Mortgage Programs

An overview of common mortgage programs available these are usually available under mortgage categories such as FHA Mortgage Loans, Conventional Loans and Jumbo Mortgage Loans.

30 Year Fixed Mortgage Home Loan Rates

A 30 year fixed interest mortgage loan has an interest rate that will not change for the 30 year period. This is the most stable mortgage product and offers peace of mind to the borrower. You know every month that there will be no surprises.

15 Year Mortgage Loan

A 15 year mortgage has a fixed rate for fifteen years. If you can afford the payment you will have the benefit of watching your mortgage bill disappear rather quickly. Its notable that a 30 year loan can also be paid off in 15 or 10 years by making additional mortgage payments on a regular basis.

Interest Only Mortgage

An interest only mortgage allows you to only pay the interest due each month. You are not paying anything toward the principal. This loan is great if you don't plan on staying at the house for more than 5 years. You are looking to pay as little as possible and only want the tax write off.

Adjustable Rate Mortgages

Commonly used during high interest rate periods adjustable interest rates provide a low initial rate and can and do adjust higher or lower depending on the index and margin that are assigned to them.

Buydowns

Mortgage buydowns allow you to pay additional fees in order to receive a discounted rate on your mortgage for the first 2 or 3 years. This can be a great help for those that would like to spend money on furnishing or updating their new home. It makes the transition into home ownership a lot easier to handle.

Mortgage Rates And Fees

One of the most confusing aspects of obtaining a mortgage loan is reading all the paperwork and not understanding the language used. While its important to understand what is being read you only need to be familiar with the most important vocabulary to help you make a money saving decision.

Interest Rate Lock

It may not be obvious but mortgage interest rates do fluctuate on a daily basis some times multiple times each day. That being said it would be a rude awakening to find out that the house you thought was $1800 per month now will set you back $2100. In order to prevent this you can lock your rate with your lender from 2 week to as much as 90 days with some banks. By locking your rate you are protected from sudden increases. The down side is that if rates drop significantly your bank will not reduce your rate. A mortgage broker is a better choice because they can easily submit your loan to a new lender with a lower rate in case this occurs.

Points

Points are used to let you know that in addition to fixed mortgage costs you can pay additional points to buy a lower interest rate. A point represents 1% of the loan amount so 2 points on a $100,000 loan is exactly $2000. Many loans are available with no points and no fees. You should pay points if you feel that the added expense will pay back with lower interest going to the lender. On a side by side comparison of total overall payments a loan with a point rate buydown will cost you less interest.

Closing Costs

Its important to understand there are many more closing costs involved these include:

• Title Insurance
• Escrow
• Appraisal
• Title Report
• Underwriting
• Processing

Types Of Mortgage Loans That Are Available

When you begin shopping for you mortgage you may be overwhelmed by the variety of mortgage products available. A basic overview of available products will help demistify the process and make the process of choosing a lot easier.

Conventional Loans

These loans are the standard loan offered by most banks, lenders and mortgage brokers. To purchase a home you will usually need 20% down to qualify. Conventional loans don't exceed $417,000 in states such as California while others like Alaska and Hawaii do allow for higher mortgage loan limits.

Government or FHA Loans

For those that have limited means or have faced challenges with their credit an
FHA Mortgage Loan is a great alternative. Down payment requirements are less stringent. You may buy a home with as little as 3.5% down. Secondly reserve or cash on hand requirements are lenient or not required in some cases. The FHA insures the lender in case the borrower defaults and the lender has to sell the home at a loss. The FHA will help the lender recover a portion of the loss.

Jumbo Mortgage Loans

If you are borrowing more than a conforming loan allows then your loan is considered a jumbo mortgage loan. Jumbo loans have stricter requirements such as higher reserve and credit scores.

Hard Money Loans

If you are purchasing your first home its unlikely you'll need a hard money loan. These are loans that are made with no regards to your credit and are based on the equity of your home. There are programs that do allow you to purchase a home based on the future value of your home. This is primarily intended for rehab investors or house flipping.

By knowing some of the common terminology you will hear when shopping for a mortgage loan you will make better choices.

Determine The True Affordability Of Your New Mortgage

In general LENDERs will want to keep your payment to less than 35% of you total gross income. This is based on the fact that over many years LENDERs have figured out the odds of you getting foreclosed on simply by the the debt to income ratio.

MORTGAGE LENDERs also take into consideration the fact that you have other debts and want to keep your MORTGAGE plus other liabilities under 45%. There are other expenses that LENDERs do not take into account and that is simply because your ratio has some room to reach 100%. Its advisable that you take an honest look at your finances prior to getting a MORTGAGE.

Will you absolute be fine at the end of the month with additional expenses such as child care, cable tv , groceries , cell phones. Its very important to creat a tally and see how much MONEY you will have at the end of each month. Have you considered emergency expenses, helping out a friend or flying out for a relatives funeral.

Once you have considered all the additional expenses you should write down a figure that you will be happy with each month and won't leave you stressed out. If you find your self stretching too far than consider not buying at this time or reduce the purchase price to 20% less than what you are qualified for.

Do you really need 3 bedrooms and 1800 square feet? The beauty of Real Estate is that after a period of decline you will have may have an increase prices and EQUITY. You could always add a room and update a smaller home. A lot of times this could mean a small profit for the homeowner due to the exponential increase in value that certain upgrades provide.

Getting Your Finances In Order Prior to Obaining A New Mortgage Loan

In general LENDERs will want to keep your payment to less than 35% of you total gross income. This is based on the fact that over many years LENDERs have figured out the odds of you getting foreclosed on simply by the the debt to income ratio.

MORTGAGE LENDERs also take into consideration the fact that you have other debts and want to keep your MORTGAGE plus other liabilities under 45%. There are other expenses that LENDERs do not take into account and that is simply because your ratio has some room to reach 100%. Its advisable that you take an honest look at your finances prior to getting a MORTGAGE.

Will you absolute be fine at the end of the month with additional expenses such as child care, cable tv , groceries , cell phones. Its very important to creat a tally and see how much MONEY you will have at the end of each month. Have you considered emergency expenses, helping out a friend or flying out for a relatives funeral.

Once you have considered all the additional expenses you should write down a figure that you will be happy with each month and won't leave you stressed out. If you find your self stretching too far than consider not buying at this time or reduce the purchase price to 20% less than what you are qualified for.

Do you really need 3 bedrooms and 1800 square feet? The beauty of Real Estate is that after a period of decline you will have may have an increase prices and EQUITY. You could always add a room and update a smaller home. A lot of times this could mean a small profit for the homeowner due to the exponential increase in value that certain upgrades provide.

In order to get a good interest rate and a hassle free LOAN process there are some things you can do in advance.

CREDIT.

Make sure that you pay off CREDIT cards that have a small balance. If possible consolidate most of your CREDIT card debt with a single card. CREDIT scores are based on many factors and one of these includes the number of accounts that you carry with a balance. Keep you balance at or below 75% of the maximum balanced allowed by your CREDIT card provider. This too will help increase your CREDIT score.

Keep inquiries to a minimum at least 6 months prior to applying for a MORTGAGE. This is the time where you decline all new CREDIT card offers. CREDIT inquiries tell CREDITors that you are looking to accumulate more debt and therefore your CREDIT score drops so that you don't easily qualify for more debt.

If you have not done so make sure that you have established CREDIT not just for CREDIT cards but also installment LOANs such as auto LOANs or furniture financing. This proves to CREDITors that you can borrow MONEY and see it through by paying it off.

Student LOANs

Nothing is scarier to a LENDER than to see a list of 3-10 student LOANs on your CREDIT report. Start off by requesting a consolidation this will make your payments more affordable and will also reduce the number of outstanding accounts on your CREDIT. Also the fact that you have paid off your accounts will help your CREDIT score.

Income Documentation

When applying for a MORTGAGE you will be required to provide proof of your income. For most salaried or hourly waged employees this will not be a difficult process. However, the problems may come in when you are self employed. Make sure that you have filed all your recent tax returns and that you have a current profit and loss statement. Tax returns are verified with the IRS in order to prevent MORTGAGE fraud. Its never a bad idea to obtain a CPA letter verifying that they prepare your taxes.

Assets

LENDERs want to have evidence that you have the funds to see the transaction through and that you have reserves in case you are out of work for a few months. This proves to your LENDER that you are responsible and can take care of the MORTGAGE when problems arise. For you own peace of mind its never a bad idea to have at least six months worth of MORTGAGE payments when buying a home.

Closing The Mortgage On Your New Home

Now you have gone through the ordeal of finding and applying for a LOAN. You LOAN has been approved and you are ready to close. First make sure that all conditions to finalize your LOAN have been met. You can help the process move along a lot faster if you organize all the requested documentation and present it all at once.

Once your final conditions are submitted your LOAN documents will be ordered and sent to your escrow company or attorney. You will sign them and provide the escrow final funds needed to close your transaction. In most Real Estate sales are final upon signing except for refinancing. Once all the required documents are signed your LENDER will fund your LOAN upon receipt of any outstanding documentation.

Once the LOAN is funded the escrow will disburse the MONEY to all parties involved. The title of the home will be transferred to your name and all security documents will be issued to the LENDER.

A month or so after you close your LOAN you will get your MORTGAGE bill. Please note that the odds are that your LENDER will sell off your LOAN in order to free up fund to lend to others.

The Mortgage Loan Process

Now that you have found your dream home it may help you to understand what your LENDER has to do in order to get your LOAN funded and you in your new home.

Lets look at some of the documentation that LENDER has to order and explain what each does.

Title Insurance

Protect the LENDER and the buyer in case the title of the home has a cloud. In other words a long lost uncle of the owner claims to have ownership rights to the home. If he is right then you and the LENDER would have major losses. The insurance protect you and the LENDER against this and various types of losses related to the title of the home.

Escrow

Most states allow user to use an escrow company. An escrow company will handle the distribution of funds among all parties involved. This makes the transaction flow smoothly if there is a neutral party involved.

Appraisal

In order to determine the value of your home the LENDER orders an appraisal. This is normally performed by a licensed appraiser in your state. The appraiser will use the sales price of homes similar to yours and make adjustments to determine the final price of your property.

Flood Report

Some areas are designated flood zones and therefore your LENDER may require you to carry flood insurance.

Now that your LENDER has the initial documentation needed to submit you LOAN it is prepared and packaged to be submitted to the underwriter.

Mortgage Underwriting

The underwriter will review your application to determine if you are qualified to get your MORTGAGE. The underwriter's job is to verify that your income is sufficient for the MORTGAGE and that you will be able to make your MORTGAGE payments on time. An underwriter will also look for evidence of fraud and or falsified documentation. The underwriter will either issue an approval or a conditional approval. The conditional approval may require additional documentation for you to get your LOAN finalized. This is a normal part of the process and even the most qualified customers will find that additional documentation is required. In today's lending environment a borrower needs to understand that any aspect of your LOAN that is not clear cut will need to be backed up by additional documentation. The underwriter will look through every document of the file and will scrutinize the appraisal , title , escrow and income documentation. The underwriter will also review the purchase documentation and most other documents involved in you buying your home.

In our next step we look at the final process of signing and funding your LOAN.