Mortgage Info


Buying a new home is one of the most important and personal decisions you will ever make.

Getting prequalified for a home loan is an essential first step in the buying process. Find out exactly how much home you can afford based on your income, debt, and other factors. It can also help you lock in a good interest rate and it puts you in a stronger bargaining position with the seller once you find the home you want. housemoneyjpg

 

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1. What will a lender look at when I apply for a mortgage?
Lenders consider many factors in evaluating your loan application, but they usually focus on four areas:
Income and debt.  How much money you make and what other bills you have to pay helps the lender determine whether you can afford to make mortgage payments.
Assets.  The lender needs to make sure you have enough money to cover the costs of buying a home.
Credit.  Whether you’ve met other financial obligations helps the lender predict whether you will repay your mortgage.
Property.  The home you want to buy has to be worth enough to act as collateral for the mortgage.

2. What does it mean to get pre-approved?
Getting pre-approved means you receive a loan commitment from your mortgage company before you have found a home, based on a review of your credit and finances.  Having your credit pre-approved shows sellers that you’re a qualified buyer and helps you establish a clear price range.  The process is the same as a typical mortgage application, except that your application doesn’t include property information.

3. What if I’ve had credit problems?
Your credit history is only one factor in qualifying for a loan, and having made some late payments doesn’t have to keep you from buying a home.  Someone who has consistently made payments on time in the past may have more financing options than someone who has not, but that doesn’t mean a mortgage is off-limits if you’ve had credit problems.

4. What is the minimum down payment I can make on a home?
There is generally no minimum down payment required for buying a home.  Many first-time buyers believe they must be able to put down as much as 20% of a home’s purchase price in cash.  That may have been true in the past, but many of the mortgage options available to today’s home-buyers require little or no down payment.  With housing prices as high as they are, homeownership would be impossible for many people if not for these low-down-payment options.

5. Will I have to pay for Private Mortgage Insurance?
Private Mortgage Insurance (PMI) provides your lender with a way to recoup its investment if you are unable to repay your loan.  PMI is usually required when the mortgage amount is higher than 80% of the home’s value.  That means that if you buy a home with a down payment of less than 20%, you will probably have to pay for PMI.

6. What closing costs will I have to pay?
Closing costs vary based on a number of factors — including the lender, mortgage type, purchase contract, and location — but they usually include the following:
Lender fees.  Your mortgage company may charge for expenses related to making the loan, including an appraisal fee, a credit report fee, origination points, and discount points.
Third party fees.  Charges for services not provided by your lender often include the settlement fee, title insurance, and attorney’s fees.
Prepaid items.  Certain mortgage costs must be paid to your lender in advance. The most common of these are pre-paid interest, hazard insurance, and deposits to set up an escrow account.

7. Should I pay discount points?
Discount points are prepaid interest, which you can pay to your lender at closing in exchange for a lower interest rate on your mortgage.  Paying discount points, each of which is equal to 1% of the loan amount, is often called “buying down” your rate.

So does paying points make sense for you?  The answer depends primarily on how long you plan to stay in your home.  First, find out how much lower your monthly payments will be if you pay points.  Then, calculate how long it will take for those monthly savings to add up to the cost of the points.  If it would take five years to break even and you’re planning to live in your home for 10, paying discount points may be a smart move.

8. Should I choose a fixed-rate or adjustable-rate loan?
Most mortgage loans have either a fixed interest rate or an adjustable interest rate.  With a fixed-rate mortgage, the interest rate never changes and your payments remain stable throughout the life of your loan.  With an adjustable-rate mortgage (ARM), the interest rate changes at regular intervals — usually once every year — based on a formula that uses a market index.  For most ARM options, rate adjustments begin after an initial period — usually between three months and ten years — during which the rate is fixed.

A fixed rate is usually recommended if you plan to stay in your home for the long term and are buying at a time when rates are relatively low.  An ARM is usually recommended if you plan to move before the rate adjustments begin, or if you are buying when rates are relatively high.

For help deciding which option is right for you, try our Fixed vs. Adjustable Rate Calculator.

9. Should I lock my rate?
Locking your interest rate means your lender guarantees the rate on your loan even if market rates change before closing.  Most lenders will allow you to lock your rate for 30 to 60 days, with the option to extend the rate-lock period for a fee.  So how do you know whether to lock your interest rate?  It depends on whether you expect rates to rise or fall before you close on your home.  No one knows for sure which direction rates will go at a given time, so it’s difficult to make a reliable prediction.  It helps to keep track of announcements from the Federal Reserve Board, whose monetary policies have an effect on mortgage rates, and to talk to you financial advisor about what may happen in the near term.

10. What will my mortgage payments include?
For most borrowers, each monthly mortgage payment goes toward the following:
Principal, which is the total outstanding balance of the loan
Interest, which is the cost of borrowing money
Taxes, which are levied on the property by the local government
Insurance, which protects the owner and the lender from losses caused by fire and natural hazards.


How Do You Order A Credit Report?

 

To order your credit report by phone or Internet, contact:

Equifax Consumer Service
Phone: 1-800-997-2493 or 1-800-997-2493
Web Site: www.equifax.com

Experian
Phone: 1-888-397-3742 or 1-888-397-3742
Web Site: www.experian.com

 Trans Union
Phone: 1-800-916-8800 or 1-800-916-8800
Web Site: www.tuc.com

 How Much Does A Credit Score Count In Qualifying For A Loan?

Whether you are applying for a mortgage to purchase or refinance your home, a good credit history is essential. During the approval process, lenders must determine that you will be able and willing to repay the mortgage debt. To ensure that you will be able to pay off the debt, lenders may look at many factors, including:

  • Employment history
  • Income and outstanding debt
  • Savings patterns and amount of savings
  • The type and amount of loan requested
  • The amount of down payment or the existing equity in the property

To ensure that you will be willing to pay off the debt, lenders typically look at your credit report and credit score. Your credit score predicts how likely you are to repay the mortgage debt.
Lenders will use your credit score to help them determine:

  • What loan types you are eligible for
  • Whether to approve your loan
  • What your interest rate will be