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Hints for Borrowers:
Below are several different hints and resources for people who are interested in the borrowing process when purchasing a home. If you have any questions about any thing you see listed on this page fee free to contact me at 417-546-5000 or email firstname.lastname@example.org
Take Advantage of Loan Pre-Qualification
√ Know how much house you can afford.
√ Know how much cash you will need for the down payment.
√ Simplifies pre-approval.
A number of factors determine the price range of homes you'll want to preview - one of these factors is loan pre-qualification.
As your agent, I will help you pre-qualify. Items considered when pre-qualifying for a mortgage loan include:
* Employment History
* Credit History and Scores
* Monthly Income and Expenses
With my knowledge of the mortgage market, I'll help you make an informed decision as to the type of loan you'll want. There are many different types of loans to consider - FHA, VA, Conventional and even Bad Credit Loans. We'll find the best loan for your situation.
The Last Minute Credit Check
Did You Know?
Your mortgage lender may run a second credit report just prior to closing. Red flags that appear in this credit report can disqualify you for the mortgage loan.
Your actions after receiving lender approval for a mortgage loan can disqualify you for the loan. A mortgage loan is conditionally approved, with the lender reserving the right to re-verify credit, income, assets and employment at anytime. The lender may cancel the loan if there are any adverse changes to your qualification status.
Your debt-to-income ratio is your gross monthly income divided by the amount you spend on debt. Debt items include mortgage payments (including principal, interest, insurance, tax), car payments, credit card payments, student loans, child support payments, etc.
The lender considers debt-to-income ratio when approving you for a mortgage loan. Only 28 percent of your income can be used for your mortgage payment, which includes taxes and insurance; and 36 percent for the mortgage payment plus the rest of your debt. Anything you do to negatively affect your debt-to-income ratio may change an "approval" to a "disqualification."
Avoid Red Flags
A red flag is any inquiry made regarding your credit worthiness. If you decide to purchase a big ticket item - like a car, boat or furniture - prior to closing, you're at risk of having a red flag show up on your credit report.
Keep Your Money Where It Is
The balances of your liquid assets are considered when approving you for a mortgage loan. These liquid assets may include checking accounts, savings accounts, certificates of deposit, money market accounts, retirement accounts, stock and mutual funds.
Avoid changes to the balances of these accounts. Do not close accounts. Do not change banks. A large withdrawal or deposit to any of these accounts will trigger a red flag for your mortgage lender. If a red flag is triggered, you may be asked to produce a paper trail tracking large withdrawals and/or deposits.
For most employees a change of jobs to one of equal or higher pay will not trigger a red flag. However, sales people should not change jobs prior to closing on their mortgage loan.
If your income is strictly salary than you should not have a problem changing to another job of equal or greater income. If, however, your income includes salary and bonuses, commissions and/or overtime, you should not change jobs prior to closing.
If your income is based solely on a 40-hour work week without overtime, than changing to a job with equal or greater hourly pay should not be a problem. However, if your income is dependent upon overtime pay, do not change jobs prior to closing.
If your income is from commission or a substantial portion of your income is from commission, then you should not change jobs prior to closing. Typically, mortgage lenders average your commissions over the last two year period to determine income. Changing employers eliminates the two-year commission history and places uncertainty on your income status.
Talk to Your Loan Originator
Do not make any changes to your financial and employment status without first talking to your loan originator.
Need A Bridge Loan
Bridge loans can give you a competitive advantage
In a seller’s market, the competition for houses can be fierce. Many sellers will turn down any offer they receive that has a contingency clause (for example, a clause that states the offer is contingent on the buyer selling their own house). This can be problematic for the buyer who does indeed have a house to sell.
To stay competitive in a tight market, some buyers make the choice of securing a bridge loan (also known as a swing loan or bridge financing). A bridge loan covers the gap between the time a buyer closes on their new home and the time in which their old house sells.
Typically a bridge loan is structured as a one year loan. The bridge loan pays off the buyer’s first house with the remaining funds, minus closing costs and six month’s of interest, going toward the down payment for the new house.
If after six months the first house has not sold, the buyer will begin making interest-only payments on the bridge loan. When the first house sells, the bridge loan is paid-off. If the old house sells within the first six months, any unearned interest payments will be credited to the buyer.
This is the typical bridge loan scenario for most buyers. In some cases a buyer may qualify for a bridge loan that simply adds the cost of their new house to their current debt.
The advantage of a bridge loan is that it allows you to make a competitive offer on a house without a contingency clause. The disadvantage of a bridge loan is that it is usually a short-term loan (1 year or less) with high interest rates.
With my knowledge of local market conditions, I can help you determine whether a bridge loan is your best option for making a competitive offer. Let's get together to talk about your options.
Types of Mortgage Lenders
There are a number of types of primary mortgage lenders that you may encounter when shopping for your mortgage loan. To give you a better understanding of these service providers, a brief explanation is provided below.
Mortgage Bankers typically originate loans and then sell these loans to the secondary mortgage market shortly after funding. (The mortgage banker may or may not sell the servicing of the loan.) Often mortgage bankers have attractive loan programs and rates.
Portfolio Lenders make loans with the institution's own funds and keep the loan on the institution's books rather than immediately selling it to the secondary mortgage market. Many institutions engage in mortgage banking as well as portfolio lending.
Since portfolio lenders fund the loans, they are not confined to Freddie Mac/Fannie Mae guidelines. After a portfolio loan has reached its one year anniversary date without any late payments, it is considered seasoned and may be sold to the secondary mortgage market even if it does not meet Freddie Mac/Fannie Mae guidelines.
If a portfolio loan is sold to the secondary mortgage market, the portfolio lender may continue to service the loan.
Direct Lenders fund their own loans. Direct lenders usually fall into the category of a mortgage banker or portfolio lender.
Correspondents act on behalf of one or several lenders (sponsors) throughout the origination and closing. The loan is usually underwritten by the sponsor. The correspondent acts as the lender's agent. The correspondent may also service the loan for the lender.
Mortgage Brokers work as intermediaries between lenders and borrowers. Mortgage brokers have access to a number of lenders and often offer the most variety in loan programs. Brokers assist the borrower in filling out the loan application, obtaining the credit report and appraisal, selecting a loan program and finding a lender to fund the loan. In general, brokers do not make the decision to extend the loan and do not fund the loan.
The mortgage broker may be paid by the borrower or the lender. Payment to the broker is typically included in the closing costs as either fees or points.
Wholesale Lenders underwrite and fund mortgage loans. Wholesale lenders may also service the loan payments and ensure the loan's compliance with underwriting guidelines.
Banks, Credit Unions and Savings & Loans use funds gathered from their customers through checking, savings and certificates of deposit to make mortgage loans. The institution may hold the loan in its portfolio or sell it to a secondary mortgage market.
Secondary Mortgage Market
When you apply for a home mortgage, you may be under the impression that the mortgage lender will be servicing the loan until it is paid off. This may not be the case. It is common practice for the mortgage loan to be bought and sold to a secondary mortgage market investor, sometimes more than once in the life of a loan.
These transactions will not affect your mortgage amount or your mortgage payment. The secondary mortgage market is comprised of investors like Fannie Mae and Freddie Mac. Selling loans to the secondary mortgage market provides primary lenders with funds needed to issue new mortgage loans.
Conventional Loans - The only security guarantee is the value of the property.
Conventional loans that follow the terms and conditions established by the guidelines of Fannie Mae and Freddie Mac.
The interest rate and the principal payments remain fixed throughout the loan. Keep in mind your monthly escrow account payment could vary from year-to-year as taxes and insurance rates change.
Variable or Adjustable-Rate Mortgage
The interest rate on the loan fluctuates over the period of the loan. Periodic adjustments to the interest rate are made based on changes to a defined index. The loan's interest rate is determined by adding a fixed number of points to the defined index.
Short term, fixed-rate mortgage that has monthly payments usually based on a 30-year amortization schedule and a lump sum payment due at the end of term, usually 3, 5 or 7 years. The interest rate on balloon loans is usually less than a 15- or 30-year fixed-rate mortgage.
A second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase price and the "piggyback" is for 10%. The home buyer covers the remaining 10% with their down payment. (Some lenders will write a second mortgage of 15% or even 20% of the purchase price.)
A "reverse"mortgage is a loan againstyour home that you do not have to pay back for as long as you live there. With a reverse mortgage, you cant urn the value of your home into cash without having to move or to repay a loan each month. For more information on this unique program call me at 417-231-1688 or email Marian@bransonpropertyshoppe.com.
Housing Finance Agencies
These agencies offer special loan programs to low- and moderate-income buyers, buyers interested in rehabilitating a home in a targeted area, and other groups as defined by the agency. Working through a housing finance agency, you can receive a below market interest rate, down payment assistance and other incentives.
Find your local housing finance agency >
Jumbo and Non-Conforming Loans
Loans above the maximum amount established by the guidelines of Fannie Mae and Freddie Mac. Often the interest rate charged for a jumbo or non-conforming loan is higher than that of a conforming loan.
The Federal Housing Authority (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), plays a significant role in helping low- to moderate-income families qualify for mortgages. FHA assists first-time buyers and others who would not qualify for a conventional loan, by providing mortgage insurance to private lenders. Interest rates for an FHA loan are usually the going market rate, while the down payment requirements for an FHA loan are lower than conventional loans. The required down payment can be as low as 3 percent and the closing costs can be included in the mortgage amount.
VA Loans are guaranteed by the U.S. Department of Veterans Affairs. Service persons and veterans can qualify for a VA Loan, which usually offers a competitive fixed interest rate, no down payment and limited closing costs. While the VA does not issue the loans, it does issue a certificate of eligibility required to apply for a VA loan.
RHS Loan Programs
The Rural Housing Service (RHS), which is part of the U.S. Department of Agriculture, guarantees loans from private lenders to help low- to moderate income families qualify for mortgages.
The Cost of Your Mortgage Loan
Money Isn't Everything
When considering lenders, factor in the level of service they will provide throughout the loan process. I'll be glad to provide a list of lenders who have successfully helped clients in the past. I also suggest that you ask friends and family in the area for their recommendations.
The same care and consideration you give to finding the right house should be applied to your search for the right mortgage lender. For most home-buyers a major determining factor in selecting a lender is the cost of the mortgage loan. But how do you determine the cost of a mortgage loan?
Shopping for a Mortgage Loan
While most buyers concentrate on interest rates, it is best to look at all the costs associated with a mortgage loan. Mortgage loans include the quoted interest rate, points and closing costs.
More than Just Interest
A number of fees are associated with the mortgage loan, including:
Appraisal - A carefully documented opinion of value by a licensed, professional appraiser.
Credit Report - A detailed report of your credit, employment and residence history prepared by a credit bureau.
Principal - The amount owed on a mortgage which does not include interest or other fees.
Document Fees, Loan Fees and Processing Fees - Miscellaneous fees charged by the lender.
Discount Points - Points paid in addition to the loan origination fee to get a lower interest rate. (1 point = 1 percent of loan amount)
Origination Points - the total number of points paid by the borrower at closing. (1 point = 1 percent of loan amount)
Interest Rate - A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.
Prepayment Penalty Mortgages (PPMs)
These loans restrict your right to prepay part or all of the principal in the loans early years. A prepayment fee is charged by the lender to the borrower who wishes to pay part or all of the loan ahead of the regular schedule. The advantage of a PPM is that they often have a lower interest rate than other mortgages.
Using the Annual Percentage Rate (APR) to Compare Mortgage Loans
The APR was designed to help borrowers understand the relative costs of a mortgage loan. The APR takes into account the various fees associated with the loan, which is why it is often higher than the interest rate. Understand that not all lenders calculate a loan's APR in the same way. That is why this should be only one of the factors used in selecting the best mortgage for you.
Locking-in Interest Rates
Another factor to consider when selecting a lender is whether the lender will lock-in the mortgage's interest rate and points. Click here to learn more about lock-in options.