R.P. Brown Real Estate

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R.P. Brown Real Estate

Special Report!

"Finding a Home Loan That's Right For You"

Five Loan Mistakes to Avoid

When Purchasing a Home

Once you have applied for a mortgage loan, be careful not to disturb the loan process. If your loan application qualifications change during the loan process, you may lose your loan approval. It is important to avoid doing any of the following actions until AFTER your loan has closed escrow.

1. DO NOT CHANGE JOBS.

Changing jobs before or during the loan process may dis-qualify you for the loan, especially if that job is in a different line of work or at a lower rate of pay. Also, the new job will need to be re-verified , which delays the loan.

2. DO NOT MAKE ANY MAJOR PURCHASES.

Many borrowers make the mistake of buying a new car, or applying for credit without realizing that it impacts their ability to buy a home. A large monthly debt payment can affect the amount of home for which you qualify and make it difficult or impossible to get your loan approved.

3. DO NOT SWITCH BANKS OR MOVE YOUR MONEY AROUND.

It is best to leave your money right where it is until your loan is closed. Moving your money to a new bank or even into a new account can upset the loan verification process.

4. DO NOT PAY OFF BILLS IN FULL.

If you need to pay your bills off to qualify for a loan, your loan officer will advise you. She will show you the best way to pay off bills (usually through escrow) and make sure you have the necessary evidence to prove the bills were paid. Otherwise, it could impact the loan procedure and delay the approval.

5. KEEP YOUR HOUSE PAYMENT CURRENT.

To eliminate additional interest charged on your current mortgage, it is critical to keep making your payments. Also, the loan approval depends on your mortgage being current.

If you must do any of the actions listed above, contact your loan officer. She can re-qualify you if necessary and advise you of your options. By avoiding these five things, however, you should be able to successful close your loan.

Loans & Mortgages: Financing your Home

Sources of downpayment/deposit

Savings

Gifts/Inheritance

Sweat Equity

Loans

Grants

Job bonus / Lump sum payoff

Loan Considerations

Types: FHA, VA, conventional, private

Prepayments

Interest / APR

Terms (years)

Amortization (years) / Balloon payment

1st / 2nd

Bring to loan agent:

2 most recent paystubs for all adults in household

2 years of most recent tax returns, including copies of W-2 forms

last 30 months bank statements

If self employed, 2 years Profit and Loss Statements

$25 each for credit report (approximate)

Mortgage Lenders and Brokers

Major categories of mortgage lenders include:

Savings & loans. Also called thrift institutions, savings and loan associations (S&Ls) are the largest traditional lenders of residential home mortgages. A government cleanup of bad loans at S&Ls that ended in the 1990s left behind the stronger S&Ls. These institutions remain a major source of funding for home mortgage loans. S&Ls are often called savings banks in the eastern U.S.

Commercial banks. Commercial banks offer attractive loan terms, particularly if they evaluate their entire banking relationship with you. Some commercial banks have their own real estate departments and will service your mortgage loan. Other commercial banks sell their mortgages to Fannie Mae and Freddie Mac, two major government-sponsored enterprises that specialize in buying residential mortgages from lenders.

Mortgage bankers. Mortgage bankers borrow money from banks or pools of investors, underwrite the loans, and sell them to investors for a profit. They often receive a fee from these investors for servicing your mortgage. Mortgage servicing includes collecting monthly payments, sending out loan statements, and collecting on late payments.

Mortgage brokers. Mortgage brokers circulate, or "shop," a loan application among lenders to find the most attractive terms for the borrower. In exchange, a lender pays the broker a fee.

Homeowners. You may find that the current homeowner is willing to offer financing in exchange for selling the home sooner. This means that the seller becomes your lender. A common means of financing is for the seller to accept a mortgage note. A mortgage note requires you to make monthly payments to the seller instead of a bank or other lender.

Credit unions. Credit unions can offer competitive loan terms to members. However, since credit unions do not sell their mortgages to Fannie Mae or Freddie Mac, they may not offer the best loan terms.

Types of Mortgage Loans

Major types of mortgage loans include:

Fixed-rate loans. Because they offer a monthly payment that is known and does not change, fixed-rate mortgage loans remain the most popular type.

Most fixed-rate mortgages are for loan terms of 15 or 30-years. A 30-year loan has lower payments but a slightly higher interest rate. For all of 2000, the average mortgage rate on a 30-year fixed-rate loan was 8.05%, according to data from Freddie Mac. For 15-year mortgages, the average rate was 7.72%.

To pay off a fixed-rate loan sooner, check with your lender to make sure you can make prepayments. You should be allowed to make these anytime and for any amount, and at no penalty.

Adjustable-rate loans. After an initial term, the interest rate on an adjustable-rate mortgage (ARM) loan is re-set periodically. This is to keep the rate in line with current market interest rates. For example, a 3/1 ARM loan offers a fixed rate for the first three years, adjusting once a year thereafter. A 5/1 ARM loan offers a fixed rate for the first five years, adjusting yearly thereafter. The lender sets the interest rate by adding a margin to an index rate. Common indexes include:

Cost of Funds Index. The Eleventh District of the Federal Home Loan Bank Board, which covers California, Nevada and Arizona, publishes the Cost of Funds Index (COFI).
Treasury bill yields. The yield on the 1-Year T-bill, adjusted for a constant-maturity security, is widely used.

Most ARM loans have a periodic rate cap and a lifetime cap to limit the amount the interest rate can increase each adjustment period and over the term of the loan, respectively.

If you have a payment cap in your loan agreement, you may face negative amortization of your loan. This has the effect of increasing the amount you owe.

Convertible mortgage loans. These are ARM loans that allow you to convert to a fixed-rate loan at or before a specified time. The conversion privilege lets you start off with a low variable rate, then lock in when fixed rates drop low enough.

Balloon mortgage loans. These are loans that often have interest-only payments. In this case, you amortize any loan principal and the entire loan amount is due at the end of the loan term. A balloon mortgage allows you to minimize your monthly payments until you refinance the loan. Another advantage is that a larger share of your payment may be eligible for the mortgage interest tax deduction.

Bi-weekly mortgage loans. A bi-weekly mortgage loan saves you thousands of dollars in interest expense over the loan term. You repay your loan faster, shortening the time it takes before you own your home outright.

Instead of monthly payments, bi-weekly mortgages require a loan payment every two weeks. For example, you might pay $500 every two weeks instead of $1,000 a month. As a result, you make 26 payments in a year. If your bi-weekly payment equals half your monthly payment, this is equivalent to making 13 monthly payments.

You aren't limited to making bi-weekly payments that equal half the amount of a monthly payment. Most lenders offering bi-weekly mortgages will negotiate the size of the payment. A bi-weekly mortgage does not have the same term as a 15-year mortgage loan. You don't have to use a bi-weekly mortgage to make extra loan payments. You can make them whenever, and for however much, you wish, provided your lender does not charge a prepayment penalty.

Article from financenter.com

Disclaimer: The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a mortage lender or financial adviser.

email: rpbrown@realtor.com
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