Financing Information
This section is designed to discuss the process of financing the purchase of residential real estate. Whether this is your first home or your third, or whether you are purchasing as an investor, the same principles apply.
Your first step is always to “ Figure Out How Much You Can Afford”
Knowing what you can afford will save you a lot of time and frustration. It will allow you to realistically evaluate the neighborhoods you are looking in and to set a maximum limit on what you can purchase. You can assess your finances and buying options using our calculators.
If you are currently renting this is an important calculation to make before you make any decisions about whether rent or buying a home is right in your personal situation. It takes more than looking at your mortgage payment to answer this question. I recommend that you use this calculator to help you weed through the fees, taxes, and monthly payments to help you make a good financial decision.
Secondly, You Must Shop for a Loan
Next, shopping around for a home loan or mortgage will help you to get the best financing deal. A mortgage—whether it's a home purchase, a refinancing, or a home equity loan—is a product, just like a car, so the price and terms may be negotiable. You'll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars. The first step however, is to know your bargaining power. Your bargaining power is directly linked to your credit rating, so you will need to know what your credit report looks like.
A. Obtain a Copy of Your Credit Report
When applying for a mortgage or home loan, the first thing a mortgage lender is going to ask is “How is your credit?” You need to know and understand why this is so important, and how you answer the question will be critical! If the answer is “I have bad credit”, there are still options open to you, but you will want to work towards a good credit rating, so in the future, you can provide a different answer. The information in your credit history helps mortgage lenders decide how much credit and what interest rate you are eligible for. The better your credit history, the more likely you are to qualify for the best credit deals. New laws require that you may obtain a free copy of your credit report each year. To obtain this free copy of your credit report and more credit information CLICK HERE……….. www.annualcreditreport.com
B. Even if you have credit problems you can and should still shop, compare, and negotiate
Don't assume that minor credit problems or difficulties stemming from unique circumstances, such as illness or temporary loss of income, will limit your loan choices to only high-cost lenders.
If your credit report contains negative information that is accurate, but there are good reasons for trusting you to repay a loan, be sure to explain your situation to the lender or broker. If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories. But don't assume that the only way to get credit is to pay a high price. Ask how your past credit history affects the price of your loan and what you would need to do to get a better price. Take the time to shop around and negotiate the best deal that you can.
Whether you have credit problems or not, it's a good idea to review your credit report for accuracy and completeness before you apply for a loan.
C. What Lenders Need From You at Application
To ensure that your mortgage application will be processed as quickly as possible, it’s important to bring all the proper information to your loan application interview. Click on the Loan Application Checklist for a list of documents most lenders will require in order to process your mortgage application. This site will give you not only the list of documents most lender require to process a mortgage, but lots of other information about finding the best mortgage, and a whole library of mortgage information.
Loan Application Checklist
Verification of income
- Earnings statements: W-2 forms, recent pay stubs and tax returns for the past two years;
- If you are self-employed: profit and loss statements and tax returns for current year and previous two years;
- Additional income: social security, overtime bonus, commission, interest income, veteran's benefits and so on.
Verification of your assets
- List of bank account numbers, the address of your bank branch, checking and savings account statements for the previous 2-3 months;
- List of savings bonds, stocks or investments and their approximate market values;
- Copies of titles to any motor vehicles that are paid in full.
Information about the purchase
- Copy of the ratified purchase contract;
- If you made a deposit to the seller to show that you are serious about buying the house, bring a copy of canceled deposit check on house.
Your debts
- Credit card bills for the past few billing periods;
- Other consumer debt such as car loans, furniture loans, student loans and other personal and cosigned installment loans with creditor addresses and phone numbers;
- Evidence of mortgage and/or rental payments;
- Copies of alimony or child support.
If you have no established credit history, supply the lender with canceled checks for rent, utilities and other recurring obligations to show payment history and amount of revolving debt. Also lenders may also ask you about the origin of your down payment. If money for down payment is a gift from a relative, bring to the interview a copy of gift letter and copy of gift check. The gift letter states that the money will not have to be repaid.
Having these items on hand when you visit the lender will help speed up the application process. Keep in mind that different lenders may have slightly different information requirements, so ask your lender what to bring to your initial loan interview.
A Great Source of Information About Finding The Best Mortgage Is This Article By The Federal Trade Commission: http://www.ftc.gov/bcp/conline/pubs/homes/bestmorg.htm
It covers the several types of lenders as well as “mortgage brokers” that offer mortgages and how different lenders will quote you different prices. so you should contact several lenders to make sure you're getting the best price. A broker's access to several lenders can mean a wider selection of loan products and terms from which you can choose. Brokers will generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Consequently, you should consider contacting more than one broker, just as you should with banks or thrift institutions.
Obtain All Important Cost Information
Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information. The following information is important to get from each lender and broker:
Information to check:
Rates – check current rates make sure to look for the lowest
Is this rate fixed or adjustable
(interest rates for adjustable-rate loans can go up or down, and so does the monthly payment. )
Ask about the loan's annual percentage rate APR). The APR takes into account not only the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay, expressed as a yearly rate.
A good site to find today’s rates is: http://www.gmacmortgage.com/rates.do
Points - are fees paid to the lender or broker for the loan and are often linked to the interest rate; usually the more points you pay, the lower the rate. Check your local newspaper for information about rates and points currently being offered. Ask for points to be quoted to you as a dollar amount—rather than just as the number of points—so that you will actually know how much you will have to pay.
Fees - A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement and closing costs. Every lender or broker should be able to give you an estimate of its fees. Be aware many of these fees are negotiable. Ask what each fee is for and an explanation of each fee. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. "No cost" loans are sometimes available, but they usually involve higher rates.
Down Payments and Private Mortgage Insurance – A very important factor and major cost to you is Private Mortgage Insurance (PMI) Some lenders require 20 percent of the home's purchase price as a down payment. However, many lenders now offer loans that require less than 20 percent down—sometimes as little as Zero down to 5 percent down on conventional loans. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance to the lender in case the home buyer fails to pay. If you qualify for certain government-assisted programs such as FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services are available, the down payment requirements may be substantially smaller before PMI is required.
If PMI is required for your loan,
- Ask what the total cost of the insurance will be.
- Ask how much your monthly payment will be when including the PMI premium.
- Ask how long you will be required to carry PMI.
One of the calculators below will help you to determine what to do to reduce your PMI and whether it is beneficial to you.
In addition to these rates and fees, in recent years with low mortgage rates, there have been a great number of new mortgage products available . The standard Mortgage with fixed rates and terms is no longer the standard. Now adjustable rate mortgages, as well as no money down, interest only and many more products are available. You must also evaluate which of these is best for your personal situation.
Remember: Shop, Compare, Negotiate
Click here for a Mortgage Shopping Worksheet Take it with you when you speak to each lender or broker and write down the information you obtain. Don't be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal.
Now that you know about rates, points and fees, and different types of mortgages, these calculators will help you when you are using your work sheets to compare products.
Obtain the Best Deal That You Can
Once you know what each lender has to offer, negotiate for the best deal that you can. On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation. Generally, the difference between the lowest available price for a loan product and any higher price that the borrower agrees to pay is an overage. When overages occur, they are built into the prices quoted to consumers. They can occur in both fixed and variable-rate loans and can be in the form of points, fees, or the interest rate. Whether quoted to you by a loan officer or a broker, the price of any loan may contain overages.
Have the lender or broker write down all the costs associated with the loan. Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. You'll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There's no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.
Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker. Get a written agreement guaranteeing the rate that you have agreed upon, the period the lock-in lasts, and the number of points and fees to be paid. A fee may be charged for locking in the loan rate. This fee may be refundable at closing. Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less favorable rate. Should that happen, try to negotiate a compromise with the lender or broker.
NOTE:
Fair Lending Is Required by Law
The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicant's income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act.
The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin.
Under these laws, a consumer cannot be refused a loan based on these characteristics nor be charged more for a loan or offered less favorable terms based on such characteristics.
The Fair Credit Reporting Act (FCRA)
The FCRA is designed to promote accuracy and ensure the privacy of information used in consumer reports. Recent amendments to the Act expand your rights and place additional requirements on Credit Reporting Agencies. Businesses that supply information about you to CRAs and those that use consumer reports also have new responsibilities under the law all of which beneficial to the consumer.
A FINAL NOTE: http://www.mortgage101.com/ and http://www.bankrate.com/brm/default.asp
Are both wonderful additional references. They provides all of the home loan basics: getting the best current rates, credit issues information, choosing the right loan program for you, and second mortgages. You will be able to shop right on line for mortgages. In addition there is an extensive library of informative articles about all aspects of financing your home.
