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Mortgage Information
Use the mortgage calculators below to assist you in making some decisions around financing your new home. Mortgage Qualification Calculator This calculator will help you determine how much money you qualify to borrow. The results are informal. You will be subject to a credit approval from your financial institution taking into consideration existing debt load, amount of down payment, income and other variables. Mortgage Payment Calculator & Amortization Table This calculator will help you determine what your mortgage payments will be based on purchase price, interest rate and mortgage term, as well as other factors. The amortization table shows what the interest and principal payments will be over the term of the mortgage.
ABOUT THE LOAN PROCESS Pre-Qualification Prior to getting a loan and searching for a home, research what pre-qualification are required for all types of loans. The lender will gather information about the income and debts of the borrower. This allows him or her to make a financial determination about how much money the borrower can obtain, for purchasing a home. There are numerous loan programs that can lead to different results, which is why we recommend getting a prequalification for each type of program you are suited for. This will provide you with your best options. Application The first step of the loan process is applying. The buyer (borrower) completes a mortgage application with the loan officer and supplies all of the required documentation for processing. Various fees and down payments are discussed at this time, and the borrower will receive a Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) within three days that itemizes the rates and associated costs for obtaining the loan. Processing The processing occurs between days 5 and 20 of the loan. The step involves the processor reviewing the credit reports and looks at the borrower's debts and payment histories. If the processor sees any speed bumps, like late payments or unpaid debt, a written explanation is required from the borrower. The processor reviews the appraisal, survey, and checks for property issues that may require further explanation. The processor, when finished, will have placed together an entire package that may now be underwritten by the lender. Underwriting Lender underwriting occurs between days 21 and 30, on average. The underwriter is responsible for determining whether the combined package passed over by the processor is deemed as an acceptable loan. If more information is needed, the loan is put into "suspense", and the borrower is contacted to supply more documentation. Mortgage Insurance Mortgage insurance underwriting occurs when the borrower has less than 20% of the loan amount to put towards a down payment. At this time, the loan is submitted to a private mortgage guaranty insurer, who provides extra insurance to the lender in case of default. Pre-Closing Pre-Closing occurs between days 25 and 30. During this time, the title insurance is ordered, all approval contingencies, if any, are met, and a closing time is scheduled for the loan. Closing Closing usually occurs between days 25 and 45 of the loan. At the closing, the lender funds the loan to the selling party in exchange for the title of the property. This is the point at which the borrower finishes the loan process and actually buys the house.
NO MONEY DOWN: TOO GOOD TO BE TRUE? One of the most interesting topics in residential real estate is buying a home with "nothing down." While the majority of home sales go through a conventional lending process, many homes are, in fact, bought by purchasers using little or none of their own money. These typically involve creative financing in one form or another and are a viable option for buyers or investors without traditional resources. These purchases often do not involve a bank or mortgage company. Even so, such deals can be beneficial for both the buyer and seller. There are many ways to buy a house with little or no money down. Here are some thoughts to get you thinking of a creative way to purchase a home: You are probably looking for a seller who owns his property free and clear of any mortgage and might be willing to accept monthly payments from you instead of all cash at closing. It is estimated that 40 percent of American homeowners have no mortgage debt. And, in today's low interestrate environment, many sellers might be better off accepting payments of principal and interest from you, rather than putting all their equity into low-yield certificates of deposit. Focus only on highly motivated sellers ---owners with strong desires to sell their houses. They are more likely to be flexible about financing. Maybe he wants to retire, maybe she just concluded a nasty divorce, or perhaps someone in the family passed away or maybe he's a landlord who really hates dealing with tenants. Living in the house as your principal residence will make it easier to structure creative financing. Owneroccupants are considered safer borrowers than investors. When talking to sellers, make sure they know that you intend to live there. Patience and persistence are the watchwords of finding "nothing down" real estate deals. Most sellers can't offer owner financing because their existing mortgages can't be easily assumed. But don' t be discouraged --- your next phone call may reveal an opportunity. Also, don't be unrealistic. You may have to consider houses that need cosmetic work. Plan on having a qualified home inspector examine the house before you buy; you probably don't want to get involved in serious structural or foundation problems. Flexibility is the key to creative financing. Often, sellers are willing to accept payments for only a few years. Even so, that can give you time to improve the property with your hard work --- that' s called "sweat equity" --- and then either refinance the property when the loan becomes due or sell the property, hopefully at a profit. If you sell, your capital gain may be tax-free under the new tax law. Should you decide to refinance, the loan process will be easier because you are an owner-occupant. Your new loan amount will be based on the current appraised value of the home, not what you paid for it. Caution: Never consider buying in a poor location just because the financing is right. A poor location usually just gets worse. A good real estate professional can be extremely helpful in finding homes where creative financing is an option. Some agents are willing to take their commissions in the form of second mortgages or a share of ownership. Another good source of potential properties is the classified section of your Sunday newspaper. Look for ads with the words "flexible financing" or "low down payment." One more way to buy with nothing down is to rent the house with an option to buy it in the future. Try to arrange for some portion of the rent to apply toward the purchase, and be sure to agree on the price before you sign the agreement. Make sure you don't buy something you may not want just because it looks like a good deal. Because creative financing often does not involve a real estate professional, it is imperative that you understand all the legal consequences of any agreement you consider. Find a good attorney who specializes in residential real estate, and be prepared to pay for legal advice before you sign anything. ** Beware of sellers offering a deal that sounds too good to be true. Value the old adage: If it sounds too good to be true, it probably is! **
LOANS, MORTGAGES, AND FINANCING OPTIONS While shopping for a home is exciting, it also means you need to do some research to find the best loan. Finding a good loan can make a huge difference in your monthly payment as well as the overall process. Here are some tips to help you along the way: • Being pre-approved for a loan is by far one of the best choices you can make. First, there is no cost and no obligation. Second, it allows you to have a little more advantage when shopping because the seller knows you are a "serious buyer." This is different from a pre-qualification that only gives you an idea of what you might be able to afford. Being pre-approved means that you have done all of the qualifying paperwork at the front end of the process, freeing you up to shop. • Flexible underwriting guidelines can help a couple qualify for a larger, nicer home. The way this works is that if one spouse has not yet secured employment where they're moving but can produce two years of past employment history, the underwriter can use the past history in consideration for the amount you would qualify for. This gives you the flexibility of looking for the home you really want and gives the spouse time to find the right job. • Rate-lock options are something you might want to look into. The shorter the lock time, or the less time between when you agree on a mortgage rate and when you go for settlement, the lower interest rate you might be able to lock into. • Negotiable Lender Fees are something to talk about with your lender. When you buy a house, there are always extra fees such as underwriting fees, processing fees, or commitment fees. A good lender will negotiate these fees to try and save you money. • Quick loan processing is offered by some lenders and can approve you in just five to seven days. If you are in a hurry, this is a great option and might even save you a step in the moving process. For example, if you've sold your house or have terminated your rental lease when your new home won't be ready to move into immediately, you might have to find temporary housing for a month or two. However, with this option, it's possible to get the processing done quick enough to eliminate the need for the temporary housing step. • Quick close is where if you agree to close quickly to help the seller out, they will agree to cut percentage points. • Look at an Adjustable Rate Mortgage (ARM). It's true that the loan may fluctuate somewhat, but you will also enjoy lower monthly payments. • Paying points is if you are willing to pay some of the interest up front. This would allow you to get a fixed-rate mortgage at a lower interest rate. • Good credit does count. If you have top-notch credit, you are a lender's dream. Keeping your credit in perfect order allows you to negotiate for better rates, inspection fees, commissions, and points. Good credit is a huge advantage. • Loan officers use rate sheets to determine the cost of a loan to the officer, not the buyer. For example, on a 30-year fixed-rate loan, the interest rate and cost to the loan officer is represented in points, as shown on the rate sheet. In other words, one point is equal to one percent of the loan. Here is what the rate sheet would look like: Rate Cost 6.250% 2.000 6.375% 1.500 6.500% 1.000 6.625% 0.500 6.750% 0.000 6.875% (.500) 7.000% (1.000) 7.125% (1.500) 7.250% (1.875) 7.375% (2.125) 7.500% (2.375) As you conduct your search for an agent, ask a these standard questions: 1. Are you able to help me with an easy and free pre-approval? 2. Can I get preferred access to special low down payments, interest rates, and monthly payments? 3. Will I be able to get advance notice of listings that match my criteria? Once you sign the dotted line, you're locked into some serious financial obligations. Be prepared and work with a good agent and lender to ensure they take everything into account in securing the best loan for you.
UNDERSTANDING LOANS There are many forms of loans available. You want to look at the types of loans available, not just the going rates. The below gives you a brief description on types of loans available, be sure to ask your broker for further details and comparisons. Fixed Rate Home Loans Fixed rate loans are loans ideal for those looking to lock in a rate. This type of loan will have the same interest rate for the entire life of the loan. There are a variety of repayment terms, with 15, 20, and 30 years as the most common. Fixed Rate Loans are ideal for people who want the current rate and want to keep it for the life of the loan. They are ideal for homeowners who plan to stay in the home for a long time and do not plan on moving soon. The person, who is more comfortable with certainty and a clearly set path, will find great comfort in the Fixed Rate Loan. The 30-Year Fixed Rate Home Loan will have the lowest monthly payment of the fixed rate loan choices. This keeps home loan payments affordable by extending them over a longer period of time. Most of the time, you will find that this solution offers the maximum tax-deductible interest, but always check with your account first. The 15-Year Fixed Rate Home Loan comes with higher payments than the 30-year loan but a lower rate. Over the life of the loan, you will save considerable money on total interest paid. The shorter timeframe allows you to build equity in your home faster. Adjustable-Rate Mortgages (ARMs) Adjustable Rate Mortgages are mortgages where the interest rate adjusts from time to time. The interest rate you pay is adjusted to keep it in line with changing market rates. When interest rates rise, your monthly home loan payments may go up. The reverse occurs when interest rates go down: your monthly home loan payments may go down. ARMs are attractive because they offer start rates that are lower than the interest rates of fixed rate home loans. This typically enables you to begin with lower monthly payments and qualify for a larger loan. Typically people will go with the ARMs if they are planning to sell the home in a few years and are less concerned about possible rate increases. They may also be confident that their income will raise enough in the coming years to handle any increase in payments. As a result, they like that a lower initial rate is offered and this enables them to afford the home they want. The mechanics of an ARMs works like this. The initial interest rate, which tends to be lower than most current rates, allows for a low month payment for a set amount of time, for example 5 years. After this rate comes to an end, the interest rate is based on the performance of a financial index. For example: the average interest rate or yield on Treasury bills. Your payment schedule is adjusted according to the index, just as your rate and payment increases at each adjustment depends on your loan terms. A 1-year ARM adjusts once a year. At each adjustment, the new rate is computed by adding the margin (a predetermined amount that remains the same for the life of your loan) to the predefined financial index. Two "caps" may put a limit on the maximum amount your rate can increase. The periodic cap sets the maximum rate to which your rate can go up from one adjustment period to the next. The life cap sets the maximum interest rate for the life of the loan. Some ARMs offer a conversion feature that allows you to convert to a fixed rate loan at certain times during your loan. Fixed period ARMs Does this type of vulnerability or fluctuation give you a sour stomach? A fixed period ARM starts with a lower rate than standard fixed rate loans. Your rate then stays the same for the first 3, 5, 7, or 10 years, depending on the fixed period ARM you choose. At the end of that period, your interest rate adjusts like a regular ARM according to a financial index (that's why some lenders call them 3/1, 5/1, 7/1 and 10/1 ARMs). The fixed period ARMs are good for people who plan on living at the home for a short period of time and know they will sell shortly. Balloon Loans Similar to Fixed Period ARM loans, with a Balloon Loan your rate stays the same for the first 5, or 7 years, depending on the type of Balloon mortgage you choose. With a Balloon mortgage your monthly payment is calculated as if you will pay off the loan over 30 years. However, this type of loan requires that you completely pay your remaining balance (a significant percentage of your original loan amount) in a single payment after 5 or 7 years. This loan may be suitable for those who will sell their home or refinance on or before the balloon payment date. This loan could be suitable for temporarily relocated workers or others who are certain they will not stay in their new home beyond the 5 or 7-year period. Borrowers often enjoy a lower interest rate for this program because the borrower is not obliging the lender to extend credit beyond the initial fixed period. Please note that some balloon programs offer the borrower a Conditional Right to Reset, which effectively provide an extension beyond the initial fixed period. Government Loans The Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) offer government-insured loans. These loans enable first-time homebuyers to obtain loans more easily. The loansconsist of low down payments and flexible lending guidelines. FHA Loan Features The FHA loan has numerous features. Instead of the common 20% down payment, the FHA loan allows for a 3% down payment of the FHA appraisal value or purchase price, the lower of the two. There are no maximum income or earning limitations and both fixed rate and ARM loans are offered. Insurance from the federal government replaces private mortgage insurance. VA Loan Features The VA loan has its own desirable features. These include the ability for qualified veterans to get a loan up to $203,000, with no down payment, on fixed rate loans only. They have more flexible qualification guidelines than FHA or conventional loans. Jumbo Loans (Loans over $300,700) Loans that exceed $300,700 are called jumbo or non-conforming loans. They exceed the loan amounts allowed by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). These are two government-sponsored enterprises that help facilitate the availability of home loans by investing throughout the country. Non-conforming loans typically have a higher rate and different requirements for your down payment. pay your remaining balance (a significant percentage of your original loan amount) in a single payment after 5 or 7 years. This loan may be suitable for those who will sell their home or refinance on or before the balloon payment date. This loan could be suitable for temporarily relocated workers or others who are certain they will not stay in their new home beyond the 5 or 7-year period. Borrowers often enjoy a lower interest rate for this program because the borrower is not obliging the lender to extend credit beyond the initial fixed period. Please note that some balloon programs offer the borrower a Conditional Right to Reset, which effectively provide an extension beyond the initial fixed period. Government Loans The Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) offer government-insured loans. These loans enable first-time homebuyers to obtain loans more easily. The loans consist of low down payments and flexible lending guidelines. FHA Loan Features The FHA loan has numerous features. Instead of the common 20% down payment, the FHA loan allows for a 3% down payment of the FHA appraisal value or purchase price, the lower of the two. There are no maximum income or earning limitations and both fixed rate and ARM loans are offered. Insurance from the federal government replaces private mortgage insurance. VA Loan Features The VA loan has its own desirable features. These include the ability for qualified veterans to get a loan up to $203,000, with no down payment, on fixed rate loans only. They have more flexible qualification guidelines than FHA or conventional loans. Jumbo Loans (Loans over $300,700) Loans that exceed $300,700 are called jumbo or non-conforming loans. They exceed the loan amounts allowed by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). These are two government-sponsored enterprises that help facilitate the availability of home loans by investing throughout the country. Non-conforming loans typically have a higher rate and different requirements for your down payment. |
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