the actual loan officer representing that institution. If you simply get a phone number from the yellow pages or a newspaper ad, you don't know if you are going to be talking to an experienced lender or someone who has only been on the job for a few weeks. The reason loan officers are pretty free about answering your questions is because they hope that, by providing you this service, you will consider them as your lender when you actually decide to apply for a home loan.
If you have enough cash on hand to replace your home and everything in it in the event of a fire, flood or other disaster, you may not need homeowners’ insurance. Most of us, however, are not in such a fortunate position, and we need insurance to protect our biggest asset.
No. A pre-qualification is strictly an opinion of the loan officer that you will be qualified to purchase a home of a certain price. He bases this opinion on information you provide regarding income, debts, and savings. The information you provide might be verbal, presented in a telephone conversation, or you might provide him with pay stubs, bank statements, and he may review your credit. You can see that the more documentation you provide, the more valid the pre-qualification. If you are willing to provide documentation, you may as well apply for a loan and get pre-approved.
Kickbacks in any form are illegal. If you discover there are kickbacks involved, you should inform your local Department of Real Estate.
The final rate on a mortgage loan is influenced by a number of different factors, including the overall level of long term interest rates, the rules of the lender and the creditworthiness of the borrower.
Lenders look at several things, as you will find when you gather information from books or on the web. Assuming you have saved the down payment and have a good credit history, the main thing that determines your ability to qualify for your home loan is income. Lenders have guidelines they use to figure out what monthly payment you can afford and call these "debt to income" ratios. It is basically a percentage of your monthly income.
Your credit score, or FICO score as it is also known, is recorded by three separate credit bureaus: Experian, Equifax, and TransUnion. To find out your score we recommend you contact them, starting with Experian.
Unlike stocks, whose prices are published each day, interest rates on mortgages are not. Most major papers publish a weekly survey of interest rates, but it is difficult to insure that what is in the paper is accurate. Plus, some advertisements are designed to look like rate surveys and you have to be careful. Advertisements are designed to generate phone calls and are not always accurate. You can keep track of the trend, however, by turning on CNBC each morning and listening to the news of the "bond market." The bond market, in this reference, refers to the buying and selling of 30-year treasury bonds. The same factors that influence the bond market influence interest rates. When the bond market is "up," yield (rates) go down. The day-to-day changes may be minute or none at all, but you can track the trend. As you are tracking the trend, you can continue calling your loan officer and checking on the interest rate for your loan. If you feel your loan officer is not giving you the benefit of a drop in rates, then start shopping around again and tell him what you have found out from other lenders. Be sure to get honest rate quotes as advised in a previous question.
There are several mortgage calculators available online for you to use, that can make it easy to determine your monthly payment. If you want to figure it out on your own you can use the following equation:
The best way is through a referral from someone you know or a Realtor. Realtors will usually recommend someone who will be helpful and reliable, based on past experience. Realtors do not want you to have an unpleasant experience and perhaps be angry about it with them, so you can be reasonably certain that any loan officer they recommend has performed well for others in the past.
Simple; Fill out TheLowQuote fast form and let lenders work for your business. It’s never been so easy to get lenders working on your behalf for the best mortgage rate. You will have a phone call within minutes after filling out the fast form. Generally we will submit your information and a lender will decide if you meet the best mortgage rate requirements. Don’t think that just because you have fair or poor credit they can’t help you. There are FHA loans just for people in your situation. If you have great credit you have nothing to worry about. There are many programs that will work for you and many lenders willing to help you get the best mortgage rate or best mortgage refinance.
Shop around, too. Then tell your loan officer what you found out. Interest rates are pretty much the same everywhere, usually varying by only about one-eighth of a percent. Your loan officer will probably match whatever you find because he has an incentive to do what it takes to keep your loan. First, he earns a commission. Second, he has a duty to whoever referred you to him. If a Realtor or builder refers clients to the loan officer only to have them obtain their home loan elsewhere, they may come to question why.
You must already have an FHA loan to qualify. If you don’t have an FHA loan it’s ok you just need to apply for a first time FHA refinance or loan. Get into an FHA loan now while they are at all time low interest rates and have lowered the approval guidelines. A few things to consider are the FHA streamline requirements: 1. The current FHA loan must not be delinquent 2. The FHA refinance must result in lowering of the principal and interest payments 3. The borrower must have a current FHA loan 4. The borrower must be getting a FHA refinance for their current residence
To qualify for an FHA mortgage you will need to be a homeowner or new home buyer that is looking for a primary residence or refinancing your current loan on your primary residence. The benefit of an FHA mortgage is that you don’t need as much down and you don’t need stellar credit. Often you can qualify with poor credit. Remember this is a government backed loan initiative to get more people into homes. Their goal is to make the dream of homeownership a reality. You do need to have a decent debt to income ratio. Generally this should be about 29% of your income that would go towards your FHA mortgage. You need to demonstrate stability at your job and steady income. You generally should be at your job for 1-3 years.
You will only truly know once you have spoken to a lender. If you have an exotic loan now and want to get out of it FHA may be your best bet. Remember that the government is using FHA refinance to get us out of the subprime mess. This is your chance to get out of that risky mortgage and into a loan federally insured by the government. An FHA refinance may be your best bet of keeping your home and lowering your monthly payment.
Here are the FHA loan guidelines: 1. You must be a US citizen, be of legal age to sign a mortgage, and have a social security number 2. This must be your primary residence for a new home loan or FHA refinance 3. You must show stability at your current job, 2-3 years is preferred unless you can show that you situation was due to layoffs, illness, or any other reason that is not from termination due to performance or other issues. 4. You need to have enough income to pay for the loan. With FHA though you can use rent payments, auto insurance, and other non credit report payments to show good credit history. Generally you will need to contribute 30% of your income to the loan so make sure you can show that when you speak with a lender. 5. Down Payment - With an FHA loan generally the guidelines are less stringent. You will need 3% for your down payment contribution. If it’s a $150,000 loan make sure you have $4,500 for your down payment. 6. Bankruptcy – As long as it has been at least 2 years you can still qualify 7. Foreclosure – As long as it has been at least 3 years you may still qualify
Here is the general FHA guideline: 1. This must be your primary residence 2. You must show stability at your current job, 2-3 years is preferred unless you can show that you situation was due to layoffs, illness, or any other reason that is not from termination due to performance or other issues. 3. You will also need to have enough income to pay for the loan. Generally you will need to contribute 30% of your income to the loan so make sure you can show that. 4. Down payment is something you will have to have no matter what type of loan you apply for. With an FHA loan generally the guidelines are less stringent. Anticipate needing 3-5% for your down payment contribution. 5. Bankruptcy – You will need to have not had a bankruptcy within the last two years. 6. Foreclosure – You will need to have 3 years without a foreclosure in order to qualify
You can learn a lot, but most of the information is fairly "generic" and sometimes out of date. Consider everything you learn from books and on the web as background information. After you get some "practice" by going out and actually looking at homes, more of what you read will begin to make sense. The books and articles provide good advice for the most part and can be part of your learning experience, but for specifics, you are going to have to talk to a lender or Realtor. Many of the "experts" who write the books and articles may have never actually earned their living by making loans or selling real estate. Some of those who did were in the business long ago. Some are in management and not actively selling houses or originating loans anymore.
It depends on whether you like to be "safe" or prefer to "roll the dice." If you think rates are trending upward, then of course you should lock your rate. If you think they are trending downward, then it is your choice. It is often difficult to predict when rates will quit going down and begin to increase. When rates start to go up, they usually go up fast. Even in a downward trending market interest rates are sometimes volatile. There may be "spikes" where rates jump up a bit before continuing their downward trend. If you have put off locking in your rate until the last minute trying to get the very lowest rate, you might get caught in one of those volatile jumps in the market. You will have to lock in anyway so you can close your purchase on time.
Refer to the advice in the above question, "What if my lender can't give me the best rates?" At the same time, of course you should shop rates. My advice is to do it in the way suggested in the previous question. The problem is that when you call lenders on the phone to ask for a rate quote, the loan officer knows you are calling everybody else. It is tempting to tell you whatever you want to hear. Later, you may get a "surprise".
As his commission, the loan officer earns a percentage of whatever is added to the base price from the rate sheet.
Property taxes can be a significant part of the expense of home ownership, and it is important for all home shoppers to take property taxes into account. Each municipality will have its own property tax calculation formula, and property taxes can differ significantly between townships.
In addition to points, lenders charge other fees as a source of additional income. Certain fees, such as appraisal fees, credit report fees, tax service fees, and flood certification fees are actually costs incurred by the lender in processing your loan. Other fees are not associated with direct costs, but designed to offset the costs of processing loans or to generate income. These have been called "junk fees" by some people in the business. Some examples of these fees are processing fees, document fees, underwriting fees, wire transfer fees, and so on. Over recent years, the amount collected in these types of fees has increased as rate competition between lenders has become fiercer. Fees differ from lender to lender, but if you are comparing fees, you must also take into account the interest rates and points charged as well. Companies that claim to be offering the lowest rates often have higher fees. Companies that claim to have the lowest fees, often have slightly higher rates.
Closing costs are the costs the home buyer must pay at the time of closing. These costs are in addition to the down payment, and it is important for the buyer to get an estimate of those closing costs ahead of time. Closing costs are also sometimes referred to as settlement costs.
Points are an up front cash payment that may be charged by the lender as part of the fee for the loan. Points are expressed as a percentage of the amount of the loan. For instance, a loan with 3 points would have an additional charge equal to 3% of the loan amount.
FHA requirements are not nearly as tough as they used to be. Since the housing bust the government has stepped in to keep the dream of home ownership alive in America. Fortunately for you this is the time to find out if you qualify and to get an FHA loan so you can enjoy the benefits of home ownership. So what are the FHA requirements? 1. You must be a legal US resident 2. You must obtain a social security number 3. You must be of legal age to sign a mortgage in your state Ok, I am sure you are saying yeah ok that’s pretty much a no brainer but you would be surprised who applies for loans these days. Now the other FHA requirements you will have to consider are the following: 1. Credit History – you need to keep your debt in line with your income. You need 30% of your income to be available to pay for this loan. The good news is you can also use utility payments, rent payments, and auto insurance payments to substantiate good credit history. With other loans these types of credit don’t show up on your typical credit report which lenders use to approve you. This is good for you. 2. Deposit – You have to have 3% of the amount of the loan in order to meet the FHA requirement for down payment. This is clutch. You can’t expect to get a $200,000 loan without at least $6,000 down. 3. Job Stability – You need to have been at your current job for at least 2 years or show that you are not there because of an legitimate illness or layoff. 4. Steady income – You need to show that you have income to pay for this loan. FHA loan requirements do allow for seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family to qualify as income sources. FHA loan requirement can also allow part-time pay, overtime, and bonuses to count as income.
If we are talking strictly about the interest rate quote you receive from your lender, instead of the overall function of the market, then this is the way it works most of the time. Each morning, most lending institutions issue a rate sheet that goes out to its branch offices, loan officers and to brokers. The rate sheet will quote several different rates and have a cost associated with each rate, expressed in "points." One point equals one percent of the loan amount. The loan officer then decides how much to add to that "base price" to charge his clients. In most cases, it is the loan officer who determines your rate in this manner. Some institutions set a flat rate that all loan officers must charge, but they are in the minority.
It depends on whether your loan is impounded or not. In some cases, having impounds is voluntary. In others, it is a requirement of the loan. If your loan is impounded, the monthly payment will cover not only principal and interest, but a certain amount each month that will accumulate in your "escrow" or "impound" account and will be used for the payment of mortgage insurance, property taxes, and homeowner's insurance.
An appraiser is a professional who has knowledge of the real estate markets and is skilled at determining the fair market value of homes. The appraiser will typically be chosen by the lender, but in most cases the borrower will be responsible for paying the appraisal fee.
Many buyers obtain additional funds as a gift from a family member. Another source is that you may be able to borrow against your 401K plan or retirement plan. You can use the sale of personal property as a source of funds, but you must document it carefully. You will need an appraisal or valuation of the item (such as the blue book for automobiles), a copy of the bill of sale, a copy of the check used to make the purchase, and a copy of the deposit receipt showing the funds going into your account.
First of all, you should beware. When you receive a rate quote that sounds too good to be true, it usually is. You should adhere to some rules for "shopping around." Always compare rates on the same day, because rates change from day to day, sometimes during the day. Always make sure you are talking about the same commitment or lock-in period. If your lender is quoting you thirty-day pricing and the competitor is quoting twelve-day pricing, there will be a difference. Then, compare fees by getting Good Faith Estimates from each lender on the same day. The Good Faith Estimate has numbers in front of all the fees and charges. All lender fees have a number in front of them that is in the 800's. Be sure not to include the other fees in your comparison because the lenders are only estimating those anyway. If you choose the competitor, be sure to get a commitment letter guaranteeing your rate and fees for a specific period of time.
A 40 year mortgage is a mortgage with a 40 year amortization schedule. This means you will pay interest and loan principal to the mortgage lender for a 40 year period instead of a 15 or 30 year period. The upside is a lower monthly payments than traditional loans like the 15 and 30 year. For most home owners the savings is not significant enough to make the move from a 30 to a 40 year mortgage. However, with home prices dropping recently and expected rebound soon it may not be a bad option to consider keeping the loan extended to 40 years if you know the equity will go up. Down the road you can always refinance once you have some equity in the home.
A 50 year mortgage is a mortgage with a 50 year amortization schedule. This means you will pay interest and loan principal to the mortgage lender for a 50 year period instead of a 15 or 30 year period. The upside is a lower monthly payments than traditional loans like the 15 and 30 year. For most home owners the savings is not significant enough to make the move from a 30 to a 50 year mortgage. However, with home prices dropping recently and expected rebound soon it may not be a bad option to consider keeping the loan extended to 50 years if you know the equity will go up. Down the road you can always refinance once you have some equity in the home.
A balloon mortgage is one which will be payable in full before the full term expires. In most cases the balance on a balloon mortgage will be refinanced when it comes due. For example, with a 7 year balloon mortgage, the monthly payment may be calculated based on a 30 year period, and the full balance at the end of year 7 would be refinanced or paid in full at that time.
A lien is the lender’s right to make a claim against the property of the borrower in the event of a default.
A mortgage broker is an independent contractor who specializes in finding and comparing loan products from a variety of different lenders.
Pre-approval means you or your loan officer has completed a loan application, and you have provided required documentation so that an actual underwriter can approve your loan before you have purchased a property. Such an approval makes certain assumptions about the interest rate and other items associated with your monthly payment. If the property taxes are higher than anticipated, or you buy in an area where there are homeowner's association fees, the underwriter will have to review your loan again. A pre-approval applies only to you, the borrower. Once you choose a home, the property will have to qualify as well.
The reverse mortgage is generally most suitable, and most available, to older citizens, and it provides people with a way to stay in their homes while tapping the equity built up in their homes to pay living expenses. With a reverse mortgage, the lender agrees to pay the homeowner a set amount of money every month, with the understanding that the home becomes the property of the lender upon the death of the homeowner.
Amortization can seem like a complicated subject, but in fact it is merely a breakdown of how much of your monthly mortgage payment goes toward paying off the principal and how much is instead paying the interest on the loan. You should have received an amortization schedule when the mortgage was originated. If you did not, your mortgage lender should be able to provide one.
An adjustable rate mortgage, also called an ARM, is a mortgage in which the interest rate can change. For most ARMs there will be an initial period in which the interest rate will not change, but after that period has expired the interest rate will rise or fall according to the terms set forth in the mortgage.
One of the most significant developments in the mortgage market in the past few years has been the advent of the interest only mortgage. With an interest only mortgage, the home buyer is required to pay only the interest portion of the loan for a set period of time, often between 3 and 5 years. After that interest only period has expired, payments of principal and interest are required, and this will cause a significant increase in required monthly mortgage payments.
When discussed in terms of home buying and mortgage lending, equity is the difference between the value of the home and the balance remaining on the home mortgage loan or loans.
Escrow is an agreement to place money or other valuable items into an account with a third party for safekeeping, pending the completion of a promised act by one party or another. Some mortgage transactions will include an escrow agreement requiring the borrower to add a specific amount for taxes and insurance to the monthly mortgage payment. That money then goes into an escrow account which the lender will use to pay the taxes and insurance payments as they are due.
Fannie Mae is a Federal agency which purchases and repackages loans as investments. The securities of Fannie Mae guaranteed by the agency and often used in fixed income investment portfolios.
Private Mortgage Insurance, or PMI, is designed to protect the mortgage lender in the event the home buyer defaults on the purchase. In most cases, PMI will be required for mortgage loans with less than a 20% down payment. PMI tends to be quite costly, so it is important to drop it as soon as the equity in the home hits the 20% mark.
Pre-approval is a commitment by the lender to write a mortgage for the specified borrower, prior to the identification of the property being purchased. The pre-approval process is designed to make shopping for a home easier, as it allows potential buyers to know ahead of time how much they can borrow.
The housing expense ratio is the ratio of housing expenses, including monthly mortgage payment, real estate taxes and homeowners insurance, to the borrower’s equity. This ratio is used, along with a host of other factors, to determine the borrower’s qualification for a mortgage.
The difference is pretty simple. The term of the loan is extended. With a 40 year mortgage you will be able to afford more of a home but it will take you longer to pay down the interest and the balance. Most people pick 30 year loans so that they can realize a payoff within their lifetime. Think about retirement. Do you really want to be paying a mortgage or do you want to use that money to travel the world. Up to you but my choice is a short 30 year mortgage.
There are few numbers as important to the mortgage process as the three digit credit score. To the lender, the credit score is a prediction of how likely the borrower is to pay his or her mortgage on time, and the credit score will greatly influence the interest rate on the mortgage, or even whether the mortgage is granted at all.
If all borrowers were alike, it would simply be a matter of service. If you mail in a loan application to a faceless institution, you may have only a phone number to contact and may only be able to contact them during business hours. You may be put on hold or have to leave a message and wait for a phone call back. A loan officer that has been referred to you will often meet you face to face in your home, his office, or your Realtor's office. He will have a pager that you can usually use to contact him at any time, and he will usually respond promptly to pages. However, all borrowers are not alike. Each borrower and each transaction has something unique about it, which may or may not present a challenge. A qualified loan officer will anticipate those challenges and prepare for them in advance, where a faceless person in an office may just process your loan as "paperwork".
If you are an experienced buyer and are putting at least twenty percent down on your new home, talking to a lender before you make an offer is probably unnecessary. At the same time, you could have your loan totally approved before making the offer, which might make your offer more attractive than others. If you are a first time buyer or putting less than twenty percent down, then your lender can help you zero in on your maximum purchase price and can pre-qualify you for a loan. Knowing that you qualify for a loan eases the stress of buying a home.
In most cases, no. With most loans, there is somebody earning a commission on your loan, anyway. If you deal directly with your loan officer, it is just that you know exactly who is earning the commission.
* Credit score of 600 or greater required to continue
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