Choosing The Best Mortgage For You
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When searching for a mortgage or trying to compare rate quotes you will find that every lender you speak with has the best mortgage program for you. They have to say that. It is a sales tool. Much the same way car dealer promote their vehicles as the best vehicle money can buy and always at the lowest prices. Again, sales pitches filled with illusion.
The best mortgage program for you depends on your personal situation. Your decision depends on your individual needs and various factors.
Factors that will determine your best mortgage program are
1. credit score, income, asset, and job status
2. your monthly budget
3. how long you plan to reside at the property
Depending on your credit score, income, and other factors you may only qualify for certain mortgage programs. If this is the case, you are better off taking one that you know you can qualify for, and then refinancing out of it when your situation has improved.
When deciding the answer to this question its best to let your mortgage professional know everything your looking to accomplish. At that point they can begin to tailor a loan that will fit your needs. If your needs change you need to let the mortgage professional know so he/she doesn’t waste your time.
This is one of the many tasks your professional and trusted mortgage advisor will provide for you, figuring out which programs you qualify for and which ones will be best for your unique individual situations. There are many, many home loan and mortgage programs out there for you to choose from. Everything from interest only loans, Pay Option ARM loans, fixed rate loan, balloon mortgages, and much more. Your current situation however is really going to provide the basis for which program is right for you. If you only plan on living in a home for 3-5 years then an ARM may be best for you. If you are a self-employed person and your income is very unstable and interest only or Pay Option ARM loan may be right for you. Take some time to explain your situation to your mortgage broker and provide him as much information as possible so that you can be fitted with the best program for yourself and your family.
Selecting the best loan program will depend greatly on what your short and long term goals are. Discussing what your financial and housing goals are with your mortgage professional will make the decision process that much easier. Your mortgage professional can analyze your situation, make suggestions, and explain the pros and cons to each program offered.
If your credit scores are low you should consider an adjustable rate mortgage. Between the time of your first payment and the adjustment date you should concentrate on improving your credit scores in order to qualify for a lower, fixed rate mortgage. Ask your preferred mortgage professional for a credit repair guide.
The Truth About PMI, Private Mortgage Insurance
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When shopping for a mortgage there is more to do than just compare mortgage rate quotes. Private mortgage insurance or commonly called “PMI” is insurance provided by a private company helping to protect the mortgage lender against mortgage default. Generally, this insurance is required by the lender when the down payment is less than 20% of the properly value. The lender requires the borrower to pay the insurance premiums.
Private mortgage insurance can be avoided. If you are looking to do a 100% financing loan, one option is to do an 80/20 combo loan. This allows you to avoid mortgage insurance and will provide a lower payment than if you were to pay the private mortgage insurance.
Some lenders now have loan programs where the lender pays the PMI and the rate is only slightly higher than it would be if the loan was under 80% of the value of the home. Consider all your options when looking for help with private mortgage insurance .
One of the most frequently misunderstood aspects of mortgaging a home, especially for first-time buyers, is Private Mortgage Insurance (PMI). The most common misconception is that PMI is a mortgage life insurance policy whereby the mortgage would be paid off should the borrower die. It is not. Instead, PMI is an insurance that most lenders require of all borrowers who put less than 20% down. It’s purpose is to protect the lender against losses should the borrower default.
Virtually all conventional mortgages with less than a 20% down payment will dictate the inclusion of PMI. FHA mortgages, which are insured by the Federal Government, require a different type of insurance with different coverages. The cost of PMI will depend on a number of factors, including the insurance carrier and the size of the loan, but monthly payments for the insurance will generally fall into the $25 – $100 range for median priced homes. Be sure to quote insurance rates as you may be able to find lower coast premiums
Compare Mortgage Rates, What Is Needed To Start The Loan Process
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When meeting with your loan officer or searching to compare mortgage rates to start the mortgage process you will be required to complete a mortgage application, along with providing supporting documentation that can include pay stubs, w-s2, tax returns, and bank statements.
When gathering all of your documentation for your loan officer always remember that anything you can put in his or her hand may be important. One thing that seems to slip through the cracks from time to time is the ever unpopular divorce decree. If this unfortunate situation has come up at some point during your life, your loan officer may need this paperwork to help him or her along the way to finding you the perfect loan scenario.
If you have ever had a bankruptcy then I would strongly suggest that you have a copy of your bankruptcy papers and your discharge papers ready for your loan officer when you are getting ready to start the loan process. The more necessary information that you have at the beginning of the loan process the faster your mortgage transaction should go and the quicker you should be able to close on your home loan.
Make sure that you take the time necessary to give your loan oficer the information he needs. A lot of people don’t set aside enough time for the process and spend a lot fo time looking for documents that are necessary. Make sure that you have the necessary documents handy including you latest tax stubs or tax bill from the county tax assessor.
The application that the Loan officer is going to fill out with you gives the lender a bird’s eye view of all your credit, income and asset history. The documenation that has to be provided is all the proof of what you put down on that paper. You must be able to show with documenation everything that you specified on your application. This would be your paystubs to prove income, your ID’s to prove where you live, a Verification of Rent or Mortgage Statement to prove how long you have lived in a particular place.
It is always best to give more documentation than is necessary to your loan officer. Not only does it help with all the requirements that must be fufilled in order to get your loan done, it will even speed up the process.
If your meeting is over the phone, make the request to your loan officer that they email/fax the documents and details over to you beforehand so that you can both look at the numbers at the same time. It’s much easier to have the numbers in front of you and discuss them than to try to remember all of the particulars as you discuss them over the phone.
It is a good idea to review your budget and determine how much of your income you can afford to spend on your mortgage payment. This will help your lender determine how much home you can afford to buy.
A good first step for anybody looking to take out a loan is to retreive your credit report from all 3 credit bureaus. If there are minor problems, be patient and try to fix them. If your credit is in good shape, gather together as many documents as you can such as paystubs, w-2s, bank statements, retirement accounts, mortgage statements, etc…
There’s a lot of documentation to gather, and the task may seem daunting. But with the help of an experienced mortgage loan professional, the process is narrowed down to YOUR specific needs. This is usually determined through specific questions during your initial interview.
Many federal and state laws are in place to protect you as a consumer. These laws further require banks and mortgage brokers to disclose to you your rights. As proof of having done so, your loan officer will need you to sign various federal and state disclosures, which is then made a part of the mortgage loan application package. Taking these steps when you are ready to compare mortgage rates and you will be glad you did.
FICO Scores and (LTV) Loan-to-Value
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The FICO score you have is used by most lenders (whether they be subprime or conforming) in order to figure out what your loan-to-value ratio (LTV) is when you wish to borrow money to buy a home. There are some lenders that will consider higher loan-to-values but most go by the standard. If you are looking for 100 percent financing then you need to have a credit score of 580.
In some cases a lender will use a credit score to determine how high the loan-to-value will be. Yet others will take an average of three credit scores. This varies from lender to lender. In the case of two people such as a married couple who are looking to take out a mortgage, the lender will add up three credit scores for both people and then will take an average from these scores. This helps to determine what the loan-to-value ratio will be. This works well if the financial and credit situation is different for each person. One person’s poor credit can be balanced out with the other’s good credit. This also works for income level as well.
While most mortgage lenders will use the middle score of the three, some are a little more forgiving and are willing to use the highest of these scores. Speak to a variety of mortgage lenders to find the one that best suits your needs and your spouse’s.
Another important element of what goes into your LTV is documentation. The more you can submit in terms of documentation the better it is. For example, a Full Doc includes W-2s, pay stubs, bank and/or brokerage statements, and your tax returns if you run your own business. Be aware that a Full Doc loan makes it possible for a higher loan-to-value as opposed to a Stated Doc loan.
If your credit is not stellar then you may find that you will encounter some problems. However do not allow yourself to become despondent. There are some non-conforming mortgage lenders who permit loans which equal approximately 95 percent of the value of a home.
The criteria may be stiffer than for those with very good credit and if you fall into this group then your closing costs would be higher and so would your note rate. There are very seldom any pre-payment penalties on non-conforming loans.
Many mortgage lenders have guidelines that look at credit scores in terms of 20 point intervals. If this scenario exists for you then you might want to have a talk with your mortgage lender- if your credit score is a few mere points off for an even 20 point interval then find out if your allowable LTV could be made higher if you were to make even a small improvement in your credit score. If you are a long way off from an even 20 point interval then you needs to find ways to bring up your score. Start by carefully combing over your credit report for any errors.
Shop Wisely For A Home Mortgage Loan
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When you shop for a home loan you want to get the very best deal that you can. Whether the home loan you are looking for takes the form of a mortgage for a first time homeowner, a home equity loan or a refinancing loan, there is always room for negotiation when it comes to the terms and the price.
Always remember when searching for a home loan that you must be shrewd. Make sure you shop around to a number of different places. As well, compare what different financial institutions have to offer for a home loan and then work your powers of negotiation. Shopping, comparing and negotiating are the name of the game when it comes to a home loan.
There are plenty of lenders from whom you can apply for a home loan. Besides the many commercial banks that exist, there are also credit unions, mortgage companies and thrift institutions (this is a savings and loan institution, or a depository institution that specializes in home loans and saving deposit accounts). Talk to lenders from a variety of places to get home loan quotes. Compare the quotes you are given from company to company in order to find the one that is most suitable for you.
Another option is to speak to a qualified mortgage brokers. A home loan can be arranged for you by this individual although the process is different than it is with banks. Brokers do not lend money for a home loan themselves but they set the transaction up for you. In other words, a broker can find an appropriate lender who can assist you in getting a home loan. The advantage of a mortgage broker is this person often has access to a multitude of lenders and this means that the selection of home loans available to you, as well as the terms, are much greater and leave more room for negotiation.
Be aware when you are shopping for a home loan that a mortgage broker is able to get in touch with a number of different lenders however he/she is not obligated in any way to guarantee you the best deal on a home loan unless you have decided to contract the broker to work as your agent. For this reason, it is wise for you to contact an assortment of mortgage brokers.
Some lenders employed at financial institutions also work as brokers but you will not know this unless you come right out and ask. When looking for the best deal for a home loan, it never hurts to find out if a person is both a lender and a broker. The reason for this is because mortgage brokers are often paid a fee that is separate from all of the other fees associated with a home loan. He or she may be paid what is known as points when the closing costs are completed, or you may have extra money added onto your interest rate for your home loan.
