The home loan closing is the last step in getting your mortgage and actually becoming the owner of your new home. This is time when you will sign a plethora of legal documents. Unfortunately, you’ll have to pay a number of fees and commit to a sizable mortgage loan and mortgage payment as well. These factors can sometimes make your closing confusing and a little overwhelming.
What is the Closing?
The home loan closing or closing is when you finalize all the paperwork for a new home. The closing or settlement is the legal process of transferring ownership of a home from one person to another, and usually involves the purchaser obtaining a mortgage loan to finance the home purchase. At the closing, essentially all of the work you’ve done up to this point is wrapped up. Large stacks of papers will be signed, money will change hands and finally, keys will be exchanged. At the end of the closing process, you will actually own a new home.
Who Attends?
The closing is attended by the main parties involved in the sale and purchase of a home. That means you will be there with your spouse or co-buyer, realtor, and possibly an attorney. It is possible to represent yourself without an attorney or realtor, but be sure you educate yourself completely on the purpose and implications of all the documents you’re signing – this is not a time to misunderstand. It is advisable to have some form of experienced representation.
The seller will attend the closing along with his attorney or realtor. The broker may also be present to help shuffle the paperwork around the table for the appropriate signatures, or it may be handled by the lawyers and realtors.
What Do I Bring?
When you’re ready to close on your new home, you’ve hopefully been working diligently with your realtor and the mortgage lender throughout the entire process. You must bring any documents that have been requested by the broker or seller as well as the mortgage lender. You must also bring proof of homeowners insurance that you have arranged to cover the new home. In addition, you should bring a cashier’s check to cover the difference between the required down payment plus the mortgage closing costs less the escrow money that you have already paid.
As you should always be ready in case of a surprise or emergency, be sure you also bring your regular checkbook, a pen and a current driver’s license or other photo identification. You can look at the Department of Housing and Urban Development settlement sheet to verify you have everything you need with a sample HUD-1 settlement sheet.
What Do I Do?
The closing agent will generally make sure everything is signed and recorded and that the appropriate funds are collected for various fees and expenses and that they are properly disbursed. The agent will explain each document including the transfer of title, the mortgage and mortgage loan and give you and your attorney (if in attendance) the chance to look at them.
If you’ve been working with a realtor or lawyer, they will help walk you through the actual closing as well. You will arrive at the prearranged destination with your check, insurance and any other documents. Your team will meet with the seller’s team. You will sign a great deal of paperwork being careful to read through each page and understand it completely, especially the terms of the home loan and mortgage closing costs.
After all of the paperwork has be completed, you will show your proof of insurance as requested and the seller will be advised to maintain his home owner’s insurance until the sale is recorded at city hall.
Then, once all the paperwork formalities have been completed, the most exciting part of the closing will take place – you will get the keys. Once the keys have been ceremoniously handed over, you will be in possession of the home and can move in right away. The seller will also hand over as much information as he has about the equipment in the home including major appliances, air conditioning, and heating. The entire process will likely be over in less than ninety minutes.
Caution!
There are a few things that can go wrong in a closing, which can draw out the process or stop it completely. Fortunately, these things don’t happen very often, but they do happen. It is possible that the mortgage lender or bank will come back with unacceptable terms at the last minute. This may only stall a closing, but it can also stop it completely. To prevent these types of issues, make sure to be in communication with the mortgage lender a few days prior to the home loan closing to confirm that there are no outstanding conditions that have to be met.
Use the mortgage calculator to confirm the final figures for the monthly mortgage payment, the mortgage rate and the apr so you are prepared for to review the numbers.
There may also be a surprise announcement at closing as to liens, or holds, on the property. It may very well be that there is a hold on the property the seller was trying to outsmart or had honestly not considered important. Preparing beforehand with a knowledgeable attorney or realtor can help prevent or at least soften the blow of situations such as these.
Ultimately, it is your responsibility to understand and agree with everything you are signing, so be sure you are reading and processing all of the information presented at the closing. Then, when the mortgage loan paperwork and title paperwork and other essential documents are done and the keys are exchanged, you can rest assured that your home is truly your own with no complications or string attached – other than your new mortgage and new mortgage payment.
Buyer’s remorse is a common affliction for all manners of purchases, but there is no remorse greater than worrying about the most expensive item in your life – your home.
Buyer’s Remorse
True buyer’s remorse is the worrying and wonder that comes after sealing the deal on a new home and a new home loan. You begin to wonder almost immediately if you got the best price and feel uncertain about your decision. Did you really need this house? Could you have done better? Often buyers question the mortgage rate and mortgage terms. Rather than dwell on your decision and stew over what might have been, try to nip those feelings in the bud so that you can spend time enjoying your new home, not stressing because of it.
Do Your Homework
Before you even begin house hunting, be sure you know your market. Look at many homes in the area and research home values from the recent past. Are values going up? Falling? Staying consistent? A few years ago, it made sense to rush into a home before the value continued to sky rocket. In today’s market, just like researching mortgage rate and terms you have to make time to research, consider and evaluate all of your choices before committing to an offer. Run the purchase price numbers and mortgage loan numbers through the mortgage calculator to get a comfort level on the total home costs. Compare mortgage rates with different lenders and compare different rates and terms in the mortgage payment calculator. Be sure to compare the costs in the mortgage calculators as well.
Preapproval
Eliminate worry by getting preapproval from your mortgage lender. Check the numbers for a new mortgage loan yourself with the help of the mortgage payment calculator and mortgage qualification calculator. Then have a mortgage lender or bank investigate your numbers include your income and credit to issue a preapproval letter. Once you know exactly what the bank will allow you to spend on a new home (and what your own checkbook will allow), you can shop for a new home with confidence. You won’t need to worry about how much payments will be on a particular house or if it would be a stretch. You’ll shop armed with that knowledge so that you can focus on the actual home you’re inspecting not the imaginary inflated mortgage payments that go with it.
Get Another Opinion
If you tend to stall on major decisions, bring along your most trusted advisor. The first advisor is of course, the mortgage payment calculator. For extra help use the mortgage calculators to compare buying and renting and the mortgage terms comparison calculator. For a human advisor, hopefully that person is a decision maker who’s not afraid to tell you exactly what he thinks about a property. If his assessment agrees with your own, you’ll know that you are indeed seeing things correctly. At the very least, feel free to run your decision by your parents or trusted sibling to see if they have any advice or opinions to share before you close.
Make it Yours
Once you’re in a home, distract yourself from wonder by working to make your new space your own. Paint some walls, strip some wall paper, put down some new carpet. Arrange your furniture in each room and buy new decorations to make each room highly personalized. Create your own sanctuary or place of comfort within the home so that your mind isn’t wondering whether you could have bargained for less, it’s spending time in a state of utter peace and relaxation in a place you can call your very own.
Move On
If you find yourself dwelling, force yourself to move on. Research your possible actions. You’ll likely find that the best solution would be to sell your brand new home to try and find one for less. The cost of selling, not to mention the headaches and stress, will remind you that some things just aren’t worth worrying about. You did your research and made an educated decision. You spent time planning your move and didn’t rush into a decision that wasn’t right for you. You compared mortgage rates and costs in the market. You evaluated the monthly mortgage payments and your budget using the mortgage calculators. Now, it’s time to relax and enjoy that decision without worrying about what the neighbors are doing with their home or replaying possible scenarios in your mind. It’s just a waste of energy you should be using to fix up your brand new house.
If you are a first time home buyer and need a better understanding of all the ramifications of home buying and home owning, there may be a class for you. Many local groups provide counseling or classes devoted to personal finance, and home buying is a major component of personal finance. You can ask a realtor, or you can do an online search with the words “home buying classes” and your city or town name.
These classes should be free, and they will range from a couple of hours to a couple of days. They may be sponsored by a realtor, or by a park district, YMCA, or some other institution with a stake in the local community.
While many home-counseling organizations are geared toward low and moderate income families, don’t let that deter you from seeking their services. Pride matched with ignorance can be mighty expensive given the scale of investment and complexity of the transaction to buy the home and obtain a home mortgage. Some consumer advocates would like to see home-buyer education a requirement for every first-time home buyer before they sign a purchase contract or complete a home loan application.
Indeed, studies show that consumers who meet with housing counselors and seek home-buyer education have a higher success rate as home owners. According to a study that analyzed 40,000 mortgages originated under Freddie Mac’s Affordable Gold program, the group of borrowers who received individual counseling had a 34% lower mortgage delinquency rate than those who didn’t.
What should you look for? Most nonprofit organizations offer a free eight- to 10-hour class that walks consumers through the entire home-buying process, from the nuances of mortgage underwriting (including the debt to income ratios lenders use to determine how much money to lend) to the difference between an interest-only mortgage and a 30-year fixed-rate product and various other mortgage products and mortgage rates.
Of course, there’s more to buying a home than just the financing process. That’s why counselors also teach about the importance of home inspections and offer basic budgeting guidelines, including how much money to set aside for basic upkeep of the property.
Typical material in such a class covers some of the following topics.
Getting a home loan.
What you should know about credit scores and credit reports.
How to begin the search for a home.
How to determine what price to offer.
Getting the seller to pay closing cost for the home mortgage.
What to investigate before buying a new home.
How to find information that could affect the value of your investment.
How to investigate the location.
How to avoid some common mistakes.
The home mortgage closing process.
The settlement statement including settlement differences for different loans.
The role of your real estate agent.
Finding the right home loan for you including mortgage loans and mortgage refinances.
Another benefit of meeting with a housing counselor is that he or she can sort through vast databases to see if you qualify for any of the down payment assistance programs available in the area. While many of them are limited to people with low to moderate incomes, that’s not always the case. Areas trying to revitalize certain neighborhoods might waive income limits entirely. So even if you don’t think you have the time for a full eight-hour class, it pays to lob in a phone call to see what programs are available or any mortgage rate assistance.
As part of the education process read the various articles on bank mortgage guidelines and products and use the mortgage calculators as well as the mortgage payment calculators to help better understand the loan process and the costs involved.
For those potential home owners that are wavering between buying and renting, there is more than the pride of ownership to consider. Buying a home comes with additional costs over that of renting, but it also has many more perks than renting. If you’re beginning to itch to buy your own home, be sure you’re truly ready. Start by doing your homework on the housing market as well as mortgage programs and mortgage rates.
This preliminary research should include extensive use of the various mortgage calculators to analyze mortgage rates, loan costs and monthly mortgage payments. Once a prospective home buyer is confident in their ability to handle the mortgage payments the mortgage calculators can be employed to evaluate home loan qualifications based on what the lenders are looking for. This information can be used to review your finances including assets, income and debts before going forward with the house hunt.
Review the Down Payment Requirements
The first step to decide if you can buy a home is not the monthly costs. It is the initial costs of a home. If you can afford a true down payment on a home including closing costs and possible points, it most likely makes sense for you to buy. Home owners get serious tax breaks, but that tax break will be lost if you’re paying a penalty for not having an adequate down payment or are struggling with a sub prime mortgage that is too much for your income to bear. In recent years, we have certainly see the results of too many homeowners not have sufficient funds to handle a new home end up subsequently losing that home to foreclosure or delinquent on their monthly mortgage payments
Saving at least five percent of the home’s value before purchasing is becoming the minimum standard to secure financing. A larger down payment provides more security and more financing options. In addition to having immediate home equity, you’ll also find that your financing options are much more attractive without trying to find mortgage loans which require less money down, higher interest rates and hefty private mortgage insurance payments. The exception would be FHA mortgage loans and loans for qualified veterans, which are subsidized by the government. Take advantage of the mortgage calculators to determine the amount of down payment needed and how the monthly mortgage payments can change with different down payment amounts.
You Have the Time
Buying and owning a home involves more than just the financing and the monthly mortgage payments. Another major consideration for home ownership includes the time to deal with the upkeep of that house itself. Home ownership requires periodic maintenance such as yard work, exterior physical maintenance and repairs of components that wear out over time. When will you mow the yard and repair any little problems that arise? Renting makes these little tasks other people’s problems. You can hire a cleaning or lawn service, but you still must be around enough to facilitate any workers in or around your home.
You’re Staying Put
If you move constantly or have a career that takes you far from home on a regular basis, you may be better off renting a while longer. Owning a home means putting down roots in a particular community. You’ll be paying for the upkeep of the neighborhood as well as school taxes. Your children will be friends with other kids nearby and you may enjoy getting to know your neighbors at backyard grills or such.
If you’re constantly moving around the country or even the globe, owning a home may be a commitment you’re not willing to endure. In order to obtain the possibility of real appreciation, time can be a key element. Time also increases equity through the reduction in the principal of the home loan. The mortgage amortization calculator can come in handy to measure the principal reduction over time and the subsequent increase in equity. As a new homeowner you will be responsible for the home’s upkeep even while traveling and selling a home after a short-term will likely cost you far more than you’ve made in equity.
You Can Afford It Long-term
A home is an excellent investment, but the bulk of homes are an investment that should be considered over the long-term. Despite television shows to the contrary, flipping a home or selling it after a few well chosen modifications, is often not a lucrative option in the majority of housing markets. Invest your money first in appropriate investment securities and other savings alternatives before jumping into home ownership without knowing all the costs, options and time involved.
With liquid investments such as stocks, binds and bank certificates of deposits you are able to access your money quickly in case of emergency. By tying up all of your money in your home, you will have to take out a loan or sell your home, which can take months, to access funds should a financial crisis arise.
You must also consider your income in the long-term. If you’re stretching to meet your mortgage payments every month, but know that you’ll need a new car in a year or less, buying a home may not be a wise use of your money. Either invest in a smaller, more affordable home, or continue renting until your income rises to the level you need to afford the sort of home you’d prefer. Study your needs and financial resources first. Compare the costs of renting versus home ownership. Study the available mortgage rates and mortgage options. Use all available resources including the mortgage calculators and then choose to purchase a new home with sound research and confidence in the decision.
If you are turned down for a mortgage loan, it does not mean that you have no chance of obtaining the financing that you need to buy or refinance a home. First, ask the mortgage lender who denied your mortgage application exactly why they did so. It may be something that can be easily fixed and then the loan has a chance to be resubmitted to mortgage underwriting department. Make sure to have your qualifying ratios and loan to value ratio ready to compare with the figures from the mortgage lender’s underwriting department. Use the mortgage calculators along with information on your income, assets, debts and the home’s value to determine these figures as accurately as possible. Compare the mortgage payment calculated from the mortgage payment calculator with the payment numbers produced by the mortgage lender. If the numbers do not match, an error is being made by either the mortgage company or yourself.
Some mistakes or errors may be in calculating income or not using income that you receive but was not properly documented. The monthly debt payments may not be accounted for accurately. Possibly your credit report has a debt such as a credit card that you have since paid off. If the problem isn’t correctable, or if the lender is unwilling to resubmit your loan, you’ll want to fully understand the factors in your home loan request that present the problem. You’ll receive a written statement listing the reasons your application was denied. Lenders are required by a federal law, The Equal Credit Opportunity Act, to tell you in writing when you’ve been turned down for credit.
Two important pieces of information must be included in a letter you receive when you are denied credit:
The specific reasons why you were denied credit (or information on how to obtain those reasons); and
If a credit report was used in making that decision, the name and address of the credit reporting agency that supplied it.
If you don’t understand the reasons given for turning down your application, call the lender and ask for more information. Sometimes it can be hard to determine exactly why your application was not approved, because these decisions involve many different factors. Don’t be shy about asking, though, since the information you receive may help you to find a way to improve your credit score or establish what debt could be eliminated that is leading to a high debt ratio or other factors. All of the information obtained regarding the reasons for denial will help so you can qualify in the future.
When you are ready to reapply for home mortgage loan, do your research. Review the guidelines generally needed to qualify for the type of mortgage loan you applied for. If you think you can still get a loan, talk to another lender and explain your situation. Tell them the reasons you were denied by the first lender, and give them your entire financial history. All mortgage lenders work off of similar loan underwriting standards but different mortgage lenders may have different approval methods and operations. Just because you did not get a loan from one financial institution doesn’t mean you can’t get one somewhere else. If your new lender thinks a loan may be possible, you can request that your loan application package be sent over from the first lender. They are under no obligation to do so, but may be helpful if asked.
Work through your lender choices one at a time. Start with your best bet, and then move through the list if you are denied. If you are unable to obtain financing at all, ask your lenders what you need to do to remedy the situation. Take the time to sit down with the lender and discuss what steps you can take to clean up your credit or what debts you could reduce if your income is not high enough so that you are eligible for a loan. Then find out how long you will need to wait before you apply again. If your loan application was rejected because of insufficient income to afford the house you want or you have insufficient funds for closing costs and a down payment, you could consider loan programs for low to moderate income borrowers with lower down payment requirements, such as an FHA loan. You may also want to run different loan scenarios through the mortgage qualification calculator and mortgage payment calculator to see how mortgage interest rates changes, loan amount changes or loan term changes can impact the loan approval.
If you are denied for mortgage financing, all you are out is any nonrefundable application fees that you’ve paid up front. Lenders often include credit report fees and appraisal fees in this cost, passing these fees on to the borrowers. Find out before you apply if your fees are refundable or not, and get these terms in writing. Some lenders will prequalify or preapprove your loan without charging an application fee.
Being denied for a loan does not cause bad credit, although you may be denied because of your credit history. Your credit report will not even show that you were turned down for a loan, the report will show the inquiry made by the mortgage lender only. So, if you’re interested in financing a house, keep trying to find a lender that can work with you. If this does not work, learn how to clean up your credit or improve other factors needed to qualify and then try again. Learn the mortgage process, use the mortgage calculators and other resources and be persistent – it will eventually pay off.
Before punching numbers in a mortgage calculator and shopping mortgage rates to decide which mortgage may be right for you, understand what it is you are trying to get a hold of. Gaining knowledge of what a mortgage is can be an important tool in searching for the right mortgage and help recognize the value of your rights and responsibilities while you have a mortgage.
Technically speaking, a mortgage is a written legal contract that establishes the rights and liabilities of both the creditor and debtor and creates a lien upon real estate. The mortgage is the pledge of the real estate as security for payment of a debt. The mortgage is actually the lien on the home and not the loan itself. The mortgage lender, bank or any financial institution that holds the mortgage, has an interest in the property, they do not own the property. Often the term mortgage or loan or the combination mortgage loan are all used to mean the same thing.
The borrower or debtor is the party pledging the real estate as collateral for the home loan and therefore gives the mortgage. The mortgage lender or creditor is the party providing the loan or note that is secured by the property in the form of a mortgage on that property. The borrower is the mortgagor and the lender or mortgage company is the mortgagee.
Since the borrower pledges his or her property as security for repayment of a debt, the mortgage creates a lien against the borrower’s property. The lending institution, mortgagee, holds that lien. In return for holding the lien or mortgage on the property,the mortgage company is also agreeing to loan the homeowner or prospective homeowner money. The terms of how much money is loaned, at what interest rate and for how long is established in the note or promise of repayment, but not on the mortgage itself. If the home loan borrower doesn’t keep their promise of repayment and default on the loan terms, the mortgage that pledges your property as security gives the lender the right to initiate foreclosure and sell property to satisfy the home loan debt if necessary.
The foreclosure action starts due to the failure to make the timely payments. Foreclosure allows the mortgagee to declare that the entire mortgage debt is due and must be paid immediately. This is accomplished through an acceleration clause in the mortgage. Failure to pay the mortgage debt once foreclosure of the property occurs, leads to seizure of the security interest, the home and land, and it’s sale to pay for any remaining mortgage debt. How the foreclosure process is carried out depends on state law and the terms of the mortgage.
There are several types of mortgage loans available with a variety of terms, interest rates and costs. Which loan is best for any particular borrower depends on many factors about financial position and lifestyle choices. The mortgage calculators will be a good resource to help ascertain the best possible mortgage rates and terms that fit a borrowers budget. Research the mortgage rates, terms and cost and comparison shop to match the right mortgage loan to your needs.
Borrowers can often be surprised at the amount of time it takes to obtain a loan approval. Often the delays lead to frustrated borrowers who vent their anger on the lender or bank handling the loan application. There can be many reasons for a delay in the loan approval process, some caused by the borrower, some caused by the lender and some that are processes with the fault of neither borrower nor lender.
Using the mortgage calculators to determine mortgage qualifications and the income and debt payments associated with an individuals application should be the first step before filling out the mortgage application. The mortgage calculators will help to not only determine the applicant’s debt ratios but assure the borrower has reviewed their own financial position. After a borrower has reviewed their financial situation, hopefully with the thorough use of a mortgage calculator, filled out the application and submitted the supporting documents to the bank or lender the loan processing and underwriting phase begins.
During the processing and underwriting phase all of the information on the application is verified. The income is verified and calculated, the debts are checked, credit is verified and assets are verified. It is this process that causes most of the delays. The most common delay issues in the loan approval process include the following:
The loan application is incomplete; examples may be the employment history is filled in with less than a two year history.
Application does not disclose all of the borrowers’ debts.
The underwriter or processor is having difficulty verifying income.
Additional derogatory credit is discovered in the credit profile.
Appraisal on the property is delayed.
Appraisal on the property has problems with technical issues such as comparable sales.
Income is verified less than reported by the applicants.
Creditors or employers are slow to respond to requests of the processor or underwriter.
The title search on the property is delayed or the search yields liens filed against the property that were not previously known.
There are certain safeguards a borrower can follow to expedite the loan approval process. The most important acts for the borrower include:
Read all of the documents you are given, make sure you understand all the terms and sign those that have to be returned expeditiously.
Check with the lender about the documentation you’ll need to complete the application. When you go in to fill out the application, you’ll need a number of items and information. These will most likely include w-2’s and paycheck stubs for proof of income, the property or address of the home you want to buy, recent bank statements and identification for the borrowers. These are some of the common items, check with the lender for a list of specific items they may need to complete the application and loan request.
When you fill out the application, be straightforward and accurate. Tell the lender about the good credit and the bad credit, how much money is available for down payment and closing, and other pertinent data that is on the application. All borrowers should be honest and straight forward regarding their debt history, income, job time and financial assets.
Know your rights as a borrower. There are numerous Federal regulations that protect the borrower such as the Truth in Lending Act, the Fair Credit Reporting Act, Equal Credit Opportunity Act and more that ensures that you as the borrower are protected.
Engage the mortgage payment calculator and mortgage qualification calculator to calculate your qualification levels and be informed should the mortgage lender question the values pertaining to these figures.
Be patient and be in touch with the mortgage lender handling the loan request.
Prepayment penalties are penalties for paying a home loan off very early in the term. Most home loans do not carry prepayment penalties but for those that do, can be costly. The penalty is generally a percentage of the outstanding loan balance. Most prepayment penalties are for three years but some run as long as five years. The brutality of the prepayment penalty may also vary. Three to five percent of the outstanding mortgage balances are common. Many prepayment penalties will decrease in severity over time. For instance the first year maybe five percent then the fourth year it drops down to four percent then the third year its three percent until the end of the fifth year when the penalty would no longer exist.
Prepayment penalties can be classified as hard penalties or soft. Soft prepayment penalties are penalties that would be waived it you should sell the house even within the prepayment term. The opposite, is the hard prepayment penalty. In these cases the penalty is enforced regardless of the reason for prepaying the loan during the penalty term. Running a mortgage calculator scenario that saves money for a new refinance can quickly be turned upside down once a borrower discovers their home loan has a prepayment penalty.
These terms of a mortgage prepayment penalty can be a costly burden should you want to refinance the loan within the prepayment period or sell the house with a hard prepayment penalty. In time of rising mortgage rates and adjustable rate mortgages that are resetting, a borrower would be far better off to have the option of altering the loan without the danger of a prepayment hanging over. If a loan does have a prepayment penalty and the homeowner is considering a new refinance, it is imperative that the costs of the prepayment penalty be added to the total cost of the loan in the mortgage calculator in order to know the full cost of the new mortgage transaction.
Most prepayment penalties were established to protect the rate of return for the mortgage company. The prevailing wisdom is that a prepayment penalty locks in the interest rate the mortgage company will receive for at least some period of time. With the prepayment penalty in place a mortgage lender is guaranteed a minimum rate of return. Prepayment penalties are more commonly found on subprime loan products. With a subprime loan, a borrower who was able to improve his or hers credit would almost immediately benefit by prepaying a subprime loan for better terms. For a conforming borrower, they are likely to prepay only when the terms of a new loan are more desirable via lower rates.
The benefit of having a prepayment penalty is that the loan you receive with the penalty will have a lower mortgage rate than on without. In addition, since a subprime borrower has the most to gain and the lender the most to lose on early payoffs, you may find you can not obtain a subprime loan without a prepayment penalty. Always shop and compare mortgage options. If there home loans without a prepayment penalty, it is almost always a better choice to select the mortgage loan that does not have a prepayment penalty. If it is a question of different mortgage rates, a high mortgage rate without the prepayment penalty and a lower rate with a penalty, be sure to use the mortgage calculators to compare monthly payments and to total costs. The mortgage calculator can display an amortization schedule to help determine the costs over the life of the loan and the balance of the loan at future date to ascertain the cost of the prepayment should you need to refinance the loan.
At the time of this article, prepayment penalties are causing added stress to the difficulties in the subprime market. Many state legislatures as well as the US Congress are considering options restricting the terms on prepayment penalties or eliminating them altogether. If you are applying for a loan now that has a prepayment penalty, do your best to negotiate the terms. Always try and avoid the prepayment penalty. If that fails work on the shortest time frame that the penalty will be enforced and the lowest penalty amount. Use the mortgage calculators to help investigate all the loan terms and options that are available. Know your options, understand the conditions and never sign the paperwork until you are satisfied.
Buying a first home or moving up and buying a second home are the dreams of many consumers. These dreams have become slightly more difficult to achieve as the mortgage and credit markets have tightened. As a result, tighter lending standards and requirements for larger down payments have now become the norm. Even buying a starter home can now mean having to save thousands of dollars for a down payment.
Running the mortgage calculators should be the first step to ascertain the down payment needed to purchase a new home. The mortgage calculator, however, can not be used blindly for this task. In order to understand what an acceptable down payment amount is, a consumer will need to know which loan programs are available and what the standard requirements are for these programs. This task was much simpler when the no down payment loans were readily available to most all borrowers. Those programs are but a faint memory now. Therefore, a large part of the deployment of the mortgage calculator for down payment analysis is the understanding of what is a satisfactory down payment amount.
To determine the requirements for the various loan programs that are available it is very useful to read the guideline for mortgage basics and mortgage fundamentals. Here, a consumer can see the difference between the 3% down payment requirements on FHA loans and the 5 to 20% down payment requirements for conventional home loans. The mortgage basics will also cover the loan types regarding the terms and the monthly payments. Down payments alone do not qualify a borrower for a home purchase. Income, assets and credit will play a major role. The mortgage calculator is a good tool to work with the numbers regarding an applicant’s debt levels and monthly income as well. It would be nice if the mortgage lenders took a greater interest in the overall picture of their borrowers but the reality is that mortgages are approved and declined based on numbers. The value of the mortgage calculators can be better understood with the realization that loan underwriting is all about number crunching not subjective analysis. Since the mortgage calculators are there to help the mortgage applicant ascertain their qualifying status based on mortgage payments, mortgage terms, the mortgage rate and the borrower’s income and assets, the mortgage calculator turns out to be a great tool to get a leg up on the mortgage lenders underwriting process.
The most important lesson of the mortgage numbers game is that the numbers don’t lie. If potential new home buyers are looking at a $175,000.00 home and plan on using and FHA loan with a 3.5% down payment, there has to be a minimum of $6,125.00 just to cover the down payment. This amount can not be roughly $5,000.00; the requirement is similar to a law. It is not a guideline. $6,050.00 in liquid assets, just shy of the $6,125.00 needed in this example, will result in the loan process being held up until the mortgage lender verifies that the minimum requirement is met. The mortgage loan down payment must be in the form of liquid assets and in the borrowers name or be an acceptable gift or grant.
There are many down-payment assistance programs for first-time buyers that are offered by banks, local governments and charities. Many are open only to low- or moderate-income buyers and some are targeted to specific communities. It’s always good to check because you may be surprised at income levels that qualify, especially if you live in a high-cost area. Some programs lend buyers a substantial portion of the down payment.
In addition, most all mortgages require buyers who put down less than 20 percent to get private mortgage insurance, which can add $80 to $100 to your monthly bill. And the less you put down, the higher your loan balance and therefore your monthly mortgage payment will be higher as well. It is also important to note that as mortgage lenders have tightened their standards, there are incremental rate increases for down payments of less than 20% which also adds to a larger monthly mortgage payment. Use the right mortgage rate in the mortgage payment calculator after calculating the down payment amount to avoid unnecessary payment surprises.
A consumers credit history will go a long way to determining the loan terms and mortgage rates you will be able to get. This is also true of the down payment. Borrowers who are not quite meeting the qualification requirements for a home loan because their credit history is less than perfect, will have a far better chance of being approved for the mortgage with a larger down payment. The reverse of this statement is that a borrower with less than perfect credit will need a larger down payment to qualify for a home purchase. Maintaining good credit and sprucing up already damaged credit is a key factor in mortgage loan approvals. This means checking your credit score and credit reports with the three major credit bureaus and fixing any errors. Also consider paying down some debt, especially high-interest debt such as credit cards, which might flag you as a riskier borrower. Check your debt ratios with the mortgage calculator to know exactly what the mortgage lender will be evaluating when they review your debt to income ratios.
To help save, what is probably a larger down payment in this new market, it may be wise idea to set up a separate account for savings of down payment funds. This makes it harder to inadvertently spend these funds and makes the verification of the amount and the seasoning or history of savings very easy for the mortgage lender. Avoiding the intermingling of these funds with other savings allows the future home buyer to easily keep track of how much they save and how much they may need to secure the right mortgage.
The mortgage calculator is an effective means to weigh the mortgage trade-offs of different loan programs with different down payment requirements, the varying interest rates and the impact they will have on loan qualifications. Prequalify yourself with the help of the mortgage calculators and build a down payment savings that is comfortable for you with regards to the end loan amount and passes the number crunchers at the mortgage lender.
The recent crisis in the credit markets makes home buying a bit more difficult than it was in the past few years, but even with more challenging lending criteria there are plenty of reasons to own your own home. Besides the intangible benefits, homeownership lets you build equity, and is the single biggest tax break available to most consumers. Here are some things to consider for first time home buyers who want to make the most of your home buying opportunity and assist in obtaining the best mortgage loan. Before leaping into any home loan, be sure to check the numbers on a mortgage calculator to compare programs, rates and costs.
First, try to pay off as much if not all of your existing debt. People planning to buy a home for the first time fall into the trap of focusing on the down payment amount, and while the down payment is important, paying down existing debt may be just as important. If you pay down or pay off the balance on a credit card, for example, it helps you in a number of ways even if it makes your down payment smaller. Credit card debt is expensive, both relatively and absolutely. Credit card interest rates are almost always more than twice the interest rates for home mortgages, and one of the first rules of personal finance is to pay off your higher interest rate debt first. And, high interest rate credit cards limit your ability to save more money because that money is going toward monthly credit card payments. Credit card debt may also limit how much you can borrow. Mortgage lenders won’t allow your total monthly debt service — which includes payments for credit cards, student loans and car loans, as well as homeowners insurance, property taxes and a mortgage — to exceed approximately 40% of your gross income. Having a credit card, making on time payments, and keeping your balance low all contribute to an excellent credit rating, but the amount you owe on a credit card may keep you out of the mortgage you need for the house you want. A potential borrower can use the mortgage calculator to review their current debt ratios and qualifying status.
Second, know how much of a home can you afford along with how large of a home loan you may qualify for. A variety of events may factor into this. One is to know how much money you have for a down payment. You can’t consider all of the cash you have because you need a reserve, and there will be origination fees or “points” payable at a closing that also must be paid in cash. Two, you need to know how much a lender will allow you to borrow, and how much it will cost each month. Third, the rule of thumb is that your annual mortgage payment, taxes and homeowner’s insurance shouldn’t exceed 28% of your gross income. The mortgage calculator can be beneficial in evaluating debt ratios and down payment amounts to measure what type and size mortgage loan you may qualify for. Don’t be optimistic about future raises or fudge your current income. Being realistic from the start is the smart thing to do and helps to narrow down the home search and avoid making purchase that turns out to be more than your budget can handle. Once again, use the mortgage calculators to assess your qualification ratios and determine your own level of comfort with the monthly mortgage payment
Shop carefully for a new home loan. Qualifying for a loan and signing the paperwork is only half the battle. Educating yourself about mortgages is an important step before jumping in. Especially as credit tightens in the aftermath of the subprime mortgage crises, and educated borrower is his or her own best friend. Knowing the ins and outs of mortgages and being on top of mortgage rates will help assure that you do not get stuck with an expensive home loan payment or loan that does not have a competitive mortgage interest rate. Most importantly, talk to a number of people at different kinds of lending companies and check mortgage rates and loan programs online. You’ll learn more and you’ll be able to compare offers. Anytime there is a new home loan program that comes to the market it is best to compare lenders and use the mortgage calculators to compare interest rates and costs.
If your credit is below average, things are tough for you now. Many mortgage lenders have expanded programs that allow consumers with slightly blemished credit to qualify for mortgages at competitive rates, but the criteria is changing now. Check your credit report first. Try to fix as many errors as possible on your credit report. And interpret the term errors loosely – fix whatever derogatory information there is in your credit report. Don’t hesitate to apply for home loan. Until you ask, you don’t know.
If your credit’s still not good enough for standard conventional Fannie Mae loans, you may yet qualify for a home loan insured by the Federal Housing Authority, or FHA. These government-insured loans are issued with even more lenient credit criteria. You can also put down as little as 3% for an FHA loan, and can wrap your closing costs and fees into the mortgage. Mortgage rates are typically less than a quarter of a point higher than those in the conventional market. To get a government-insured loan, make sure you find a HUD-approved lender or a mortgage broker who works with one.
There’s no income limit to qualify for an FHA-insured mortgage loan. However, since these loans are geared toward helping first-time home buyers and low- to moderate-income families, there’s a limit to how much you can borrow for a home loan. Check the FHA (Federal Housing Authority) web site for information. The mortgage calculator can be used to check qualifying loan amounts based on FHA loan limits and down payment requirements.
The more money you can muster for a down payment, the more options you will have. If you are doubtful of your ability to come up with a down payment, don’t be discouraged. There are various down payment assistance programs. Each year HUD, a federal housing agency, various state and municipalities put together grant programs to distribute to low- and moderate-income families for housing. Much of it is put toward down-payment assistance programs. Many young prospective home buyers may qualify for a grant (or in some cases a loan that’s forgiven if a home buyer stays in the home for at least three years) worth 3% to 5% or even more of the sale price to put toward their down payment or closing costs. Private lenders are also coming up with their own programs to tap into the first-time home buyers’ market, investigating the mortgages that are available regardless of your situation should be a top tip. To qualify for a down-payment assistance program, a consumer typically must earn less than the region’s median income. Call your state housing finance authority, county housing and community development office or mayor’s office for information on programs that may be available.
Asses your own financial picture first, including your credit profile. Improve your position if you can by cleaning up and removing erroneous data in your credit report and eliminating consumer debt. Know the mortgage products and mortgage rates available. Throughout this process, the work that can be performed with the mortgage calculators should be gathered. The mortgage payment calculator will help to determine your ability to afford the payment for your own piece of mind as well as helping to erase any doubt that it meets the mortgage lenders criteria. The mortgage comparison calculators will help evaluate the loan programs and compare different mortgage lenders to see which loan may fit best. Mortgage amortization calculators will help determine the total costs over the life of the loan and see how a new home affects the household budget. Now its time to shop and investigate the housing market that interests you.
Finding the perfect mortgage with the help of the mortgage calculators is easy, finding the perfect home can be much harder. It’s a shame to say that there is simply no such thing as a truly perfect home – that is unless you build a custom home. But even then, you’ll likely discover that there are a few things that might have been better designed down the road. If you begin house hunting with the expectation that you’ll find the perfect home, you may be disappointed. There will most likely be trade offs for finding the attributes that you most desire.
There are many wonderful homes on the market, but chances are, you will have to make a compromise along the way. By planning carefully for what you need and comparing homes on a logical as well as emotional front, you’ll soon find the house that best suits your needs and expectations – and that’s as close to perfect as you can get.
Take Stock
Look around your current home and find the aspects you adore and the ones you’ve vowed to change in your next home. Make a complete list of what would make a perfect home and then prioritize it. What’s more important – the family room upstairs or the country kitchen? If you have children old enough, let them contribute to the list. It will help them feel a part of the decision, which can make uprooting less painful when the time comes.
Examine Potential Homes Thoroughly
When it’s time to begin actively searching for a new home, look at all manners of homes within your price range. Travel the area where you’ll be moving and consider various locations and neighborhoods. As you view each house, try to minimize the emotional response, although that is important, and instead work through your checklist. In addition to the features you’ve listed, you should also be comparing each home on the basis of cost, convenience, condition, and capacity. When you compare homes on a logical basis, it will soon be evident which home is the best investment for you and your family.
Cost
The true cost of the home is well above the asking price. Your mortgage payment is the bulk of the outlay for the home, but you must also consider real estate taxes, improvements and maintenance, homeowner association dues and the other incidental costs of home ownership. Add all of these small costs into your projected mortgage to generate a true cost of ownership for each home. Run the mortgage calculator to see the costs of the mortgage payment and estimates for taxes and insurance. Remember that older homes will likely have more maintenance and upkeep, but newer homes may have higher dues or improvements as they often come with little or no landscaping or window treatments.
Convenience
Homes outside of the city are less expensive, but you will be farther removed from the hustle and bustle of city life. Are you willing to make the longer commute to work? Will the cost of commuting outweigh the savings on your home? How convenient is living in the suburbs really? Spend a night or two in a suburb hotel to get a feel for the traffic patterns, congestion, distance and time it will take you to return to your office or family back in the city.
Condition
The condition of a home is a major consideration. Many individuals buy a “fixer-upper,” but never get around to the fixing. Renovating or doing extensive repairs on a home can be extremely expensive. If you haven’t accounted for a kitchen remodel or foundation work in your budget, your dreams of blissful home ownership may fade quickly.
Some projects such as adding a bathroom or remodeling a kitchen can pay off nicely in property values and convenience. Others such as repairing leaking roofs, cracked foundations or mold are projects that are simply not worth the time or investment for 90% of buyers. The time and expense are enormous to even begin to tackle this sort of project. Be sure to get a certified inspection by a trained professional before strongly considering a home. Even new homes should be inspected carefully thanks to the shoddy construction of many builders.
Capacity
Square footage is deceptive. A home with a great deal of square footage may be open and roomy or feel awkward with large amounts of square footage wasted in long hallways, pass throughs and oddly shaped rooms. Rather than considering the square footage of a home, instead consider the capacity of the home overall. How many bedrooms does the home contain? Are they adequately sized? How large are the closets and the kitchen? Is there room for a large washer and dryer or refrigerator?
Do the doors block walkways when open? Is there room for all of your furniture? Mentally arrange your furniture in each room to see if it fits and be sure to include space for a home office or computer desk as well as a place for visitors – even if it’s just a corner of the den or family room.
Finding the perfect home takes work. Never rush into the home purchase decision, do your research on the housing market in your area before you leap. Of course, this also holds true for the home mortgage as well. Don’t ignore the value of using all the financial resources available including the mortgage calculators to make sure you find the perfect home loan. Do your research on mortgage rates and mortgage products and fire up the mortgage calculators to find the best home loan for your new home.
When searching for the best mortgage it is important to fully understand the fundamentals of mortgages and how they impact the home purchase as well as the cost of maintaining that purchase. Understanding the foundations of the mortgage and how they work can be made easier by using the mortgage calculators. The home loan process will most certainly be easier to navigate with an understanding of the fundamentals. A thorough knowledge of the fundamentals will also help to avoid buying new home with bad mortgage.
A mortgage is a lien on the house that secures a loan. The loan is paid in installments over a set period of time that eventually reduces the mortgage amount to zero. The mortgage is actually a security document that makes your home the collateral for the loan. The mortgage secures your promise that you’ll repay the money you’ve borrowed to buy your home. Mortgages come in many different types and amounts, each of these mortgages have their advantages and disadvantages. The use of mortgage calculators and a basic understanding of the mortgage loan fundamentals will help make sure the right mortgage is selected.
Deciding the mortgage term is a key component of the mortgage costs and necessary to determine the budget to buy a new home. Most mortgage loans are set up on a basis 30-year repayment plan or 30 year term. The shorter the term you choose, the higher your overall monthly payment will be, but the more you’ll save in interest charges over the life of the loan. When you consider the term you want, decide how much you can comfortably pay each month. The mortgage term comparison calculator can promptly examine the monthly mortgage payments for every term option available. While watching the monthly mortgage payment, avoid getting carried away with the size of the monthly payment and lose sight of the total cost over the life of the life of the loan. A 40 year mortgage will surely reduce the monthly mortgage payment but at the expense of a greatly increased interest expense over the life of the loan.
Coming to a decision on the interest rate for the home loan is of equal importance in determining which home loan is best. The interest rate is basically the cost for borrowing money. The interest rate on a mortgage is fundamentally the price the borrower pays for the use of the money from the mortgage lender or bank. The lower the interest rate on the mortgage, the lower the monthly mortgage payment and subsequently the total costs over the life of the loan. Interest rates charged by mortgage lenders will be dependent upon many factors including the loan term, down payment and the borrower’s credit. The mortgage payment calculator can be used to look at numerous interest rate options. Since the mortgage rate will also dependent on the loan to value, which is a reflection of the down payment amount, a mortgage calculator should be used to look at the combination of various loan amounts, down payments and the loan to value that results from these figures.
When searching for a new home loan additional costs will be incurred to obtain the home loan. These costs fees will range from loan origination points, appraisal fees, attorney’s fees, credit report charges, processing fees, underwriting fees and more. The total amount of these fees can be rather substantial. These costs will factor into the total cost of the loan and can be measured and compared between different lenders by keying in the costs into the mortgage calculator. Not only should these costs be examined by comparing the costs between lenders is critical to shop and acquire the best home loan.
Buying a home is a big step in anyone’s life, if you’re one of the many people who may be contemplating taking advantage of the current housing downturn as an opportune time to buy a home, remember a great home purchase can quickly fade if there isn’t a good mortgage to back up the purchase. An informed buyer that knows the mortgage fundamentals and has worked with the mortgage calculators is more likely to find a mortgage program that will best suit their needs.
Due to the nature of interest rate movements, mortgage rates can change dramatically from the day you apply for a mortgage loan to the day you close the transaction. If interest rates rise sharply during the application process, it could make a borrower’s mortgage payment larger than he/she previously thought. Using the mortgage payment calculator is an important step for evaluating different mortgage loans and weighing the affordability of a new home loan. When the mortgage rates used to calculate the payment with the mortgage calculator changes, the results lose their value. If the rate change is significant and the new payment based on this rate change increases too much there is the chance the borrower may no longer qualify for the loan program. To protect against this uncertainty, a lender can allow the borrower to lock-in the loan’s interest rate, guaranteeing the borrower the prevailing loan rate for a specified period of time (often 30-60 days).
A lender may or may not charge a fee for this service. If interest rates rise while your loan is being processed the loan lock guarantees that initial rate for you as long as you close the loan within the lock time period. An interest rate lock is an assurance of receiving that rate during the specified period of the loan lock. You pay a bit more because the lender is taking on the risk that mortgage rates could go up while the transaction is processed, so the lender could end up losing money if the loan is funded at a lower than market interest rate.
No one knows for sure how interest rates will move at any given time, but your mortgage lender may be able to give you an estimate of where it thinks mortgage rates are headed. Even when it seems fairly clear as to which direction interest rates may be going, choosing not to lock your interest rate can be risky. The calendar of economic statistics that impact interest rates is often extraordinarily jam-packed. If interest rates are expected to be volatile in the near future, you may want to reconsider locking your interest rate if rising mortgage rates will impact your payment materially or you will no longer qualify for the loan. If your budget can handle a higher loan payment or if the lender’s lock fee seems excessive for your means, you might want to consider allowing the interest rate to float until the loan closing. Extended rate locks will by and large lead to a slightly higher rate. Sometimes the rate difference will be negligible and other times it may be more considerable. Rate locks generally do cost anything until you are requesting a lock greater than 60 days.
In times of stable or dropping rates, the loan lock question and the risk of changing rates diminishes. In a rising rate environment, loan locks, their costs and lock period become a bigger issue. Without the loan lock your loan is at the mercy of the interest rate market, which can be volatile and will be unforgiving. Most borrowers are willing to pay a small and reasonable price for the peace of mind associated with knowing what their interest rate will be at closing. However, interest rates may continue down, in which case you’ve paid a fee for no good reason.
As a final note, when you rate shop, make sure you know the terms of the loan, the cost of the loan and how long the rate quote you get is good for. Extensive use of the mortgage calculators can assist is measuring the impact of rate changes and qualification ratios to help measure the impact of rate changes and mitigate their effect. If you are shopping for a home loan to buy house and expect to close on the transaction 60 days form now, it is of little value to have to compare mortgage rate quotes where one lender tells you it can be locked to cover that 60 day period and the other either does not specify the fact or says it good through a period less than 60 days. The mortgage calculators and a little bit of knowledge will help you prepare for the entire mortgage process including how to handle rate fluctuations and whether a loan lock is necessary and or beneficial.
One thing that can be disheartening, especially for a first-time home buyer is the sheer amount of fees charged at closing. For a typical mortgage loan, closing costs could mean an extra 4% of the total loan amount. The worst thing is that the extra money that you spend on closing costs doesn’t actually get you anything tangible. On top of that, if your down payment is less than 20% of the purchase price, you’ll most likely be obligated to pay for mortgage insurance, which can cost you somewhere in the neighborhood of two to four thousand dollars.
Saving money at the closing table is actually easy to do if you do your homework and pay attention to what the mortgage lender is doing and saying. Here are ten things you can do to avoid overpaying and try to reduce home loan costs.
Take advantage of a seller who is eager to sell. The market for sellers is taking a bit of a downturn lately, so make the most of a house that has been on the market for a while. The seller might be willing to split closing costs with you. After you have negotiated the home price try to get the seller to pay part of the closing costs or points that may be used to reduce your mortgage interest rate. The impact of seller paid points can lead to a lower mortgage payment over the life of the loan, input various mortgage rates and point options into the mortgage payment calculator to see the difference in the monthly mortgage payment.
If you don’t ask, you don’t get. If a fee seems like it can be or should be waived, ask. The worst they can say is no. Some lenders will give you a discount on fees if you are a first time home buyer. Get creative- an eager lender or seller can often find some way to reduce your costs. Even though more mortgage lenders are tightening up, they want your business. Ask to have certain fees waived on the mortgage loan and the mortgage lender will either accommodate the request or simply say no. By all means compare the good faith estimate at the time of the application to the loan closing for any discrepancies and hold the mortgage lender or bank accountable.
Don’t apply to too many banks or mortgage lenders. It costs non-refundable money to have a lender evaluate your credit. Research each mortgage lender you plan on contacting, run the numbers through the mortgage calculator and make sure you meet their requirements before you apply.
Know your credit before you shop. Get a free copy of your credit report so you know what your position is. If there are any problems or errors, it can take 30 days or more to fix them. Use the mortgage qualification calculator to evaluate your own debt ratios and avoid the unnecessary costs of applying for the home loan before you improve your position to become approved.
Know how much house you can afford. Unless you have a 20% down payment, you may be required to carry private mortgage insurance. Start by looking for a home on which you can afford at least a 20% down payment. With less than 20% down, the mortgage rate will be higher along with the cost of the mortgage insurance. The mortgage calculator will help compare the differences in the monthly mortgage payment with and without mortgage insurance. Check current mortgage rates for loans with 20% down payment and those without to measure the true cost in the mortgage calculators.
Try to take over the old mortgage. Chances are the previous owner isn’t done paying for the house yet. If they’re eager to get rid of the house, or the lender is eager for your money, they might let you take over the old mortgage with the same terms. This can save money in points, rates, and even major closing costs. Most mortgages are not assumable, though, so check before you offer.
Set up a home inspection as soon as possible. If anything is broken or needs replaced, make sure you are reimbursed for it before you finish closing. A quick home inspection saves headaches later and can be used to negotiate a better price if there are deficiencies in the property.
There is fierce competition for your loan business. Shop carefully, take stock of all your options, and remember to use the mortgage calculators to compare the true cost of all mortgage quotes and options. Crunch the numbers with more than one bank and mortgage lender and figure out what is the best deal for you.
Know your rights. Every lender must provide you with a good faith estimate of closing costs when you qualify for a loan. Don’t wait until you’re into it- find out what a loan costs up front.
After closing, it is always a good idea to pre-pay your mortgage. On a $100,000 loan, $25 per month extra can save you over $20,000 over thirty years at 8%. That’s less than a cup of coffee per day. The mortgage calculators are good tools to evaluate prepayment options and can even print out various amortization schedules to help visualize the effect of extra payments on a mortgage loan, no matter how small.
The cost of a major remodeling or home improvement project can have homeowners thinking twice about how it’s going to fit into their budget. Luckily, there are many financing options available to homeowners through mortgage refinancing, making home improvements a viable option.
The first step in a major remodeling project should be to evaluate the cost of the home improvement. Once the numbers are in hand, the mortgage calculators can be used to determine how this figure can be financed with a new home loan. Numbers that are needed to determine the best options available with the mortgage calculator are the cost of the remodeling project and the balance on the existing home loan as well as an estimate of the current home value.
Home owners have two financial options for remodeling their home – save up the money over time or finance and pay the home improvement off over time with new home loan by refinancing the existing mortgage. When you choose to finance your remodeling project, you get to enjoy the fruits of your labor earlier as opposed to slowly saving the necessary funds. You can enjoy your newly remodeled kitchen, hot tub, or deck while you pay it off over time with a potentially tax deductible mortgage. Refinancing a mortgage for cash to pay for home repairs or remodeling is one of the smartest uses of cash out refinances. Remodeling and or repairing a home is adding value to the house as opposed to refinance transaction that use the funds for consumption on travel, every day expenses or some form of conspicuous consumption that does not add value.
The first stage in obtaining a mortgage for a remodeling or home improvement project is to look at the home loan options that are available. Review the guidelines for mortgage loan types and the qualifications needed. This may be a good time to use a mortgage qualification calculator to see how the numbers work for a new home loan with the added amount to cover the home improvement costs. It may be worthwhile to talk to a lender or bank about these financing options that are available to help answer any questions regarding mortgage qualifications or the terms involved. Use the mortgage payment calculator to see the monthly payments involved for the cost of the remodeling with the amount that will be paid off on any existing home loan that may be in place.
Be sure to shop around to compare mortgage rates and costs before settling on a lender. The cost comparison mortgage calculator should also be employed to compare different lenders to see which loan may work best to cover the costs of the work to be performed on the house. The mortgage comparison calculator can be used as well to evaluate the lenders and the different mortgage types before deciding the right path for paying for the work. The more research, the greater the chances are that you will end up with the right loan for the right loan amount and the best mortgage rate to cover the cost of the improvements.
The mortgage rate you get on your home loan will vary based on factors such as your credit history, income, debt to income ratio, etc. The lender you choose will evaluate these factors to determine what kind of financing you qualify for. Two common financing options are:
Cash Out Refinancing – If you have a sufficient amount of equity in the home, you may be able to refinance the existing home loan and receive enough cash back to pay for the remodeling. This will help you to pay for your renovation project, and may help you to secure a lower interest rate on the remainder of your home loan, as well.
Home Equity Lines of Credit or Home Equity Loans – Both are equally popular forms of financing for home improvement projects, offering financing based on the equity in your home. This type of financing usually comes with a reasonable interest rate, as well as tax deductible interest. The mortgage rates on these products are usually adjustable rates and the rates are generally higher than the mortgage rate that can be obtained on a first mortgage refinance.
When evaluating your financing options with the different mortgage rates and terms, be sure you understand the difference between variable or adjustable rate mortgages and fixed interest rate home loans. Variable rate loans generally start with a low rate that increases over time, and are a good option if you know you can pay off your loan quickly. Fixed rate mortgage loans have just that – a fixed interest rate for the life of the loan, and are a good bet if you plan to pay off your loan over a longer period of time. A mortgage calculator can be used to compare these two home loan products. An adjustable rate mortgage calculator can be used to see how much lower the monthly mortgage payments will be in the beginning and what impact rate increase will have on future monthly mortgage obligations.
Home remodeling or home improvements can help increase the value of a home and are one of the best uses of money obtained from a cash out refinance. It is important to compare the cost of the project with the costs of the home loan. Mortgage calculators can assist in all aspects of the decision making process to make an improvement to the home that is lasting, adds value and that doesn’t break the home budget.
Believe it or not, some debt can be smart and some bad credit is worse than others. US banks and lenders base decisions regarding mortgage loans and credit on your past credit history. No history often equals no credit, and it may be even worse than bad credit! Mortgage lenders will certainly look at many different attributes of a loan application before granting a home loan approval or denial. Credit histories are the single most important factor in evaluating a home loan request. An individual’s credit history will play a significant role in the interest rate of the home loan as well.
When a home loan applicant inputs their monthly income and monthly payments in a mortgage calculator to help determine potential loan qualifications, the mortgage calculator is not capable of evaluating the type of debt the applicant has. Even though the mortgage calculator can’t measure the various types of debts an individual has, the mortgage lender will. Lenders use certain information regarding debt levels, debt types and debt payments to calculate your credit score, and then determine if the credit you do have makes you a good risk for a new home loan.
Lenders use the following types of information to determine whether you are a good risk for credit regarding the types of debt you have:
Your Credit History: Lenders evaluate whether you pay your debts when assessing your creditworthiness. Late payments can hurt you, whether the payment was your telephone bill or your credit card. Lenders are looking for a reliable track record of paying your bills on time. However, not all debts are evaluated the same. A delinquent car loan is more important than a delinquent utility bill. Some general rules are:
The more recent the delinquency is, the more important it is or more detrimental to the chance of being granted a home loan.
The greater the importance of the loan that the delinquency is on, the greater the impact it will have on the home loan request. A delinquent mortgage is more noteworthy than a delinquent car loan which is more important than a delinquent credit card which is more notable than delinquent department store charge card which is higher up than a delinquent telephone bill and so on.
How long your credit history is also matters – the longer your history, the better your chances. A 10 year credit history is more appealing than a two year credit history.
Current Debts: Lenders assess the amount of current debt you have elative to available credit – the less, the better. Ideally, your debt should make up no more than 33% of the credit you have available. If you have 5 credit cards with credit limits of $3,000.00 each and every one of these charge cards is near the maximum credit limit, this will have a negative impact on the loan evaluation and the credit score. If the debts are car loans or mortgages the ratio of current debt to available credit is not as important.
The Type of Credit You Carry: Creditors prefer secured debt to unsecured debt, and old debt to new debt, when assessing you for a loan.
Debt that Appeals to Lenders:
Mortgages: As long as you’re up to date on your payments, mortgages are usually appealing to potential lenders. Existing or previous mortgages paid on time shows that the applicant has a track record of paying large loans and large monthly payments and this is an indication of a excellent credit risk. Real estate is generally seen as an asset that can appreciate in value, and therefore a worthwhile debt for the consumer.
Auto Loans: Auto loans are generally considered a credit risk determinant as well. Auto loans are usually larger monthly contractual obligations and are secured loan. Car loan payments can be sizable which shows that an individual who can make numerous payments on time understands credit risk. Be careful with the level of the payment though. A large monthly payment can impact the ability to qualify based on the debt to income ration of the mortgage request. The mortgage calculators can be sued to asses the impact on an individual’s debt auto because of a large monthly payment such as an auto loan. It is also best to keep in mind that a car is a depreciable asset, and decreases in value as it ages.
Bank Loans: Bank loans are good for your credit rating as long as they are repaid promptly and payments are made on time.
Credit Cards: Credit cards are best if the amount carried is less than 33% of your limit. Otherwise, lenders become wary. The problem with credit card debt si that it is not secured or used to buy a durable asset. A large amount of credit card debt, even if it is paid on time, is an indication of a consumer who lives beyond their means and can not manage their own budget very well.
Debt Consolidation Loans: These loans may be a good sign for some creditors and not so for others. Consolidating debt should reduce the amount of credit outstanding relative to available credit on credit cards. This can boost a lenders risk assessment. However, the debt consolidation is also an indication that a consumer has had trouble reduces their outstanding credit on their existing income level. The situation can be magnified if the monthly payment prior to the consolidation loan were not paid in a timely manner.
Managing the type of debt and amount of debt can impact how a mortgage lender views an applicant. The number one rule is maintaining a good credit history and keep the credit card balances down a slow as possible. It isn’t necessary to cancel credit cards, just be mindful of creeping monthly balances before applying for a mortgage loan.
Employing a mortgage calculator can assist in the evaluation of a consumers current level of debt. The mortgage calculator can guide a potential home loan applicant to evaluate their income and debts including mortgage payments, car payments and credit card obligations to see how high the debt level is and how it may be altered to a more advantageous position.
These are highlights from the FDIC release on reverse mortgages found in Supervisory Insights published by the Division of Supervision and Consumer Protection of the Federal Deposit Insurance Corporation. The reports are designed to promote sound principles and best practices for bank supervision. This article describes the features of reverse mortgage loan products, identifies key consumer concerns, and provides an overview of potential safety and- soundness and consumer compliance risks that lenders should be prepared to manage when implementing a reverse mortgage loan program.
The U.S. senior citizen population is growing. Between 1990 and 2000, the number of individuals at least 65 years of age increased from 31.2 million to nearly 35 million. Many more are reaching the minimum social security retirement age; by 2010, more than 50 million people in this country will be at least 62 years old. Life expectancies are lengthening, creating the need for retirement income to last longer than in previous generations. However, according to the U.S. Government Accountability Office, “Efforts to increase personal savings outside pension arrangements seem to have had only marginal success.” As a result, older people who need additional funds to cover general living expenses are turning to the reverse mortgage lending market in greater numbers.
Historically, the largest investment of the average American household is its primary residence. A recent study by the American Association of Retired Persons (AARP) indicates that more than 80 percent of households over the age of 62 own their own home, with an estimated value of $4 trillion. Until recently, equity in these homes has not been tapped, but now it represents a likely source of retirement income and an opportunity for significant growth in the reverse mortgage lending industry.
What Is a Reverse Mortgage?
Reverse mortgage loans are designed for people ages 62 years and older. This product enables seniors to convert untapped home equity into cash through a lump sum disbursement or through a series of payments from the lender to the borrower, without any periodic repayment of principal or interest. The arrangement is attractive for some seniors who are living on limited, fixed incomes but want to remain in their homes. Repayment is required when there is a “maturity event”—that is, when the borrower dies, sells the house, or no longer occupies it as a principal residence.
Almost all reverse mortgage lending products are nonrecourse loans: Borrowers are not responsible for deficiency balances if the collateral value is less than the outstanding balance when the loan is repaid. This situation, known as crossover risk, occurs when the amount of debt increases beyond (crosses over) the value of the collateral.
Reverse mortgages are fundamentally different from traditional home equity lines of credit (HELOCs), primarily because no periodic payments are required and funds flow from the lender to the borrower. The servicing and management of this loan product also differ from those of a HELOC. (See Table 1 for a comparison of reverse mortgage loan products and HELOCs.)
Evolution of the Reverse Mortgage
Reverse mortgages have been available for more than 20 years, but consumer demand has been relatively weak because of uncertainty about how this product works. Consumers often ask the following questions:
Can I retain the title to my house?
What happens if the loan balance exceeds my home’s value?
Will I be able to bequeath my home to my heirs?
Financial institutions have been slow to enter the reverse mortgage lending market because of the unique servicing and risk management challenges. For example, when the reverse mortgage was first introduced, banks were wary of booking potentially long-term loans that increase over time, do not have a predefined, scheduled repayment stream, and for which there was no established secondary market. Lenders also faced uninsured crossover risk.
However, the market changed in 1988 when the Federal Housing Administration (FHA) launched the Home Equity Conversion Mortgage Insurance Demonstration, a pilot project that eventually was adopted permanently by the U.S. Department of Housing and Urban Development (HUD). The outcome was the Home Equity Conversion Mortgage (HECM), a commercially viable loan product with strong consumer protections. For example, the HECM requires prospective borrowers to complete a preloan counseling program that explains the nature of reverse mortgages, including the risks and costs.
In addition, the HECM is a nonrecourse credit that protects consumers from crossover risk. HECMs carry FHA insurance, which protects lenders from this risk. HECMs have maximum loan amounts based on the location of the collateral (the house).
In some cases, individuals with high value homes desire loans that exceed HECM maximums. This demand led to the development of private, proprietary programs through which consumers can obtain alternative loan products if they need access to higher equity amounts. However, crossover risk is a concern with these proprietary programs, as no insurance is available to cover potential collateral deficiencies. Generally, in these private programs, greater risk translates into higher costs for consumers—lenders must price products to cover the risk of repayment or loss.
The need for higher HECM loan limits was addressed as part of the Housing
and Economic Recovery Act of 2008 (HERA), signed into law on July 30, 2008. The HERA effectively raised the maximum HECM loan amount from a range of $200,160–$362,790 to a new nationwide ceiling of $417,000, by tying the limit to the national conforming limits for Freddie Mac. Given that the maximum amounts were only recently changed, the impact on the demand for proprietary jumbo loans is not yet known.
In addition to HECMs and proprietary programs, Fannie Mae previously offered the Home Keeper reverse mortgage loan program. This product featured many of the same consumer protections as the HECM, including the counseling requirement, as well as generally higher maximum loan amounts. However, the program did not capture a large segment of the market, and Fannie Mae terminated it in September 2008 subsequent to the new loan limits allowed under the HERA.
Overall, even with the emergence of proprietary programs, more than 90 percent of reverse mortgages are HECMs, and the number of HECMs has increased steadily since 2004. During HUD’s 2007 fiscal year, 107,558 HECMs were insured by the FHA, an increase of more than 40 percent over the previous year. As of September 2008, more than 112,000 HECMs had been insured by the FHA during the calendar year.
Consumer Issues
Reverse mortgages benefit consumers by providing a nontaxable source of funds. This is particularly attractive to seniors who have limited, fixed incomes but high amounts of home equity. These loans can enable some people to continue living in their homes, which may not have been feasible without this additional source of cash. However, this loan product is not for everyone, and potential borrowers should carefully assess the pros and cons before taking on a reverse mortgage.
The report Reverse Mortgages: Niche Product or Mainstream Solution? published by the AARP Public Policy Institute in late 2007 presents information about consumers who obtained reverse mortgages, as well as those who opted not to pursue them after completing the required pre-loan counseling. Survey respondents cited many reasons for deciding not to pursue a reverse mortgage. The following represent the three most-cited reasons: the high cost (63 percent); respondents found another way to meet financial needs (56 percent); or respondents determined that the loan was not necessary given the individual’s financial position (54 percent).
The results of this study highlight key consumer considerations, such as the importance of pre-loan counseling, which may provide information about other programs better suited to a borrower’s needs. For example, local lenders and community organizations may offer low-cost home improvement loans for seniors. In some cases, consumers might find they are better off financially if they sell their property rather than refinance an existing loan with a reverse mortgage.
Lenders also face risks associated with the various consumer issues, including those identified in the AARP survey. For example, there is a potential for reputation risk, and perhaps even legal risks that could result from aggressive cross-marketing of other financial products, such as long-term annuities. Some financial service providers encourage reverse mortgage borrowers to draw funds to purchase an annuity or other financial product. Interest begins to accrue immediately on any funds drawn from the reverse mortgage, and borrowers may lose other valuable benefits, such as Medicaid. For example, funds that are drawn and placed in deposit accounts or non-deposit investments would be included in the calculation of the individual’s liquid assets for purposes of Medicaid eligibility.
Aggressive cross-selling is considered predatory by many consumer advocates. In fact, the HERA specifically prohibits lenders from conditioning the extension of a HECM loan on a requirement that borrowers purchase insurance, annuities, or other products, except those that are usual and customary in mortgage lending, such as hazard or flood insurance.
These prohibitions apply to HECMs but not to products in a proprietary lending program—a fact consumers should consider when choosing a reverse mortgage product.
Another potentially predatory practice is equity-sharing requirements, which are contractual obligations for borrowers to share a portion of any gain—or, in some cases, equity—when the loan is repaid. These provisions mean additional, sometimes substantial, charges that the consumer or the consumer’s estate is obligated to pay, thus reducing the consumer’s share of his or her home value. Such provisions are prohibited in the HECM program but were a component of early reverse mortgage programs developed in the 1990s. A person who chooses a proprietary program should carefully review contracts for the existence of these provisions.
Conclusion
As the U.S. population continues to age and life expectancies lengthen, more people will be living longer in retirement and undoubtedly will need additional sources of long-term income. This scenario suggests that the demand for reverse mortgages will increase. Potential borrowers should weigh the pros and cons of this loan product for their particular financial situation, and lenders should take steps to ensure they understand how to identify and manage the risks associated with this product.
The official complete mortgage application is referred to as the uniform residential loan application or 1003 (pronounced, ten-oh-three) after the form number that identifies the application within the mortgage industry. This is a standardized form developed by Fannie Mae and used ubiquitously within the industry. Since all mortgage lenders use the same application all lenders will require the same information to fill out the mortgage loan application and process the home loan request efficiently and effectively.
A potential home loan borrower should know what type of mortgage loan they wish to apply for and have an approximate indication about their qualifications. Using the mortgage calculators will help the borrower understand the terms and conditions of various loan types and this should help determine the type of mortgage that should be obtained. The mortgage qualification calculator, mortgage payment calculator, mortgage term comparison calculator and adjustable rate mortgage calculator may all be helpful in the quest to locate the right home loan.
On the mortgage application, the applicant will be expected to provide the following information:
Your current home address, a phone number and length of time at that address.
Social Security number, age, marital status and number of dependents.
Whether you currently rent, own or live with family.
Employer’s name, address, phone number, occupation and length of time on the job.
Gross monthly income.
A list of assets with the name, account number and present balance. Asset list should include bank accounts, IRA’s, 401K and investment accounts.
A list of liabilities with the name, account number, balance and monthly payment. Liabilities should include existing mortgage loans, auto loans, and credit cards.
Information regarding any existing real estate owned included the address, value and mortgage amount.
The applicant must disclose the value of your personal property, including assets and retirement accounts, furniture, cars, any valuable collections, other valuable property, and life insurance.
Information on whether the applicant has filed bankruptcy, defaulted on government debt or have any lawsuits pending.
When the mortgage application is complete, the prospective borrower will be asked for a considerable amount of information that is used to support the data on the application. In the mortgage industry, the initial application is viewed as the document that states what the customer says is going on and the job of the processor is to verify that information. The prospective home loan borrower should be prepared to provide the mortgage lender the following information:
Two months of bank statements or asset statements.
The last two years W-2s and tax returns.
One month of pay stubs.
Divorce papers, if they apply.
If the loan is for a new home purchase, the applicant will need a signed copy of your ratified sales contract as well as receipts for the earnest money deposit toward the property.
Once the application is completed, the lender will review the application and decide whether to deny or approve it. If approved, the last step in the process is the meeting in which documentation is completed and the deal is closed. If denied, the prospective borrower should talk to the lender in order to devise a plan and find out why the application was denied. By law, the prospective borrower should receive a disclosure statement from the lender in writing that states why the application was turned down.
Mortgage applications require a great deal of information and documentation to be processed. Generally, the more information provided, the faster the process will progress. It is important to be prepared and understand the steps to the mortgage loan approval. Before filling out an application, be sure to review your mortgage loan qualification and monthly payment figures with the appropriate mortgage calculators.
There are a variety of different loan products available in today’s mortgage marketplace. All of these loan products will have a monthly mortgage payment that is dependent on the term of the loan. The term of the mortgage loan is synonymous with the maturity of the loan or the length of time it until the loan is paid in full on fully amortizing mortgage loans. A fixed rate, fully amortizing loan is one in which there are equal monthly mortgage payments that includes the principal and interest that pays the loan off in full with the final scheduled payment. Balloon loans and negative amortization loans do not meet this requirement and may not be paid in full with equal installments at the end of the term. Since almost all adjustable rate mortgages are for 30 years, the term comparison is of a little value for these loan types.
For mortgage loans that are fixed rate, fully amortizing, there are five different term options for these standard home loans. This is a quick review of the various mortgage term options and data as to the benefits and tradeoffs of each mortgage loan type. Using this information with the mortgage calculators, especially the term comparison mortgage calculator may help a borrower narrow down the choices to which loan type is best.
On a fixed rate mortgage, the interest rate remains the same through the entire term of the loan. Different fixed rate mortgage loans are distinguished by the interest rate and the term. The interest rate is set by the rate offered between different lenders, the amount of points paid and current mortgage rates available. The determination as to what interest is best can be established by using the mortgage calculators and shopping for the best rate armed with the relevant data to comparison shop provided by using the mortgage calculators. The term selection is matter of preference and potentially the ability to qualify for a specific mortgage loan term. There are five popular mortgage loan terms: 10 year fixed rate, 15 year fixed rate, 20 year fixed rate, 30 year fixed rate, and 40 year fixed rate mortgage loan.
10 Year Fixed Rate Mortgage
A 10 year fixed mortgage has an interest rate that does not change throughout the 10 year loan period. The 10 year fixed rate mortgage is generally the shortest term available on a fully amortizing loan. This short term loan allows for a very quick payoff of the home mortgage. The tradeoff for obtaining a loan that pays off the mortgage this quickly is higher monthly mortgage payments. Since the monthly mortgage payments are calculated on the principal balance for a short period of time the monthly payments are naturally larger than they would be on loan terms in excess of the 10 year term. For those who can afford this level of monthly mortgage payments, it can be a clever choice since hundreds of thousands of dollars can be saved in interest over the life of the loan compared to the longer term mortgage products.
15 Year Fixed Rate Mortgage
A 15 year fixed rate mortgage permits a homeowner the opportunity to own their home outright in a 15 year period. The monthly mortgage payments are a little lower than a 10 year mortgage due to the longer term. A homebuyer who accepts this home loan will pay less than half of the total interest of the more common 30 year mortgage. The interest rate on the 15 year mortgage is generally slightly lower than a 30 year fixed rate mortgage adding to the total savings.
20 Year Fixed Rate Mortgage
The 20 year mortgage term helps a borrower get a mortgage where the interest rate is manageable, and the term still allows for rapid equity build up. Similar to the 10 and 15 year term mortgages, these are relatively short term loans. The shorter the term of the mortgage loan the more rapid the reduction of the balance of the mortgage. Typically there is no rate advantage in shortening the term from 30 to 20 years. The rate on the 20 year term mortgage loan is usually the same as that on the 30 and slightly higher than a 15 year mortgage. The 20 year term is for borrowers who want to pay off the mortgage as soon as possible but are not comfortable or qualify for the payment on the 15 year mortgage loan.
30 Year Fixed Rate Mortgage
The most common home loan is the 30 year fixed rate mortgage. This is the most common loan program for those buying homes for the first time and even for most refinance transactions. The 30 year fixed home loan fits more financial situations than any other home loan. This loan program also allows the homebuyer to have low monthly payments without paying excessive amounts of interest over the life of the loan. The longer term will lower the monthly mortgage payment but does lead to a slower build up of equity in the home.
40 Year Fixed Rate Mortgage
40 year mortgages are generally the longest term available. This is not a very common home loan and many mortgage lenders may not even offer this product. 40 year mortgage rates are usually slightly higher than the traditional 30 year fixed rate mortgage. Borrowers who may not have normally qualified for a home mortgage may utilize this loan product as it offers some of the lowest monthly mortgage payments that may afford an easier loan approval. This loan is a good alternative for borrowers who do not want to have an adjustable rate mortgage but still want or need the low monthly payment that comes with the long term loan. The clear disadvantage that goes along with this loan is that the term is long and of all the mortgage loan options it has the slowest level of principal reduction.
Overall, the reduction in payment from lengthening the term becomes less and less effective as the loan term gets longer. Lower monthly mortgage payments are clearer easier to manage and may allow for easier loan qualification. Selecting a term on a fixed rate mortgage must take into the varying mortgage rates between the different terms. Longer term loans, in general, have higher interest rates than shorter term loans. Often the rate difference is rather small and may not even exist between home loans with the smallest term differences. Mortgage calculators that compare mortgage terms are easy to use tools that will assess the difference between these loan products. The term comparison mortgage calculators can also be employed to enter different interest rates and therefore they can evaluate the changes this attribute will have on the different loan products. When entering the relevant data in these mortgage calculators as well as the mortgage payment calculator, it is important to draw on current mortgage rates that apply to the specific loan term in order to achieve precise evaluations.
Loan applications are completed primarily four different ways: over the phone, by mail, via the internet or in person. Either method ends in the same result, with the submission of a completed application regarding the type of loan and a summary of your qualifications for that loan. The choice of how to complete your application for a mortgage is based on your preference. Almost all mortgage applications, with the exception of home equity loans, use the uniform residential loan application, referred to the industry by its code number, 1003 (pronounced: 10, 0h, 3). Before you complete the application make sure you have studied the varies loan programs available and review the general underwriting conditions needed to qualify for that type of loan. Use the mortgage qualification calculator to double check the qualification requirements, employ the rate and term comparison mortgage calculators to investigate the loan types that fit your particular needs and of course the mortgage payment calculator to be sure you are secure with the monthly mortgage payment. The mortgage application is designed to detail information about the applicant including their income, assets, and liabilities.
Here are a few steps to help prepare for your loan application and make sure that the home loan approval process progresses quickly:
Make sure you understand the loan features you are applying for including the monthly mortgage payment and any funds that are needed to close this loan. Be sure to understand the down payment amount needed as well as the closing costs. This helps avoid avoids misunderstanding with the lender later in the process along with unwanted surprises. The comprehensive mortgage calculator will give a hand in pin pointing the down payment. The closing cost comparison calculator will help to understand
Have information regarding the property address for the loan readily available, employment dates, phone numbers and addresses. The more detail in the less intrusive aspects of the application the easier the job will be for the mortgage lender to process the loan request.
Be sure to have data regarding your assets and liabilities. This means that you will need all the information on your bank accounts, investment accounts, credit cards, auto loans and any other debts. Information needed is generally the account name or bank name, account number, existing balance and monthly payment on the debts.
Make sure that there are no unintended blank spaces or omissions left on your application before you sign it. The uniform residential loan application has space for a vast amount of information, not all information is necessary, but don’t leave spaces where the data is needed for your mortgage loan request.
If there are portions of the application you do not understand or don’t know the answer, quiz the mortgage lender. It is there job to help you. If they cannot answer your questions to your complete satisfaction, move on to another mortgage lender.
Communicate with the mortgage lender to make sure they know you have given all the data requested
If there is a delay it is far easier to get a handle on the issue when it was not caused by the applicants misunderstanding to failure to provide the proper data. When the mortgage loan applicant provides the mortgage lender everything they requested, the ball is firmly in their court to close the loan.
The mortgage loan application will also require the submission of various supporting documents such as W-2’s and tax returns for the last two-years, bank statements for the last two months, pay stubs that cover a month of earnings and other supporting documents that may include other liability statements or asset statements. Keep copies of all information supplied to the mortgage lender.
Don’t forget to do a great quantity of research before choosing the mortgage lender and submitting the application with the supporting documents. Take care and be sure to set in motion the mortgage calculators in order to fully appreciate the terms of the loan and the process involved. Once you find your lender, do not hesitate to give them all the financial information they need, the more data a lender has the easier the process is to verify the borrower’s income, debt, assets and credit profile. Furnish the mortgage lender the details on assets, your income, your debt situation, and your job history. After hand over all the information you are required to present, follow up with them, and make yourself accessible should they have questions. Don’t be intimidated, remember this is your home loan request; you can control many aspects of the process and the mortgage company is there to serve you.
There are a number of basic steps that can make the process for a prospective home buyer a much easier and stress free course of action. These steps may be fairly intuitive or common knowledge for experienced homebuyers and perhaps more fruitful for those who are not as seasoned in the home loan and home buying process.
Before a consumer begins the house hunting process, step one should be to become prequalified for a home loan. The perfect starting point for that task is the mortgage calculators. The preapproval is a conditional commitment by a lender to make a loan prior to the identification of the specific property. The mortgage payment calculator and the mortgage qualification calculator will help to identify how large a loan a potential borrower may qualify for. Once the loan amount, monthly mortgage payment and down payment are calculated with the mortgage calculators and the buyer is happy with the results the next step is to obtain a preapproval from a mortgage lender or bank. The preapproval is not a necessary step; however the difference with the preapproval is that it avoids user errors that might have occurred regarding entering the data in the mortgage calculator and solidifies the credit worthiness of the buyer. With the preapproval from a local bank or mortgage company the actual financials, income documents and the credit profile are analyzed by the mortgage loan underwriters.
Now that a prospective buyer has identified the price of a home they can afford, it is time to go shopping and find the right home. To start, determine your own needs and discuss home options with family members who will be living in the house and friends who may have insight into the process. Construct a list of features you believe are important and even include items that may be questionable as to their necessity. This practice help buyers avoid getting in over the head with a house that has expensive bells and whistles that are unnecessary and possibly regretful once those monthly mortgage payments become a burden instead of a joy.
Select a reputable professional, who listens to your needs, is knowledgeable about the market and with whom you feel comfortable with to help find a home to purchase. Research homes, drive by homes, go to open houses and do it all over again. The more data and knowledge the less likely a buyer will regret their decision. Consider the types of homes, whether they are new or an existing home, examine the condition of the home, consider the various features of the home, study the location and surrounding area, consider the economic stability of area and don’t forget to look at other cost aspects of the home such as utility costs, maintenance and property taxes.
Soon it is time to finalize the selection and make an offer. The real estate agent who represents you presents your offer to the seller. It will be either accepted, countered or rejected. Do not be disheartened if the offer is rejected by the seller. It is not uncommon for the seller to make a counter offer. When a price for the home is settled upon, you and the seller sign a purchase agreement. This agreement defines the terms and conditions of the sale. The contract is signed and signifies that both the seller and buyer have agreed to purchase the property under the negotiated and agreed terms and price.
After the contract is agreed is to, the buyer should have a home inspection completed. Most purchase contracts contain provisions for a home inspection to be performed within a certain timeframe, and sometimes they specify what action the buyer and seller may take if problems are uncovered. Purchasing a home is likely the largest investment in someone’s life and they should know as much as possible about they are buying. Hire a professional home inspector after the offer has been accepted. A good home inspection provides an in-depth look at the basic systems of the house to reveal any safety hazards and give you a chance to reconsider the deal..
Finalize the mortgage loan process and selection. Lock in the mortgage interest rate if desired and clear any remaining conditions for the loan closing. At this time, the applicant may have to sign the formal mortgage application and provide additional or updated income and asset documentation from the time of the preapproval. An appraisal, usually required by your mortgage lender, will be performed by the mortgage lender to ascertain the home’s value. All outstanding loan conditions will be submitted by a loan processor so the loan can be approved by the underwriter and the loan closing can be established.
The final step it to close on your new home purchase. Closing day is the day the homebuyer and the seller complete the legal transfer of the house. At the loan closing, a closing agent coordinates and distributes all the paperwork and fund according to the terms agreed upon.
Ownership of the property will be transferred at the conclusion and you become the proud owner of your new home. Once the closing process has been completed, the keys to the house are given to the buyer.
Using the mortgage calculators and following these steps can make a potential homeowner a more knowledgeable buyer and achieve a stronger bargaining position with sellers and mortgage lenders. A little more knowledge in the home buying and lending arena may help a prospective homeowner avoid hassles and mistakes along the way while making the transaction more profitable.
Shopping on the internet for a mortgage rate may help you find the best financing deal available. The best mortgage is the mortgage that is best suited for your financial goals based on what terms are available in the market. Hopefully, by the time a potential mortgage borrower is shopping for a mortgage rate they understand their needs and the process of obtaining a mortgage. The mortgage calculator can calculate the payments and help evaluate the benefits of different loan terms, the mortgage calculators can help evaluate early payoffs and the mortgage calculator can help weigh the savings with different costs and interest rates. The mortgage calculator will certainly help to evaluate the trade off of lenders that charge varying amounts of points and fees with different interest rates. The mortgage calculator can not apply for the loan and shop for the lowest rates. The mortgage calculators are just resources and tools to help educate the borrower and find the optimal home loan.
One of the largest resources for finding the best mortgage is the internet. The internet is technically the second best resource for mortgage shopping; the first and greatest resource for shopping to find the best mortgages is the mortgage calculators. Internet shopping allows the consumer to obtain quick and relevant information on interest rates and on points for several mortgage lenders on a variety of loan types. After reviewing the most favorable terms and loan types for your needs with the use of the various mortgage calculators there are some factors to consider when shopping for mortgage loan rates online.
View the rate differences and costs between the various lenders. The mortgagee calculators are able to show the borrower how the points and fees impact the rates and monthly mortgage payments. Don’t overlook this feature. Compare at least three to four mortgage lenders that serve your area. With the mortgage calculator and the ability to scan several mortgage quotes rapidly on the World Wide Web, the comparisons between different mortgage lenders can be accomplished quickly and thoroughly.
Once you have determined with interest rates work best for your needs, hopefully with the help of the mortgage payment calculator, look for movement in the direction of interest rates. Mortgage rates change daily, over several days or longer, these interest rate changes can quickly add up and can make a home loan considerably more expensive or much more beneficial. Interest rates generally move in opposing directions of the economic cycle. When the economy is growing, rates tend to rise as more homebuyers as well as business borrowers increase their borrowing. When the economy weakens, rates tend to drop as the fear of future inflation subsides and lenders now compete for a smaller quantity of borrowers.
Once a desirable interest rate and mortgage lender is chosen, consider paying for an interest rate lock. Mortgage lenders generally offer a loan rate that is good for 30 days to 90 days with a mortgage rate loan lock. If you don’t choose to lock in the mortgage rate, your loan rate may change to reflect the lender’s change in its cost of funds as the interest rate markets fluctuate. If you think rates may rise, locking in the home loan rate would be the right move. On the other hand, if you think rates are headed lower, a rate lock would work to your disadvantage. The interest rates that are utilized in the mortgage payment calculator are of little value if the home loan being applied for does not have the interest rate locked in.