Financing

Shopping for your new home can be exciting, but finding the right mortgage might seem intimidating. It doesn’t have to be – we will help you understand the entire process.

Your Credit Report History –  You might want to check your credit report before you apply for a mortgage and correct errors. Inaccuracies could cause a denial of credit.

  • A credit report is used by lenders as one measure of the risk and a borrower’s likelihood to repay. There are numerous types of credit report issues that would cause a lender to reject your application for a loan, including: missed credit card payment(s), default on a prior loan, bankruptcy in the past seven years, or non-payment of taxes. Other black marks on a credit report include any judgment (perhaps for non-payment of spousal or child support) or any collection activity.
  • If you feel that your credit report is wrong, experts say it’s best to take it up with the organization or company claiming you owe them money. But if you’ve been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payments were an aberration.
  • You can order a copy of your own credit report by calling the three major credit reporting agencies: Experian at (800) 311-4769, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. Please note that every time your credit report is ordered, there are points deducted which could lower your overall score.

Negative Credit Rating

  • There is no fast and easy way to repair damaged credit that took months or years to occur. The law allows negative information to appear on an individual’s credit record from seven to 10 years. Credit problems are the main reason would-be home buyers are denied a loan. The first step to clearing up your credit is to get a copy of your credit report to make sure that the negative credit information is indeed accurate. Some states now have mandatory timelines to respond to your inquiry or remove the blemish.
  • For a copy of your report, contact one of the three major credit reporting agencies: Experian at (800) 311-4769, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. The bureaus should provide instructions on how to read the report and how to dispute any inaccuracies it contains. Please note that every time your credit report is ordered, there are points deducted which could lower your overall score.
  • If your credit report is not correct, take care of any outstanding delinquent obligations first.

Getting a Mortgage

  • It is very important to research your mortgage company before dealing with them. Don’t be afraid to ask any questions you feel necessary and if anything strikes you as odd, make sure you comment on it. Be sure to ask for references from satisfied customers.
  • There are several ways to secure a mortgage.  You can go to a bank, credit union or savings and loan. Or ask us, we can help connect you with a reputable mortgage lender.
  • Many home buyers choose to arrange financing before shopping for a home and most lenders will “pre-qualify” them for a certain amount. Pre-qualification helps buyers to focus on homes that fit their plans and budget. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.

Mortgage OptionsHere is some information on mortgage loans that can help you to understand the majority of available loan options and provide solutions to your home loan needs.

Fixed-Rate Mortgages

  • Unless you have enough money to pay for a house yourself, you’ll need a mortgage loan. A mortgage is a loan you take out to finance the purchase of your home. It is also a legal contract stating that you promise to make a monthly payment until your loan is paid off.
  • Today, there are hundreds of different programs to choose from, but don’t let that overwhelm you. Most of the home loans are variations of a fixed-rate mortgage and adjustable-rate mortgage. Knowledge of how these mortgage programs work will help you to understand the majority of available loan options. You may qualify for a new loan without even selling your current home. It’s simple to run the numbers for yourself on our Mortgage Calculator.

Home Purchase Loans With a fixed rate mortgage, payments for the interest rate and the principal remain fixed over the life of the loan. As a result, monthly loan payments stay the same over the life of the loan. Taxes, however, may change according to your local or state tax laws.

Advantages:

    • The interest rate stays the same-it doesn’t go up even if rates in the market do
    • Monthly payments of principal and interest don’t change
    • May be a good choice for homebuyers who plan to own their home for a long time

Disadvantages:

    • May cost more than other loan types-the interest rate is often higher than rates for adjustable rate mortgages
    • A long-term loan may not be suitable for homebuyers planning to move or refinance within 5 to 7 years
    • Types of Fixed-Rate Mortgages – Fixed rate mortgages are available 10-year, 15-year, 20-year, 30-year and 40-year amortization terms. 

Which Term Will Work Best for You? 

A Shorter Term:

  • May be good for homebuyers planning to own a home for a shorter time
  • Loan is paid off more quickly
  • Generates less interest over the life of the loan, so it costs less overall
  • Translates into higher monthly payments
  • Builds equity faster

A Longer Term:

  • May be good for homebuyers planning to own a home for a longer time
  • Loan is paid off more slowly
  • Generates more interest over the life of the loan, so it costs more overall
  • Translates into lower monthly payments
  • Builds equity more slowly

Adjustable-Rate Mortgages

  • With an adjustable rate mortgage (ARM), the interest rate is fixed for a certain number of years. Afterwards, the rate goes up or down periodically based on an economic index, which lenders use as a benchmark for interest rate adjustments.
  • The initial fixed rate, or “teaser rate” of an ARM is usually lower than the rate of a fixed rate mortgage. After the initial period, the rate adjusts based on the rate index used by the lender. With every rate adjustment, the mortgage payment will change.
  • The amount of time between rate adjustments is called the adjustment period. Many ARMs have a one-year adjustment period, meaning that the interest rate will adjust every year. Because rate adjustments can be unpredictable, most ARM programs offer a rate cap that limits the amount the interest rate can increase each year or over the term of the loan. The term for most ARMs is 30 years.

Advantages:

  • The teaser rate keeps initial monthly payments low, which may enable homebuyers to consider a more expensive home than might be possible with a fixed-rate mortgage
  • If interest rates go down, the homebuyer will have lower payments
  • May be a good choice for homebuyers who relocate often or who plan to move after a few years (e.g. homebuyers in the military or those buying their first home)
  • May be suitable for homebuyers planning to refinance within 5 to 7 years
  • May be appropriate for homebuyers who like the initial payment stability, but can afford later adjustments in interest

Disadvantages:

  • After the initial fixed rate period, the rate becomes adjustable and monthly payments could increase if interest rates go up
  • May not be the optimal choice for homebuyers on a fixed income who may only be able to afford monthly payments during the low teaser rate period
  • May not be the best choice for homebuyers who plan to stay in their home for longer than the teaser rate period

Types of Adjustable Rate Mortgages

An adjustable rate mortgage is often written as a pair of numbers-for instance, “3/1 ARM”, “5/1 ARM”, “7/1 ARM”, or “10/1 ARM”. The first number indicates the number of years the interest rate will remain fixed. The second number indicates the adjustment period of the loan-how often (in years) the interest rate will adjust after the initial fixed-rate period.

Example: For a 3/1 ARM loan, the interest rate is fixed for the first three years. Starting in the fourth year, the rate adjusts every year. Payments are subject to change every year for the remainder of the loan.

Interest-Only ARMs

With an interest-only ARM, monthly payments for the initial period of the loan are made only on the interest. During this time, the interest rate is fixed.  Once the interest-only period is over, monthly payments are made on both the interest and the principal for the remaining term of the loan, and the interest rate is adjusted every year. Interest-only ARMs are available with three-, five-, seven-, and 10-year interest-only terms.

New Construction Loan

If you are working with a builder in a sub-division or development you may be able to obtain a standard mortgage loan. But if you’re hiring contractors, electricians, plumbers, and painters, you will probably need a construction loan, which provides funds to pay subcontractors as work progresses.

Jumbo Loans

A loan for an amount of money larger than the conforming loan limit set by the government-backed agencies Fannie Mae and Freddie Mac is called a jumbo loan. The agencies buy groups of mortgages and re-sell them as investments. The conforming loan limit is the maximum loan amount that these agencies will buy.

Federal Housing Administration (FHA) Mortgages – A mortgage secured by the Federal Housing Administration (FHA) requires a down payment as low as 3.5% of the purchase price.

  • FHA loans are designed to make purchasing a home more affordable than it would be with a  conventional loan, especially for the first-time homebuyer.
  • FHA loans are subject to limits on the amount of money that can be borrowed. These limits vary from state to state.

FHA loans offer these great benefits:

  • Low down payment-as little as 3.5%
  • Ratios that make it easier for you to qualify
  • You can use gifts and cash on hand for closing costs
  • May be more affordable than a conventional loan

Veteran Affairs (VA) Mortgages – A mortgage guaranteed by the Department of Veteran Affairs (VA) requires little or no down payment.

  • VA loans are available only to military personnel, veterans, or the spouses of veterans who died of service-related injuries. VA loans are designed to make purchasing a home more  affordable than it would be with a conventional loan.
  • Under the law, veterans are entitled to VA home loan benefits based on military service.  Eligible veterans must still meet credit and income standards in order to qualify for a VA-guaranteed loan.

A lender cannot make a VA-guaranteed loan to an ineligible applicant under any circumstances

Getting a Mortgage

How to Apply for a Mortgage Loan – Here is some information you need to know about getting a mortgage. We can help connect you with a reputable mortgage lender and solve your mortgage financing needs.

Your chances of obtaining a mortgage really depend on all the information that will be contained in the credit report. So, it’s a good idea to get your credit report, before you apply for a mortgage, and correct errors. If there are any inaccuracies you don’t know about, this could cost you thousands of dollars in extra interest or even cause a denial of credit.

When you apply for a mortgage, the lender will want a lot of information about you (and, at some point, about the house you’ll buy) to determine your loan eligibility. Here’s what you’ll need to provide:

  • The name and address of your bank, your account numbers, and statements for the past three months
  • Investment statements for the past three months
  • Pay stubs, W-2 withholding forms, or other proof of employment and income
  • Balance sheets and tax returns, if you’re self-employed
  • Information on consumer debt (account numbers and amounts due)
  • You’ll sign authorizations that allow the lender to verify your income and bank accounts, and to obtain a copy of your credit report. If you’ve already made an offer on a house or condo, you’ll need to give the lender a purchase contract and a receipt for any good-faith deposit that you might have given the seller

Once you apply, your lender will verify all the information you’ve provided. This is a loan approval process and it can take one to eight weeks, depending on the type of mortgage you choose and other factors that will affect your approval such as fulfillment of contract contingencies.

As your mortgage application is processed and finalized, your lender is required by law to give you several documents. Within three business days of applying for the loan, the lender must inform you of the mortgage’s effective rate of interest, or annual percentage rate (APR). If relevant, the lender must also give you consumer information on adjustable rate mortgages. In addition, the lender is required to give you an itemized good-faith estimate of your closing costs and a government publication
that explains those costs.

Since the home that you’re purchasing will serve as collateral for the loan, the lender will order a market value appraisal of the property. The lender will not lend you more than a certain percentage of the value of the property. If your down payment will be less than 20 percent of the value of the property, your loan will require private mortgage insurance, and the lender will obtain insurer approval. If the lender has not already done so as part of a pre-approval process, it will verify your employment and bank accounts as well as obtain and evaluate your credit report.

 Interest Rates

  • Some lenders are willing to negotiate on both the loan interest rate and the number of points. Most established lenders set their rates like large corporations set the prices on their goods. However, it pays to shop around for loan rates and know the market before you talk to a lender. You should always look at the combination of interest rate and points and get the best deal possible. The interest rate is much more open to negotiation on purchases that involve seller financing. These loans involving seller financing usually are based on market rates but some flexibility exists when negotiating such a deal. When shopping for rates, look for published rates in local newspapers or check the vast number of Internet sites that publish such
    information.
  • Locking in a mortgage rate with a lender is one way to ensure that same rate will be available when you need it. Lock-ins make sense when borrowers expect rates to rise during the next 30 to 60 days, which is the usual length of time lock-ins
    are available. A lock-in given at the time of application is useful because it may take the lender several weeks or longer to prepare a loan application (though automated loan practices are cutting this time dramatically). However, some lenders require borrowers to pay lock-in fees to assure particular rates and terms. Be sure to check that the rates and points are guaranteed and that your lock-in period is long enough. If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and points. Lenders may have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application.

 APR: Annual Percentage Rate

The annual percentage rate (APR) is the total annual cost of your mortgage loan. It includes the interest rate – the fee to borrow money calculated as a percentage of the amount borrowed -plus loan fees, points and any other charges. Required by the Truth-in-Lending Act, the APR allows you to effectively compare the mortgage rates of different loan programs.

Points

Points are determined as a percentage of your loan amount, paid at closing. For instance, on a $90,000 loan amount, 1 point = 1 % or $900. You may have the option to pay points to buy down (reduce) your interest rate. Alternatively, the lender may pay points
to offset your closing costs in exchange for a higher rate. These are called negative points.

PMI (Private Mortgage Insurance)

  • Private mortgage insurance, or PMI, insures the lender against a default. It is required when the borrower is making a cash down payment of less than 20 percent of the purchase price.
  • PMI costs vary from one mortgage insurance firm to another, but premiums usually run about 0.50 percent of the loan amount for the first year of the loan. Most PMI premiums are a bit lower for subsequent years. The first year’s mortgage insurance premium is usually paid in advance at the close of escrow, and there is usually a separate PMI approval process.
  • Lenders generally turn to a list of companies with whom they regularly work when lining up private mortgage insurance. In most cases, PMI can be dropped after the loan to value ratio drops below 80 percent. The Homeowners Protection Act requires PMI to be dropped when the loan-to-value ratio reaches 78 percent of the home’s original value AND the loan closed after July 29, 1999. For other loans, find out from your lender what procedure to follow to have PMI removed when your equity reaches 20 percent. For homeowners who have improved their properties and believe that their equity has increased as a result of these improvements, refinancing the property at a loan-to-value ratio of 80 percent or less is another possible way of eliminating PMI payments.
  • A growing number of private lenders are loosening up their requirements for low-down-payment loans. But private mortgage insurance, or PMI, usually is required on loans with less than a 20 percent down payment.

Get Started Now – With a wide variety of home loan products to choose from, I can help you find the one that’s right for you.