Pre-qualification occurs before the loan process actually begins,
and is usually the first step after initial contact is made.
The lender gathers information about the income and debts of
the borrower and makes a financial determination about how much
house the borrower may be able to afford. Different loan programs
may lead to different values, depending on whether you are qualified
for them, so be sure to get a pre-qualification for each type
of program you are suited for.
Popular Mortgages
Fixed Rates
A conventional fixed-rate mortgage offers you a set rate and
payments that do not change throughout the life or "term",
of the loan. A conventional loan is fully paid off over a given
number of years, usually 15, 20 or 30.
A portion of each monthly payment goes towards paying back the
money you borrowed, the "principal", and the rest is
"interest". Any money paid into the value of the house,
including your down payment, is known as "equity" in
the home. For instance, if your house is worth $100,000 and you
owe $65,000 on your mortgage, then you are said to have 35% equity
in your house.
Temporary Buy-Downs
"Buydowns" usually refer to a borrower "buying
down" the interest rate on a loan. This is the same concept
as paying "points" on a loan, except that points buydown
(or up) the rate of a loan over the entire term while a buydown
is usually only a temporary reduction.
Credit Repair
Dealing with Credit Bureaus
It is essential to understand that Credit Bureaus are nothing
more than record keepers.
Simply put, they keep a record of who has given you credit, when
they gave you credit, how much credit you are given and whether
or not you paid it back on time. When you want to obtain credit
cards, loans, financing for a car or home, leases, apartments
and sometimes even employment, the lender or bank will check your
credit to see your financial history.
Credit Bureaus are paid by the people who request your credit
file. Credit Bureaus have no legal power over you. Banks, police
or the government does not run them; so don't be intimidated by
them. They are the Credit Bureaus because they own large computer
systems capable of storing credit information on everyone in the
United States. However, because of the tremendous amounts of information
on their computers, their method of storing information is very
basic and ridden with many errors. Since the bureaus have made
so many errors in the past, all Federal Laws regarding credit
information are very much in your favor.
The Mortgage Process
Pre-Qualification
Pre-qualification occurs before the loan process actually begins, and is usually
the first step after initial contact is made. The lender gathers information
about the income and debts of the borrower and makes a financial determination
about how much house the borrower may be able to afford. Different loan programs
may lead to different values, depending on whether you are qualified for them,
so be sure to get a pre-qualification for each type of program you are suited
for.
Application
The application is actually the beginning of the loan process and usually occurs
between days one and five of the loan. The buyer, now referred to as a
"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
Processing occurs between days 5 and 20 of the loan. The "processor"
reviews the credit reports and verifies the borrower's debts and payment
histories as the VODs and VOEs are returned. If there are unacceptable late
payments, collections for judgment, etc., a written explanation is required from
the borrower. The processor also reviews the appraisal and survey and checks for
property issues that may require further discernment. The processor's job is to
put together an entire package that may be underwritten by the lender.
Underwriting
Lender underwriting occurs between days 21 and 30 or sooner. 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. As above, if more information is needed the
loan goes into suspense. Otherwise it is usually returned back to the mortgage
company within 48 hours.
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 (depending upon the
designated length of your escrow). At the closing, the lender "funds"
the loan with a cashier's check, draft or wire to the selling party in exchange
for the title to the property. This is the point at which the borrower finishes
the loan process
Should I Refinance?
If you are a homeowner who was lucky enough to buy
when mortgage rates were low, you may have no interest
in refinancing your present loan. But perhaps you
bought your home when rates were higher. Or perhaps
you have an adjustable rate loan and would like to
obtain different terms.
Should you refinance? This refinancing tip will answer
some questions that may help you decide. If you do
refinance, the process will remind you of what you
went through in obtaining the original mortgage. That's
because, in reality, refinancing a mortgage is simply
taking out a new mortgage. You will encounter many
of the same procedures-and the same types of costs-the
second time around.
Would Refinancing Be Worth It?
Refinancing can be worthwhile, but it does not make
good financial sense for everyone. A general rule
is that refinancing becomes worth your while if the
current interest rate on your mortgage is at least
two percentage points higher than the prevailing market
rate. This figure is generally accepted as the safe
margin when balancing the costs of refinancing a mortgage
against the savings.
Rent vs. Own
If you're thinking about buying a home, you
probably have a mental list of the benefits
owning a home would bring to your life. You
imagine waking up and falling asleep in your
own home, decorating as you please, or maybe
even getting away from the loud neighbor you
hear every evening through the paper thin walls
of your apartment complex. You are ready to
invest your monthly housing expense, instead
of giving it all to your landlord every month.
The desire to own a home has been felt by nearly
all Americans. Owning a home is the American
dream. So what's stopping you? That's a good
question, one that should be carefully answered.
It's important that before you buy a home, you
understand the potential impact it will have
on your finances and lifestyle.
Listed below are some of the new responsibilities
and added benefits of owning your own home.
Avoid Foreclosure
How to Avoid Foreclosure
When you miss your mortgage payments, foreclosure
may occur. This is the legal means that your
mortgage company can use to repossess (take
over) your home. When this happens, you must
move out of your house. If your property is
worth less than the total amount you owe on
your mortgage loan, your mortgage company or
HUD could seek a deficiency judgment. If that
happens, you not only lose your home, you also
would owe your Mortgage Company or HUD an additional
debt. Foreclosure or a deficiency judgment could
seriously affect your ability to qualify for
credit in the future. So you should avoid it
if all possible!
Don't ignore letters from your mortgage company!
If you are having problems making your payments,
contact your mortgage company immediately. Explain
your situation. Be prepared to provide them
with financial information, such as your monthly
income and expenses. Without this information,
they may not be able to help. Stay in your home
for now. You may not qualify for assistance
if you abandon your property.
