When should I start looking for a loan?
My best sources recommend that you start discussing financing with a mortgage lender about four months before you start actively looking for a home.
Why so early? If you apply for a loan early you have an opportunity to work on things that need to be changed or shored up without the pressure of the last minute.
Is it hard to find a mortgage lender? You will find that the challenge is not in finding a mortgage lender, but in sorting through the throngs of banks, online lenders, mortgage brokers and others eager to take your loan application. I help you with this process on my page Shopping for a Home Mortgage.
The Information You Need on Home Loans
Like a curator selecting the best art work for a new art show, I spent my time bringing together information on home mortgages from carefully selected, credible sources. This page, rich in knowledge, will greatly reduce your time seeking out information on the Internet. It is part of my services to my clients, to provide answers to questions as you search for a home.
[faq title=”Home Loan Information”]
[faq_question]Who are the professionals you will deal with in the process of a mortgage and what are their their Services?[/faq_question]
Whether you are looking to buy a home or already own one, you will work with many housing professionals and it is important to understand the specific service each provides. Following are the key professionals you will work with and the roles they play:
- Housing counselors are important professionals to consider when you begin the homebuying process. They will help you assess your individual financial situation and help you improve your credit to ensure that you are well-prepared for homeownership. Housing counselors can also help you if you face financial difficulties and have problems paying your mortgage on time. Seeking the assistance of housing counselors from a HUD-approved counseling agency is strongly recommended.
- Loan officers evaluate your credit, financial and employment information to see if you qualify for a mortgage, and provide financing options based on your capacity. They also provide assistance in completing your mortgage application and keep track of the status during the loan approval process.
- Real estate agents help you find homes that meet your specific criteria such as location, type of home and price. They also provide specific community information on shopping, schools, property tax rates and usually handle all negotiations with the seller.
- Loan processors prepare your mortgage loan information and application for presentation to the mortgage underwriter. They make sure that you have included all proper documentation, that all numbers are calculated correctly and that everything is in order to ensure a timely decision on your approval.
- Mortgage underwriters assess if you are eligible for the loan based on your credit history, employment history, assets, debts and other factors.
- Real estate appraisers evaluate the property you are purchasing and determine how much it is worth.
- Home inspectors examine the condition of the home you are purchasing, making sure you are aware of any items requiring extensive repairs, as well as general maintenance and safety issues.
- Closing representatives oversee and coordinate the closing or “settlement” of your loan, record the closing documents and disperse the money to the appropriate individuals and organizations.
- Mortgage lenders are the financial institutions that provide the funds for your mortgage.
- Mortgage servicers are the financial institutions or entities that are responsible for communicating with you about your mortgage and maintaining your mortgage account, including collecting your monthly mortgage payments, maintaining your escrow account (if applicable) and discussing loan workout options with you if you get behind on your payments. Your mortgage lender and servicer are not necessarily the same company. Many lenders pass the servicing of your mortgage to a separate servicing company shortly after closing. Freddie Mac is not a mortgage servicer.
- Mortgage investors purchase home loans that lenders originate and may package these loans into mortgage securities that are sold in global capital markets, enabling investors to purchase more mortgages and keep the cycle going. This recycling ensures that lenders will have the liquidity they need to lend to homebuyers. Freddie Mac is a mortgage investor.
All of these people play different but complementary roles. Knowing the role of each type of professional will make the mortgage process flow as smoothly as possible.
[faq_question]Are there costs to applying for a home loan?[/faq_question]
[faq_answer]No. Reputable providers do not require an up-front fee to submit an application and begin the loan process.
[faq_question]Do I have to have an impound account?[/faq_question]
[faq_answer]Impound accounts are required by lenders in most states, particularly when the amount you are borrowing represents a large percentage of the property’s market value. When an impound account is required by the lender, you can often waive the use of an impound account for the hazard/homeowner’s insurance and property taxes for a fee. However, you will always have to prepay your mortgage insurance payments (if any) into an impound account. In most states, once you submit a loan application we can help you determine if you will need an impound account. You will need a mortgage insurance impound account if your loan-to-value ratio (loan amount divided by property value) is greater than or equal to 80%.[/faq_answer]
[faq_question]What is hazard insurance?[/faq_question]
[faq_answer]Hazard insurance protects homeowners against property damage and is required by lenders before you buy or refinance a home. Hazard insurance shields you against property damages caused by a fire or a severe storm and should cover the cost of rebuilding your home. Generally, you have to confirm at closing that you’ve secured one year of hazard insurance coverage.[/faq_answer][/faq]
[toggle_content title=”Required Homeowner Insurance Coverage
- Hazard/Homeowner’s insurance This is the most basic form of insurance for a homeowner. Typically, it offers coverage for fire, theft, vandalism and liability. Floods and earthquakes are not covered under this type of insurance. Carefully discuss what is and isn’t covered with your insurance agent. This can help prevent unpleasant surprises later.
- Title insurance Offers protection against any lien or claim problems. Without title insurance, you could be responsible for the previous owner’s big-ticket purchase if he used his home as collateral.[/toggle_content]
[faq title=”Home Finance”]
[faq_question]Should I choose a fixed rate or adjustable rate loan?[/faq_question]
[faq_answer]This can depend upon several different factors. Fixed rate loans have a stated interest rate that does not change over the life of the loan, whereas the rates on adjustable rate loans are linked to an index and change as the index rate changes. Many mortgages, such as a 5-Year Fixed (30 Year), start as a fixed rate loan and then convert to an adjustable rate. Adjustable rate loans have more risk due to the possibility that the interest rate could increase. However, because you are assuming some of the risk the lender will generally reward you with a lower interest rate. These loans are best for borrowers who do not plan on keeping the loan for the full term.
[faq_question]When does it make sense to pay points?[/faq_question]
[faq_answer]Points are a one-time fee that a borrower pays to lower the interest rate. Points are defined as a percentage of your loan amount, with one point being equal to one percent of your loan. For example, if you borrow $200,000, one point would be equal to $2,000. Paying one point will generally reduce your interest rate by approximately .25%. An alternative to paying points is to receive a “credit” from the lender in exchange for a higher interest rate. Whereas points are added to your closing costs, a credit is used to reduce your closing costs. Once again, you can receive a credit of approximately one point by raising your interest rate .25%. Whether you choose to pay points or receive a credit, this amount will be applied to your closing costs when your loan funds.[/faq_answer]
[faq_question]Should I consider an Interest-Only loan?[/faq_question][faq_answer]Interest-Only loans are a good means of either increasing your home purchasing power or maximizing your flexibility to control cash flow. You can save significant amounts of cash for investment, savings, or other expenditures during the first ten years of your loan. This is also a solid strategy to maximize tax deductibility, with more funds available for paying down higher cost, nondeductible consumer debt. With these loans, the minimum payment required covers interest only — you decide how much or how little of the principal to repay each month. These loans should not be confused with negative amortization loans. With Interest-Only, the principal balance NEVER increases.[/faq_answer]
[faq_question]Should I choose a loan with negative amortization?[/faq_question]
[faq_answer]We generally recommend that people stay away from these types of loans due to the high risk. Most adjustable rate mortgages (ARM) adjust the payment when the interest rate changes. However, negative amortization ARMs have a fixed payment option, even when the interest rate increases. So it’s possible that the total loan balance may actually grow over time.[/faq_answer]
[faq_question]When can I lock my interest rate?[/faq_question]
[faq_answer]Your loan consultant will review your application and credit information in order to determine whether you can request a rate lock. Once they determine that you are eligible, your loan consultant will contact you so that you can lock at your convenience. Please note that you must specify a property address in order to lock.
[faq_question]What is the difference between the interest rate and the APR?[/faq_question]
[faq_answer]The interest rate is the cost to borrow the lender’s money. The APR represents the total cost of the mortgage over the life of the loan, including closing costs and lender points.
[faq_question]What is pre-paid interest?[/faq_question]
[faq_answer]This amount represents the interest that accrues between the day your loan closes and the last day of that month. It is added to your closing costs. After this one-time prepayment, your interest will be included in your regular monthly payments.
[faq_question]How much home can I buy?[/faq_question]
Mortgage lenders are chiefly concerned with your ability to repay the mortgage. To determine if you qualify for a loan, they will consider your credit history, your monthly gross income and how much cash you’ll be able to accumulate for a down payment. So how much house can you afford? To know that, you need to understand a concept called “debt-to-income ratios.”
The standard debt-to-income ratios are the housing expense ratio and the total debt-to-income ratio. These are also known as the front-end and back-end ratios, respectively.
Front-end ratio: The housing expense, or front-end, ratio shows how much of your gross (pretax) monthly income would go toward the mortgage payment. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income. To calculate your housing expense ratio, multiply your annual salary by 0.28, then divide by 12 (months). The answer is your maximum housing expense ratio.
- Maximum housing expense ratio = annual salary x 0.28 / 12 (months)
Back-end ratio: The total debt-to-income, or back-end, ratio, shows how much of your gross income would go toward all of your debt obligations, including mortgage, car loans, child support and alimony, credit card bills, student loans and condominium fees. In general, your total monthly debt obligation should not exceed 36 percent of your gross income. To calculate your debt-to-income ratio, multiply your annual salary by 0.36, then divide by 12 (months). The answer is your maximum allowable debt-to-income ratio.
- Maximum allowable debt-to-income ratio = annual salary x 0.36 / 12 (months)
Take a homebuyer who makes $40,000 a year. The maximum amount for monthly mortgage-related payments at 28 percent of gross income is $933. ($40,000 times 0.28 equals $11,200, and $11,200 divided by 12 months equals $933.33.)
Furthermore, the lender says the total debt payments each month should not exceed 36 percent, which comes to $1,200. ($40,000 times 0.36 equals $14,400, and $14,400 divided by 12 months equals $1,200.)
This single Answer is Courtesy of Bankrate.com – Read more:
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The “graph image” link on the left brings you to real-time information on home mortgage rates.
You just may want to know some “Lender Speak”. This mortgage glossary will provide you with a descriptions of words you are likely to see in mortgage papers and elsewhere during the home purchase process.
The Federal Trade Commission outlines a two-step process for fixing credit report errors that can affect scores. First, tell the credit reporting company, in writing, what information you think is inaccurate. Then, dispute the items in question with the creditor or other information provider. You can also improve credit scores by reducing your credit card balances and making all your payments on time.