UNDERSTANDING THE MORTGAGE LOAN PROCESS
Listed are a few tips that may help you in your multitude of decisions to make regarding buying a home, mortgages, refinancing, and accessing finances for home improvements. Make sure that you do the necessary research and homework before you make an offer on a home, as the more you know, the farther your budget will take you. So now that you've found the home of your choice, you've completed the first step of actually buying the home. Now you need to find a mortgage and payment terms that fit your budget and your lifestyle. Bridge Capital is here to work with you to help you understand your choices and help you make the right one that best suits you. There are many loans to choose from and we are versed on all of them; one will surely fit you and your budget. Don't be afraid to ask us questions. We are here to help you and want to work not only for you, but with you to help you in your home-owning goals.
You'll find it helpful when you are working with a real estate agent, that you'll want to be sure you are pre-approved for your loan, and not just pre-qualified. Getting pre-approved will work in your benefit as your lender will commit in writing and the approval will be assured. There is a difference between pre-approval and pre-qualification. You could be pre-qualified but your loan may not be approved for various reasons.
Research all your loan options-When researching the types of loans, you'll want to keep in mind your specific situation. In other words, how long will you be at this home? Are you single, and for the time being, are buying a condo that you only plan to live in for a few years? Or are you buying a three bedroom house in a neighborhood that will be compatible with your kid's extracurricular activities? Your answer will certainly make a difference in the type of loan you choose.
Be realistic about your debt-to-income ratio and what you can afford-Keep in mind your debt-to-income ratio when deciding on a home. In other words, if you can realistically afford a $175,000 home but have your heart set on a $275,000 home you may not be considered for the cheapest lenders, as the debt-to-income ratio will not be conservative enough for them.
The mortgage application process requires a few steps, organization, and some paperwork. We will go over the majority of the application process with you over the phone, which will simplify the process for you and make the loan application process much more time efficient. The application asks for your personal information such as, the home you which to purchase, your employment situation and employment record, your current address, number of people on your family, etc. If you are refinancing, we will need to know how much you paid for the home, how much the current value of the home is, and how much you have left in outstanding mortgage. In conjunction with this application, you will also need to provide documentation regarding your personal finances such as your earnings, your expenses, and your debts. You'll need to provide certain documentation about your income, including:
1. A copy of your W2s and you may be asked for a current year of pay stubs.
2. You'll also want to have a list of your current debts, including account numbers, addresses for each, and outstanding balances. Your credit report will be pulled, but a list will be helpful so the lender can work at assessing your willingness and ability to repay the loan.
We will obtain a copy of your credit file from the credit bureau to get your actual credit rating, to see how you pay your bills, if you pay them on time, and how many debts you currently have. Some lenders will not be willing to work with you if your credit is poor. Others will work with you, on the basis that you try to pay off or consolidate your debts. You're best bet in the case that you have poor credit, is to try to eliminate the majority or your debts prior to taking out a mortgage loan. You'll feel better about eliminating those debts and you'll also end up with a much better mortgage rate. It is your right as a consumer, to know what information is contained in your credit report and to have someone from the credit bureau help in understanding the ratings and what they mean.
If your application for a mortgage loan is denied, lenders are required by law to tell why it was denied. Understanding why you were denied is important, as it will improve your chances for approval at your next attempt applying for a home loan. If you don't understand the reasons, make sure you ask questions so that you can understand it
UPFRONT AND EXTRA COSTS IN BUYING A HOME
The costs upfront that you'll need to cover for your home will depend on a number of factors. Most extra costs are based on the value of the home and the type of mortgage that you are applying for. In most cases, there are three costs that you will need to have the money to cover.
1. The earnest money, which is the deposit you make on the home to prove to the seller that you are serious about wanting to buy the house. The earnest money is usually range from $500 to $2,000 depending on the value of your home. You're real estate broker will handle the earnest costs.
2. The down payment, which is a percentage of the cost of the home that you must pay when you go into settlement. Some types of loans require 10-20% of the home value in down payment, but there are special incentives for first-time home buyers and veterans, with interest rates of 3% and lower.
3. The closing costs and loan costs, which are the extra fees associated with processing the paperwork to buy your home. Closing costs usually average 3-4% of the price of the home and they can be rolled directly into your loan.
TIPS FOR A FIRST TIME HOME BUYER
In some markets, renters will be happy to know that they may be able to buy a comparable home and only end up paying a little bit more each month in mortgage than what they are currently paying in rent. The following tips may be able to help you get the kind of monthly mortgage that you can afford and the kind of home you'll be happy to live in.
1. Be pre-qualified or pre-approved before you buy. Getting pre-approved will help even more than being pre-qualified, as you'll be locked into a lender and a loan amount. To start with, get pre-qualified so that you know how much money you'll ultimately have to work with.
2. Research! Make sure that you look at all the fine print and the details of the program that is being offered to you. Pay attention to detail and ask questions to avoid any misunderstandings.
3. Have a stable income. Lenders want to see that your income can cover the monthly mortgage payments and still leave you with some extra money each month. Prove to the lender that you can support yourself and can keep up with the payments.
4. Pay off your existing debts to improve your credit. If you credit is flawed or poor, you'll want to try to improve your credit rating, to insure you get the interest rate you want and the lender you want.
5. Pick the lender that wants to work with you and treats you with respect. The right lender should treat you like a person looking for a home, not just a lead or a commission.
SOME TYPES OF MORTGAGES AND THEIR LENGTHS
Which one is right for you? There are many types of mortgages to choose from and many factors that play into finding a mortgage that is best suitable for you. Which type you choose will be dependant on the length of time you think you'll be in your home, do you have kids that will be entering college in 10 years, and the amount of work that needs to be done on the home. These are just a few examples of the variables that will help you make the decision on what type of mortgage is best for you. Also, you'll want to ask us about low-income, veteran, and first-time homebuyers programs (if you are qualifying).
15-year vs. 30-year mortgages
Like we stated earlier, you must ask yourself how much you can realistically afford each month for a payment. Keep in mind your other monthly expenses, such as utility payments, groceries, car payments, student loan payments, etc.
With a 15-year mortgage will have a higher monthly payment but a lower interest rate, which means that compared with a 30-year mortgage you will be paying more for your home. If you are able to pay a higher payment each month, the 15-year mortgage may work best for you, as you will have your house paid off sooner.
Consequently, a 30-year mortgage will have a lower monthly payment and will most likely have a higher interest rate than the 15-year mortgage. So you need to weigh out which is more important, a lower monthly payment or paying more for your house over the long run. If you are a first-time buyer that may not have the income to pay a higher payment each month, you may want to consider this option. Keep in mind; you can always refinance your mortgage.
ARMs and Fixed-rate Mortgages
Plain and simple, a fixed-rate mortgage locks in a rate for the entirety of your loan. The rates are based on variables including current market value and your specific financial situations.
An ARM, adjustable-rate mortgage, is a short-term fixed-rate loan. After the fixed rate is up, and that can differ from person to person, the rate will adjust to current interest rate conditions. ARMs have become a popular way for allowing prospective homebuyers to achieve their dreams of owning a home.
ARMs are an excellent choice for certain types of prospective homeowners. Because their interest rates can often increase irregularly after the initial fixed-rate period, these rates are best for those homeowners with the kind of income to be able to keep up with the payments. In addition to income, these types of loans are great for short-term homeowner, who will be moving before the fixed-rate period is up.
Balloon Loans
Balloons, as they are commonly referred to, are short-term fixed rate loans with a large payment at the end of the loan, often the remaining outstanding principle. The payment schedule involves smaller payments for a fixed period and then one large final payment. Balloons can be an excellent option, as the payments are rather small during the fixed term. The main disadvantage of the balloon loan is the final large payment. It may be difficult for a home owner to save the money to meet that final payment requirement. If you can make the payment, it's a terrific option as your mortgage will be paid off in a relatively short period of time. Balloon loans usually require refinancing or converting to a traditional loan at current interest rates before the final payment of the outstanding principle is due.
Two-Step or Super Seven Loans
The Two-Step or Super Seven loan is a relatively new mortgage available to homebuyers. It offers a fixed-rate for a certain time, usually 7 or 10 years. At the end of the 7 or 10 year term, the interest rate is adjusted to current market conditions. Statistically, certain homeowners remain in their home for 7 to 10 years before moving to a new home. This type of loan can be an excellent choice for someone who plans to stay in their home for that time period, as the beginning interest rate and payments are fairly low during those first years. The possible drawback to this particular type of loan is that, depending on the current interest market rates, your loan could significantly increase at the end of the 7 to 10 year term.
Reverse Annuity Mortgage (RAM)
The RAM is a relatively new mortgage on the market, and it is designed to help supplement older homeowners' who have paid-off or almost-paid-off their home. This type of mortgage is an excellent option for homeowners such are retirees, who are living on fixed incomes. When a lender issues a RAM, he/she will appraise the property and make the loan based on a percentage of its value. A monthly sum based on the amount of equity in their home is then paid to the homeowner. The monthly payment is a tax-free income, which will surely help supplement a person with a fixed income. The schedule of the payments has two variables, the age of the homeowner and the value of the home. The risks include the decision of the homeowner to move to a new home. This risk will be based upon the amount of the loan already paid to the homeowner; there may not be enough equity in the home to allow for a financially sound move. This type of mortgage is best suitable for someone who has basically paid off their home, with no desire to move, who has a fixed-income that may need supplementing, and who is just sitting on the equity in their home.
Lender Buydown
The Lender Buydown is a popular type of mortgage, where the homebuyer gets two years of discounted interest rates, increasing to a fixed rate agreed upon in the initial stages of the loan process. This type of loan gives homeowners the advantage of lower initial monthly payments for the first two years of the loan and also the reassurance of knowing that the rate is fixed from the third year on. For example, if current market rates are at 7%, the fixed rate may be set at 7.5%. The first year the homeowner will pay 5.5%, the second year paying 6.5%, and the third year on the homeowner will be fixed at the initial agreed upon rate of 7.5%. The disadvantage to this type of loan is the possibility of a market rate decrease during the first three years of your loan. It is possible that you will be at a higher than market interest rate once beginning the fixed rate term of the loan.
Equity Loans and Equity Lines of Credit
Equity is simply the value in your home. To get the equity of the home you own now, subtract all outstanding mortgages from the value, and that is your equity. As you will find, if you are considering using your equity for home improvements, vacations, or any other extra expenditure, lenders focus on the percentage of equity. For example, if you are a home owner with a $300,000 mortgage on a $350,000 home, you have $50,000 in equity but in percentage terms, that is just under 15%. In comparison, if you are a home owner with $150,000 in mortgage on a $350,000 home, you have $200,000 in equity and around 58% in percentage terms. Most lenders will prefer to work with the second home owner, with the higher percentage of equity amount. So, the less you owe on your home, the better off you will be considering your possibility of an equity loan or line of credit.
There are two ways that you can fund your projects through your equity, an equity line of credit or an equity loan,
Home equity lines of credit are quite similar to a credit card. You can receive your line of credit and you'll only have to pay on the amount of money you use, while the remaining money is still available for you. A home equity loan is a loan amount that you will receive in on sum and will have set repayment terms. Using the equity in your home is a great, low interest, easily accessible way to fund projects or extra expenditures.
Both of these services use your home as collateral. The amount of the loan is determined by taking the value of the home and multiplying it by a percentage figure which can range from 90%-125% your home value. To calculate your possible amount of a home equity loan or line of credit available to you, take the value of your home and multiply it by the percent that the lender is working with. Let us assume the lender will work with 100% of your homes value. So let's say your home is worth $200,000, multiply it by the percent figure and your figure will be the same, $200,000. Now take that figure and subtract your outstanding mortgage amount from it. So, if on your $200,000 home you have an outstanding mortgage of $150,000, subtract $150,000 from $200,000 and that will give you $50,000. This figure of $0,000 is the maximum amount in equity possibly available to you.
YOUR RIGHTS AS A BOROWERER
Every homebuyer applying for a mortgage loan is protected by federal law against discrimination based on race, national origin, if you are a recipient of public assistance, religion, sex, color, marital status, age, family status, or if you are handicapped.
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