Tips on Mortgages:
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Shopping for a loan - pre approval...Read
more
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applying for a loan...Read
more
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types of loans...Read
more
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loan approval...Read
more
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closing the loan...Read
more
Very few people have the luxury of paying cash
for a new home. When purchasing a home, most buyers must take
out a mortgage. A mortgage is an instrument that secures a loan
against a house. It may also be referred to as a Deed of Trust.
When you secure a loan to pay for a home, you
will sign a promissory note and a mortgage at the closing
proceedings.
Below are some helpful hints to aid you in the
process of applying for a home loan:
The First Step:
Before you even begin looking at homes to
purchase, you should contact a mortgage specialist to get
pre-qualified or pre-approved. By doing this, it increases your
chances of having your Offer to Purchase accepted by the seller.
A seller is more likely to accept an offer from a buyer who
already has funding versus one who still needs to get a loan.
In addition, it is a good idea to obtain a copy
of your credit report prior to contacting a mortgage specialist,
so that you can clear up any errors that may appear on your
report.
Pre-Qualification:
This is an informal way to see how much you may be able to
borrow. Pre-qualifying can usually be done over the phone by
providing the mortgage specialist with your income, your
long-term debts, and the amount of down payment you can afford.
Pre-Approval:
This is a mortgage lender’s commitment to loan money to you.
When getting pre-approved, you provide your loan specialist with
all of the necessary financial records needed to apply for a
loan. Getting pre-approved will provide you with the exact
amount that you can afford and it shows sellers that you are
serious about buying a home.
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Applying for a
Loan:
There are several financial records that your
mortgage specialist will need in order to process your loan
application:
· W-2s or tax returns for the past 2 years.
· Proof of gross monthly income for the past 30
days.
· Proof of investment income, including rental
incomes.
· A list of creditors, including account numbers,
balances, and monthly payments.
· Two months worth of banking statements.
Your lender will also need a copy of the sales
contract for the property you wish to purchase. In addition, if
you are selling a home, you must also provide its sales contract
to your lender.
During the processing of the application, you can
expect the lender to verify all of the information you have
provided. They will also run a credit report to see your past
payment history as well as to verify outstanding credit
balances. Be careful not to apply with too many lenders, in that
numerous checks against your name within a recent period can
throw up a red flag and cause your credit worthiness to go
downward. Your lender will also check your FICO score, which is
a points system that indicates your credit worthiness.
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Types of Loans:
There are several different types of loans
available when applying for a mortgage:
Conventional:
These loans can be broken down into two types:
Fixed-Rate loans and Variable-Rate loans. A Fixed-Rate loan is
generally a 15-year or 30-year loan. The interest rate of this
type of loan does not change during the life of the loan;
therefore, your principal and interest mortgage payment will
stay the same until the loan is paid off.
A Variable-Rate loan is one in which the interest
rate will change over the life of the loan period. These types
of loans are commonly referred to as Adjustable Rate Mortgages,
or ARMs.
Hybrid Loans:
These
loans will generally have a fixed rate for the early life of the
loan, such as the first 3, 5, or 7 years, and then roll over to
a variable rate loan once the fixed period ends.
Government Program Loans:
These loans are insured loans through either the Federal Housing
Administration (FHA) or the Department of Veterans Affairs (VA).
A government program loan generally requires a smaller down
payment than a conventional loan. In addition, the interest
rates on these loans are commonly below the current market
rates. FHA loans have special programs for first-time home
buyers and low-income home buyers.
Bridge Loans:
This type of loan is for buyers who plan to close on their new
home before they can sell their current one. A bridge loan can
be set up to completely pay off the old home’s mortgage, or it
can be set up by adding the financial obligation of the new home
to the existing amount of debt. A bridge loan is a short-term
loan, usually one year, and includes large, prepaid interest.
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Loan Approval:
Once your application for a loan has been
processed, the lender will make a decision concerning making a
commitment on the loan. If the lender decides to approve the
loan, you will receive a Commitment Letter from the lender
notifying you of their decision. The Commitment Letter may
include certain conditions, such as repairs to the home, before
the final approval is made. Also included in the Commitment
Letter is the "lock-in" rate. This is the lender’s promise to
make the loan to you at a specified interest rate and number of
points. A lock-in rate is generally honored for a certain period
of time, such as 30 days. If the lock-in period expires before
your closing date, you may have to pay additional fees to extend
your lock-in period.
If the lender decides to reject your application
for a loan, you will be sent a rejection letter notifying you of
their decision. If you receive a rejection letter, you may
present this to the seller to reclaim your earnest money you
offered with the Contract of Sale. This letter is proof that you
complied with the purchase agreement, and have been formally
rejected for a loan.
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The Closing:
Once your loan has been approved and you have
decided on a closing date, you will want to do a final
walkthrough of the home to ensure that the home is in "as-was"
condition. In other words, you want to ensure that the home
appears as it did when you offered the Contract of Sale. In
addition, this is your opportunity to determine if requested
repairs have been made to the property and meet your approval.
The closing procedure will be conducted by a
lawyer, generally at the closing attorney’s office. The day
before, you will be told the total dollar amount you will need
to bring to closing by the closing attorney. They will also
provide you with any additional information you may need to
prepare yourself for the proceedings.
On the day of closing, remember to bring:
· A certified check for the total amount of your
closing costs.
· A picture ID, such as a driver’s license.
· Your personal checkbook.
· Evidence of mortgage insurance (if this
information has not already been requested).
Closing Costs Include:
· Attorney’s fees
· Property taxes (to cover the tax period up to
that date)
· Loan origination fees (this covers the lenders
expenses)
· Recording fees
· Interest (paid from the date of closing to the
30 days before first payment)
· First premium of mortgage insurance
· Title insurance
· Survey fees
· First payment to the escrow account for future
taxes and insurance
· Loan points (a "point" is a fee that equals 1%
of the loan amount. They enable you to secure a lower interest
rate for the mortgage.)
· Home inspection fees (if you choose to have an
inspection)
· Any additional preparation fees.
During the closing, details of the sales contract
will be explained to you. If everything meets your approval, you
will sign all of the contracts to finalize the deal.
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