How Hard Money Loans Can Leave You in Hard Times?

Top view of house model, pencil, ruler, dividers and other tools on wooden architects table.

When you first enter real estate investing, you hear a lot of terms that do not exist in other industries. One of these, hard money, sounds like it has to do with concrete deals, but it actually describes a type of loan specific to the real estate industry.

It does not refer to anything related to loan sharking although a lot of people assume that. I guess they think the “hard” half of the term must come from somebody’s brass knuckles or such.

Your bookie will not be involved in this loan, either. Although you could say you are gambling with your money investing in real estate, it really is not the same thing.

You could turn to search engines for loan financing information. If you used Bing or Google to search for hard money loans you probably got that idea though because most websites and blogs have even one word about it write in an extremely evasive manner. You know, I don’t do that. Ever.

I lay it all out for you and I am straightforward and honest. It freaks some people out, but I never care.

So, here is the straight truth about hard money loans. They can either save you and make your investment happen, or you can ruin yourself by handling it wrongly.

The best thing to do is to handle it as it traditionally was – individual to individual.

Hard Money Loans Defined

You probably wonder what that means. Well, a hard money loan is a one-to-one thing. Rather than going to Citibank, you approach a private lender. Okay, that probably also gave it the aura of mystery it has.

A hard money loan is a type of short-term real estate loan extended by a private lender and backed by assets, typically real property. These loans typically have a repayment period of six months to three years and charge higher interest rates and fees to enhance the return on investment (ROI) received.

Tell Me More About Hard Money Loans

Typical real estate purchases do not require this type of loan. For most purchases, you will obtain a traditional mortgage. You would take out a hard money loan when you want to purchase a fixer-upper, a house to flip or a dilapidated property to tear down the existing structure or structures and then construct something new.

A hard money loan then generally provides the funds not only to buy the property, but also to renovate or remodel it. Once the buyer has renovated or rehabilitated the asset to an acceptable level, the buyer obtains a traditional mortgage from a commercial lender, then pays off the hard money loan in full, if they had not already.

Where to Apply for a Hard Money Loan

If it is not your street corner and not your bookie and also not your credit union or Citibank, you probably wonder where the hell this loan is coming from and how they have all this money.

You will also probably be happy to learn that the hard money lenders consist of pretty normal sources in finance. It is typically one of the following three:

  • Private individuals such as venture capitalists offer these loans for a higher-than-market (ROI).
  • Privately managed funds that specialize in real estate developmental funding.
  • Mortgage brokers working with non-traditional sources like insurance firms and individuals.

Specialty Loans within Hard Money Loans

Hard money loans are an enigma wrapped in a stigma as the cinematic line goes. If you thought only one kind exists, surprise! There are six types of hard money loans.

Types of hard money loans

Applying for a Hard Money Loan

The awesome news is that the three types of financial lenders that offer these loans want to make them. They actively scout for new projects. They look for well-planned projects with a clear exit plan and some of the borrower’s own money invested.

While your credit history still matters, it does play a smaller role. You can have a few credit problems and still get the loan. That makes this a strong financing option, but you have to be prepared. You need to approach a financial lender with a statement of intent that concisely explains your need for funding and your means to repay it.

The Next Step In Application

You get your finances in order before you submit your application. If you have never applied for a loan before, let me warn you. It takes a little preparation.

If you ever prepared a budget before, you will go through many of the same steps. You have to be able to document your finances.

You have to prepare business documents, too. This means you need to prepare your business plan and your investment plan. That is at a minimum.

You also need to provide potential financial lenders with the project budget and the estimated project calendar. The lender needs to know the length of time the project costs because comprises one component of their algorithm. It will contribute to the loan term.

As much as the genius entrepreneur Elon Musk likes to wing it without a business plan, in real estate investing and development they are required in order to obtain a hard money loan. If you’re Musk, you simply fund your project by selling cute hats. If you’re not, you better get to work on your business plan, investment plan, and your project calendar.

Hard money lenders specialize. This is the only type of loans they typically make. That means they have experience. It also means that they know what to look for in a properly prepared project. They will sniff out BS quickly, but will be more than willing to fund a genuine project even if it is your first.

So, what are some other items you can bring to the lender when you apply for the loan to show you truly prepared for your project?

Whether you plan to flip a single house, build a street of townhouses or erect an entire planned unit development (PUD), you need to show the potential financial lender the plans. That means you bring the actual blueprints for a remodeling project for a house flip. In the cases of the row of townhouses or a PUD, you need the plat documents, the site plans, the development plan. That should take the form of hard copy plans or digital versions. The latter typically provides more information in a succinct format since it uses geographic information systems (GIS) to display the information.

GIS plans merge a map of the site or subdivision with a database of information. You probably have used a GIS map without realizing it. If you have ever used Yahoo Maps or Google Maps and clicked on a point of information – clicked on the address marker, for example. The information that displayed came from the database linked to the map.

You probably are not undertaking a project of that size alone, but if you were, even if it was just planning to flip a house, you need the blueprints. Maybe you were planning to function as your own builder, but you will still need plans. If you want the hard money loan, you do not get to wing it.

The Required Asset

You also already have to own property to obtain a hard money loan. That is because you must provide an existing property asset in order to qualify for a hard money loan. Hard money is secured money and you cannot access the money, i.e. avail yourself of the loan, without the asset to secure the loan.

So, collateral required.

The property does not have to perfect. You just have to own it. Some hard money lenders will actually still loan to if the property you own is in foreclosure or if you or your company is in bankruptcy proceedings. The house equity or home equity matters, too. It really has to be yours free and clear to qualify for use as collateral.

The Paperwork

What?

You mean you did not realize that I was only discussing the items you had to get ready before you go to apply? Dang. Yep.

So far, we have only covered the things you need to have on hand and ready so you can go apply for the hard money loan.

Now, you get to go to the potential financial lender and actually apply. That is the paperwork to which I am referring.

You really want to get into real estate development and investing, right?

See, they make it look so fun and easy on TV. Remember that those TV shows encapsulate weeks or months worth of work into an hour or two of TV time.

Maybe life would be better if those “reality” shows actually showed the dates and project milestones on the screen like Law and Order do the trial parts. Because real estate, construction, and development do not really work as they show on TV. To be honest, the folks on the TV shows do not even really know what shiplap is.

Once you have the blueprints, plans, budgets, project calendar, and more plus your property asset in place, you can complete your application. Depending on your lender, you may need to fill out a paper application or an online application.

The terrific news is that you typically only have to wait 24 to 48 hours to find out if you were approved. The potential lender quickly checks your bank balance, credit score, income, your collateral documentation. Once approved, you typically receive the money immediately which lets you move quickly on a specific property.


How Much You Have Decides How Much You Get

While market conditions change, in the current climate, you can borrow up to 70 percent of your collateral property’s value. That means if you own more than one property and you need to fund a large project, your best bet would be to use the most valuable property you have. That would guarantee you can obtain the funds you need.

Caveats to Hard Money Loans

A few caveats exist to hard money loans.

Every hard money lender establishes their own loan guidelines. Private investors also have their own requirements. That means one may provide you with a one-page application while another may require five pages. One may only require a business or investment plan while another may require every piece of preparation paperwork discussed above including blueprints and GIS.

You have to be prepared to pay back the loan. Unlike a mortgage, you will not get 20 or 30 years to pay this back. You have to make the monthly payments and you start the month following the loan application acceptance. The financial lender does not really want your property. They want their money back.

If you do miss payments or do not flip the property, the financial lender will assume your collateral. That means it will take possession of the property you already own to pay for the money you did not payback.

You will pay high-interest rates on hard money loans. Cheap hard money does not exist. We are talking 12 to 18 percent interest rates. You will pay dearly for this short-term loan, but you can typically obtain these when other loan types would remain out of reach.

You will also pay closing costs. Getting the loan costs you between 2 to 10 points. One point equals one percent of the hard money loan amount.

Other Investment Strategies

The unfortunate thing about real estate is that it requires fast money. You need funding quickly and hard money lenders can provide it.

What if you can only get part of the money you need from the hard money lender?

Well, you have to find another funding source, of course.

You may not have the time to apply for soft money – a traditional loan. It does remain an option though. Those loan approvals can take up to ten days.

You could obtain a business partner. Maybe you have a family member or friend who would like to also invest some funds and they would willingly invest in the project.

You could – okay and this would be A LOT of work – entertain funding from a venture capitalist or angel investors. You already would have the business plans, blueprints, and other nifty items you need. And you need the elevator pitch and the appointments. Get cracking.

If none of that works for you, you can try selling hats like Musk. Or you can incorporate and sell the stock. Or you can form a partnership with a number of small investors.

You can also crowdfund. The great thing about crowdfunding is that you do not have to have a specific project in mind, but you do have to have a genuine business. Most crowdfunding platforms let you unofficially sell a tiny piece of your business. The people who contribute do not own a piece of the company like stock. That would require far too much IRS and SEC paperwork to remain feasible. Instead, they typically receive the product you create or an advance copy of your book or, in this case, some gift or token from the project.

You can get creative with that part. Let’s say you want to buy houses to flip them. You specialize in brick homes. You can make the demo bricks the gift. This works well if they were dated or stamped with some old brick company’s name, etc. It makes the bricks memorabilia.

You might work with a publicist or author to create an e-book on remodeling, renovating, home updates, going solar, converting a home to a smart home, etc. This can be the item the crowdfunding investors get when they contribute. This method also lets you set contribution levels rather like those you might see at the end of a film for producers – executive, assistant, associate.

Conclusion

The good thing is you will usually only need about 30 to 35 percent of the project cost from these other methods. Most of the funding comes from a hard money loan. They can take a lot of work to land one, but you will quickly have the funds to purchase the property you want to flip and buy yourself the time to raise the remainder of the funds for the renovation.

The 7 Best Mortgage Lenders That Make You Feel At Home

Calculator with Magnifier Searching

Finding the right mortgage loan is an essential step in purchasing a home. There are many different mortgage lenders out there. You need to find the best one for your needs. Many mortgage lenders provide mortgage loans that won’t work for you. Doing your research is important. You should start your search for a mortgage loan by analyzing the lenders out there. You need to know what to look for in a good lender.

Here we have a compiled list of the best mortgage lenders. In compiling this list, we wish to provide useful information to any consumer out there. The list below provides lenders who provide mortgage loans to a wide variety of consumer types. Regardless of your financial situation, you can find a mortgage lender offering a suitable product. As long as you have a high enough credit score to qualify for a mortgage, you should be able to find a mortgage lender on the list below who you can do business with.

In addition to knowing who the best mortgage lenders are, you also want to explore details on how to evaluate mortgage lenders. You also need to go through a few steps to find the right lender for your needs. Below is the key information you need to find the right mortgage lender to work with. Make your dream of homeownership a reality by finding a mortgage product today.

Things to Look For in a Good Mortgage Lender

For buying a house mortgage, there are a few key considerations. You need to know how to evaluate various mortgage lenders. Your mortgage lender is important to your financial health.

You need to consider the costs of the mortgage. You have to pay your entire mortgage plus interest back over time. You also have to pay various fees for some mortgages. It’s important to shop around. As with any large purchase, you want to find the most affordable option available.

Cost isn’t the only consideration. You also need to find a mortgage lender that will be there for you when you have questions. It’s good to work with a mortgage lender that will be flexible about repayment. Things might come up that cause you to be late on a payment. You want to look for a mortgage lender that won’t penalize you too severely if you need to skip a payment.

Before we represent you the best mortgage lenders, you can enter your information below and see if you qualify for any loan offered:


The 7 Best Mortgage Lenders to Consider

When you start looking for a mortgage, you might feel overwhelmed. There are many lenders out there, and there are many types of mortgages. It can be complicated to evaluate the hundreds and thousands of lenders out there. Yet it’s important that you don’t select a lender randomly. You need to be informed regarding your choice of lender.

We want to help you to become familiar with the best mortgage lenders. The mortgage you choose will impact you financially. You don’t want to pay more than necessary for your mortgage loan. Finding a fair and affordable deal is your priority.

Go through the information below on seven great mortgage lenders. Look at the products and approval requirements of these lenders. Then, you can find the best lender to meet your borrowing needs.

Citi Mortgage

If you’re looking for a good mortgage lender, consider Citi Mortgage. This mortgage provider is worth considering. Citibank is a huge, mainstream financial institution. The company, therefore, has a good reputation. You can rest assured that you’ll get a fair deal with Citi Mortgage.

One good thing to know is that Citi Mortgage has a wide variety of mortgage products available. You can get either adjustable-rate or fixed-rate mortgages from Citi Mortgage. You can also choose from a variety of loan terms including 10, 15, 20, or 30-year mortgages.

One of the biggest advantages of taking out a mortgage with Citi is the options to enjoy a low down payment. You can put as little as three percent of the home value down to take out a mortgage with Citi. If your credit score is high but your savings are low, Citi Mortgage might be the answer. However, a relatively low down payment isn’t the only advantage. You can also benefit from the fact that Citi Mortgage offers mortgages on properties in every state in the country. If you’re already banking with Citibank, you could take advantage of a discounted mortgage. It’s also worth noting that Citi will consider data outside your credit report. If your credit score is low but you have a strong history for making regular payments on rent, for example, you could still qualify.

You’ll also want to be aware of a few disadvantages of a mortgage loan with Citi Mortgage. You can’t apply online to work with this mortgage provider. Though Citi is among the best mortgage lenders, you will have to pay an application fee to apply with Citi as part of the mortgage process. Another thing to consider is that there are origination fees on these mortgage loans.

Chase

Chase bank is another financial institution to mention when discussing the best mortgage lenders. Like Citi, Chase is another large financial institution. This means that Chase has a recognized reputation for providing standard financial products like mortgages. Also, like Citi, Chase offers mortgage loans with as little as 3 percent as a down payment.

You can qualify for a mortgage from Chase with a credit score of 620. One advantage that Chase offers over Citi is tat you can apply over the Internet. As with Citi Mortgage, Chase also offers discounts on mortgage products for pre-existing clients.

There are a lot of different loan products available from Chase. You can take out a traditional mortgage. You can also get home equity, refinances, or jumbo mortgage loan from Chase. The case offers fixed and variable rate mortgages. Chase also works with the USDA to provide USDA home loans.

One of the disadvantages of a mortgage loan from Chase is that you will have to pay both, an origination and an underwriting fee. You will also need to speak with a mortgage banker as part of the process of applying.

Quicken Loans

Those who take out a mortgage loan from Quicken Loans are often surprised with the convenience of the process. You can take out a loan from Quicken Loans if you have a credit score of at least 620. You can also benefit from the convenience of applying online. One thing that’s particularly easy with Quicken Loans is verifying employment. This can be done instantly for many American workers. You might be particularly interested in borrowing from Quicken Loans if you are taking out a fixed-rate mortgage. Quicken Loans offers custom fixed-rate mortgage loan products. These can vary in term length between eight years and 30 years.

If you’re interested in an FHA loan, you might want to work with Quicken Loans. Quicken Loans also offers USDA loans. There are also some Freddie Mac and Fannie Mae products carried by Quicken Loans. Quicken Loans is in some ways slightly more limited in terms of the products they carry. They do not carry home equity loans, for example. Quicken Loans relies a great deal on credit score data. If your credit score is low, you might struggle to get approved. Unlike Citi Mortgage, Quicken Loans will not allow alternative credit data to strengthen your application.

Quicken Loans is among the best mortgage lenders for many consumers. This mortgage provider might be ideal depending on your unique needs. It might be worthwhile to research your options with Quicken Loans if your credit score is strong and you’re looking for a fast and convenient online process.

KeyBank

There are quite a few mortgage products to consider from KeyBank. There are also some home equity loans you might want to consider if you already own a property. One thing to know upfront is that KeyBank only offers mortgages in 19 states. If you don’t live in one of these 19 states, you’ll have to look elsewhere.

That being said, there are numerous advantages to working with KeyBank on your mortgage. KeyBank can potentially offer you a mortgage loan for no money down. If your credit and income are strong enough, you could potentially b a property without paying anything upfront. Homebuyers are often surprised at the various discounts they can take advantage of with KeyBank.

You might be able to be approved for a loan with KeyBank despite not having a traditional credit history. KeyBank considers nontraditional credit data in qualifying applicants for mortgage loans. You might find KeyBank to be among the best mortgage lenders if you are interested in a Fannie Mae HomeReady Mortgage. This is one of the federally backed mortgage loan features that KeyBank offers.

One drawback is that you can’t apply online with KeyBank. Another drawback is that KeyBank doesn’t offer any USDA mortgage loans.

Rocket Mortgage

Rocket mortgage loanIf your credit score isn’t very high, Rocket Mortgage might be a good option for you. You can qualify for a mortgage from Rocket Mortgage with a credit score as low as 580. Rocket Mortgage also offers a full range of mortgage products. In addition to both fixed and adjustable-rate mortgages, Rocket Mortgage also offers jumbo, FHA, USDA, and VA mortgages.

If you’re looking for the best mortgage lenders with extensive online capabilities, Rocket Mortage is a good option. In fact, Rocket Mortgage offers one of the most convenient mortgages processes out there. They also give you a lot of opportunities to customize your loan to your needs.

On the other hand, Rocket Mortgage might not be a good option if you want one-on-one assistance. Another possible drawback is that your interest rate might be high with Rocket Mortgage. Also, Rocket Mortgage might not approve you if you’re carrying a particularly high debt load.

Guild Mortgage Company

It might be a good idea to apply for a mortgage with Guild Mortgage Company. This mortgage provider offers mortgage in 48 states. This means that this company most likely provides mortgages in your area. However, this company does not provide mortgages in New Jersey or New York. Another thing that puts Guild Mortgage Company among the best mortgage lenders is its long history. Guild Mortgage Company has been in business since 1960.

Those who are buying a home for the first time might be especially interested in working with Guild Mortgage Company. The company has a reputation for being especially helpful with first-time home buyers. Another advantage of working with Guild Mortgage Company is that they offer so many different mortgage products. You can take out a conventional mortgage loan with Guild Mortgage Company. You can borrow an adjustable-rate or fixed-rate mortgage. You can also apply for FHA, USDA, or VA loans. If you are struggling to save up a down payment, you can take advantage of down payment assistance with Guild Mortgage Company.

There are a few fees to be aware of if you take out a loan from Guild Mortgage Company. You will have to pa an insufficient funds fee of $15 with these mortgage loans. You could also be charged a late payment fee that depends on the amounts that are past due on your mortgage account.

AmeriSave

AmeriSave is a good mortgage lender to work with if you’re wanting to apply for government loans. This lender takes consumers with credit scores as low as 600. They are among the best mortgage lenders because they don’t charge you to apply. They also don’t charge you an origination fee. One huge perk you can enjoy with AmeriSave is that you can get rewards as high as $4,500 if you buy a property using the assistance of one of the companies affiliated real estate agents.

The major drawback to being aware of when it comes to working with AmeriSave is that interest rates can be a little on the high side. That being said, you don’t have to have a large down payment with AmeriSave. In fact, you can qualify with a down payment of only three percent of the home value.

There are many different mortgage products available from this lender. You can work with AmeriSave to purchase a home. You can also work with AmeriSave to refinance your existing mortgage. You can take out government-backed mortgages like FHA, USDA, and VA mortgages with this mortgage provider. The average amount for an AmeriSave mortgage is slightly more than $250,000. If you are looking to buy a home with a price of around $250,000, AmeriSave might be a good mortgage provider to work with.

Steps to Evaluating These Mortgage Lenders

To find the best mortgage lenders, you need to go through a few steps. Start by analyzing your situation. Then consider exactly what you’re looking for. You probably are looking to by a property in a particular area. Maybe you are dreaming about the country life. In that case, you should think about rural mortgages. You’re also looking for a property of a certain size with certain amenities. Determine what you want to start out. Then determine how much your envisioned home will cost you.

Figure out what your credit standing is. If your credit score is lower than 580, you probably have little to no chance of getting a mortgage loan. Once you analyze your income and credit score, figure out which lenders mentioned above are most likely to work with you.

You should now understand how to shop for a mortgage. You should also have some key information on who the best mortgage lenders are. The sooner you get started preparing to apply for a mortgage, the sooner you’ll be a homeowner. You might be surprised at how easy it is to qualify for a mortgage. Resourcefulness and effort are key. You need to put time into acquiring the information you need to become a homeowner.

Some mortgage lenders offer fair and accessible products. Others offer mortgages you may not qualify for. Still, others provide mortgage products but don’t offer good customer service. Some mortgage lenders charge interest rates that are excessively high. You need to understand which mortgage lenders are the best on the market.

In Conclusion

Home ownership is a dream that’s within reach for so many consumers. Unfortunately, a lot of consumers don’t know which lenders to work with. Research the seven mortgage lenders mentioned here. Then, you can apply for the best prospect for your financing needs. Strengthen your finances with the right mortgage. Owning a home puts you in complete control of your living situation. We hope to help you on your journey to home ownership with this important information.

How to Qualify For A Mortgage After Bankruptcy?

Small model home on green grass with sunlight abstract background

A consumer’s dream of owning a home doesn’t have to end simply because of bankruptcy. Consumers with a recent bankruptcy are often eager to know when they can qualify for a mortgage again. When it comes to the mortgage after bankruptcy, a consumer’s chances for fast approval vary widely. Many factors impact how long a consumer must wait to own a home after bankruptcy. However, consumers are often surprised at how soon their finances recover from bankruptcy.

Inform yourself to speed up the process of getting a mortgage after bankruptcy. The more you know and the more resourceful you are, the faster you can qualify for a mortgage loan. What you need to concentrate on initially is learning about mortgage offers. You should look for mortgages that are meant for those recovering from bankruptcy.

Dealing with bankruptcy is not easy. You’ll need to be persistent and disciplined to overcome bankruptcy financially. Fortunately, you may find that you can buy a home soon to achieve the American dream of homeownership despite a recent bankruptcy.

Mortgage Loans After Bankruptcy

There are some essential things you need to know about a home loan or mortgage line of credit after bankruptcy. Getting financed for a property is possible. Yet it’s obviously a bit more complicated than applying for a mortgage with flawless credit. You’ll have to work a little harder to own a home after bankruptcy.

The two main types of bankruptcy that a consumer can file for are:

  • chapter 7 and
  • chapter 13 bankruptcy

Generally speaking, waiting periods are longer for those who file for chapter 7 bankruptcy than for those who file chapter 13 bankruptcy.

The typical waiting period for a conventional loan, after a chapter 7 bankruptcy, is four years. However, the waiting period could be only two years after the discharge date for a consumer who files for chapter 13 bankruptcy. For an FHA loan, the waiting period is usually two years for a chapter 7 bankruptcy and one year for a chapter 13 bankruptcy.

Mortgages That Might be Ideal After Bankruptcy

You should take the time to explore the mortgages available to you. Those who look for a mortgage after bankruptcy needs to consider all the options. Finding a mortgage is a little more challenging after bankruptcy. When purchasing a home with bad credit, consumers need to consider options other than conventional loans. Consumers with a recent bankruptcy may not qualify for conventional mortgage loans. However, they may more easily qualify for one of the following mortgage loan types.


FHA Loans

FHA loans are loans that are insured by the Federal Housing Administration. Because these loans are backed by a government organization, lenders are more lenient regarding the borrowers they approve. You could possibly get approved for an FHA mortgage with a credit score as low as 500. However, you’ll need to go through a waiting period before you can qualify for an FHA loan. You’ll also need to pay at least 10 percent of the home’s value as a down payment if your credit score is lower than 580.

USDA Loans

You can consider a USDA loan if you’re purchasing a property in a rural location. These loans are backed by the U.S. Department of Agriculture. The waiting period for USDA loans after bankruptcy is relatively short. In fact, those who file for chapter 13 bankruptcy could be approved for a USDA loan after only one year has passed.

Consumers usually need a credit score of at least 640 to qualify for these loans. The term for a USDA mortgage is usually 30 years. It’s also important to note that these are generally fixed-rate mortgages.

VA Loans

Veterans could potentially qualify for a mortgage after bankruptcy through VA loans. Veterans could qualify for this type of loan after only two years even if their bankruptcy included a foreclosure. However, a credit score of at least 620 is generally important for acquiring a VA loan. At the same time, there are some lenders out there who offer VA loans without any credit score requirements. Some lenders offer VA loans with no money down to qualifying applicants.

The Waiting Period

You’ll probably have to go through a waiting period. Most lenders require consumers to go through a waiting period before qualifying for a mortgage after bankruptcy. How long this waiting period is, depends on a variety of factors. Lenders require a waiting period so that consumers take time to stabilize their finances before borrowing again.

Factors that influence waiting period length include whether there was a previous foreclosure and what circumstances brought about a consumer’s financial problems leading to bankruptcy. Also, the type of bankruptcy that the consumer filed for influences the waiting period length.

Foreclosure

Many consumers with recent bankruptcies went through a foreclosure on the property they previously owned. If this is the case, the waiting period will be extended. Foreclosures extend the waiting period of conventional and FHA loans. In fact, a foreclosure will significantly extend the waiting period for conventional loans. The waiting period might remain the same regardless of foreclosure for USDA and VA loans.

The Extenuating Circumstances

Some consumers experience bankruptcy as a result of events outside their control. For example, consumers can experience bankruptcy because they had an illness that prevented them from working.

Extenuating circumstances may be present that shows a consumer’s bankruptcy was not the result of mismanagement of finances. If this is the case, a mortgage after bankruptcy could come more quickly.

What to do During the Waiting Period

If you’re interested in a mortgage after bankruptcy, don’t let yourself grow frustrated by the waiting period. Take advantage of this time. The last thing you want to do is get in over your head financially again. That’s why it’s important to go through the waiting period.

Waiting periods give you the opportunity to reestablish financial strength. There are numerous things you need to do during this period. Simply going through the waiting period isn’t enough. You also have to reestablish your creditworthiness during this period. The following are four things you should do during the waiting period.

Building Your Credit

The number one thing to focus on for mortgage after bankruptcy is increasing your credit score. Consider that you’re starting from scratch regarding your credit. Consider what credit accounts you currently have. If you still have any credit card accounts, pay down the balances. Also, make sure your payments are all on time.

If you’ve recently declared bankruptcy, you may not have any loan or credit accounts still open. In this case, you probably should open a secured credit card account. These accounts are easy to qualify for. They also give you the chance to build up a reliable repayment history. This is the first step to improving your credit.

Boosting Income

If you want to own a home, it’s a good idea to increase your income. The more money you’re making, the more attractive you are as a borrower. You need to be employed to even consider any type of loan. Perhaps you can increase your income by working more hours. Alternatively, you may be able to start a business on the side. Another possibility is that you could apply for a second job. Anything you can do to improve your income will make financial management easier.

Accumulating Savings

If you want to take out a mortgage after bankruptcy, you’ll need to make a down payment. It’s unlikely that you’ll qualify for a mortgage without any money down. This is difficult even in normal circumstances. It’s especially difficult after having recently declared bankruptcy.

During the waiting period, you can start accumulating savings. You can eventually use your savings to pay your down payment.

Pre-qualifying for a Mortgage

Although you can’t take out a mortgage yet, you may be able to pre-qualify for a mortgage. Shop around during your waiting period. This will help you to find possible mortgage lenders who can help you. Lenders often let you pre-qualify for a mortgage loan without officially applying. Pre-qualifying makes it so that you know who to turn to when you find a property you’d like to buy.

Taking Out a Conventional Loan After Bankruptcy

Some consumers might want to wait to take out a conventional mortgage after bankruptcy. They may not be able to qualify for FHA, USDA, or VA loans. In this case, the waiting period is going to be a little longer. Conventional loans aren’t backed by any government organizations. This means that lenders are relying on the borrower’s credit score alone to mitigate risk.

A borrower with a bankruptcy and foreclosure on his or her record may have to wait as long as seven years to qualify for a conventional mortgage. However, lenders may cut down this waiting period according to extenuating circumstances. They also may cut down this waiting period in the case of a chapter 13 bankruptcy.

Shopping Around

The best way to find an appropriate conventional loan is to shop around. There are many mortgage lenders out there. Approval requirements vary widely between lenders. Use the Internet to explore your options. Look specifically for lenders who help consumers with recent bankruptcies. A traditional lender might not be able to help you.

In addition to using the Internet, you can also find information on lenders from your financial advisor. Ask your bank, credit union, or accountant for recommendations.

Protecting Yourself

Protecting yourself financially should be the number one priority. It’s understandable that you want to own a home. However, you don’t want to get in over your head again. If you’ve had a bankruptcy in your past, then you’ve experienced the stress of having financial problems.

Don’t let the same thing happen again. Try to avoid borrowing whenever possible. If you do take out a mortgage loan, keep your balances as low as possible on your credit cards and other loans. You don’t want to let your debt get out of control.

Evaluating Options

Compare your mortgage options carefully. After bankruptcy, you may feel eager for any type of approval. However, you shouldn’t jump on the first offer you get. Evaluate offers carefully. Be aware of the interest rate. As previously mentioned, you want to avoid getting in financial trouble again. This means you need to avoid loans that are excessively expensive.

If the only mortgage loan you qualify for has a very high interest rate, it’s best to wait. Be patient and don’t buy a home until you can qualify for a decent interest rate. Otherwise, you’ll be throwing away a lot of money on interest charges. You’ll also be putting yourself at risk of additional financial troubles down the road.

The Things You Need

You can qualify for a mortgage after bankruptcy. Yet there are some things you’re going to need to make this happen. You won’t qualify for a mortgage right away. You’ll need to focus on making a mortgage approval happen. It may not be easy. The following are four important things you’re going to need to eventually qualify for a mortgage.

Patience

Above, we discussed the various waiting period requirements for a mortgage after bankruptcy. These waiting period requirements indicate that you need patience. Unfortunately, damage to your credit history doesn’t go away quickly. It can take months or even years to get back on track financially.

At the outset, be aware of the importance of being patient. The more patient you are, the less frustrated you’ll feel. Get used to rent for a while if you’ve recently had your home foreclosed on. There is no way around it. Consider that it’s probably best to wait after bankruptcy to borrow a mortgage anyway. You need time to build your credit again.

Income

You can’t re-establish credit without income. You also can’t pay for a home without income. Perhaps you had to declare bankruptcy because you lost your job. In this case, you need to reestablish a reliable income stream.

Consider your employment options. Not only do you need income to rebuild your finances, but you should also maximize your income. The more money you bring in, the faster you can rebuild your finances.

It takes time to save up enough for a down payment on a home. Build your income and put a little aside each month. This allows you to save a down payment fund.

Organization

When it comes to re-establishing credit, the organization is important. Being organized makes it easier to keep up with our payments. Avoiding missed payments over time will boost your credit score.

Set up reminders when you have a loan or credit card payments to make. Even better, have payments automatically withdrawn from your account. This way, you can be sure that you won’t forget the payments you have to make.

Sit down and create a strategy for rebuilding your credit. Learn as much as you can about what factors influence your credit rating. Then, use every resource at your disposal to maximize your credit score as quickly as possible.

Information

Any information you can find about credit building and mortgage providers can help you. Do your research. Make sure you understand how credit and mortgage loans work. Fortunately, these days information is so easy to come by. Get budgeting tips and other helpful information on the web. Also, talk to financial advisors and follow the advice of experts on whether you should take out a mortgage. Don’t be afraid to ask questions and learn from your bankruptcy and the aftermath.

Final Thoughts

Now that you’ve acquired some knowledge about mortgage after bankruptcy, it’s time to get started. Go through the steps mentioned above and you’ll clean up your finances in no time. Use the resources available to you. There are resources for both cleaning up your credit and searching for mortgage offers. Make sure you’re taking full advantage of these resources.

You’ll probably find that you can’t qualify for any mortgage offers right away. However, there are many things you can do in the meantime. Take advantage of your waiting period to get yourself ready to own a home. Once you get approved for a mortgage, you’ll feel like you’ve overcome your bankruptcy. Keep working hard and persisting.  Bankruptcy is not the end of the world. Your efforts will pay off in the long run. Stay focused on revitalizing your finances and you’ll soon join the ranks of the many proud homeowners out there!

Everything You Need to Know About Collateral Loans

Paper cut of model house with coins on wooden table.

You’re probably familiar with several types of collateral loans without being aware that’s what they’re called. If you’ve ever paid for a home over time or financed an automobile, you’ve probably used a collateral loan. In a typical mortgage, the home itself acts as security for the loan; if you don’t make your house payments, the lender may take it from you. A car or truck loan – especially on a new vehicle – is quite similar; if you miss enough payments, the dealer, bank, or credit union can take (or take back) the automobile in question.

Collateral Loans: What Are They and How They Work

At their most basic, collateral loans are any loans backed up by collateral – the stuff of value which lenders can take ownership of if the borrower is unwilling or unable to fully repay the loan in a timely manner.

Dollars Closeup ConceptIf that sounds somehow harsh or unfair, keep in mind that without collateral loans, most of us would never be able to afford those sorts of big ticket items. Our home buying options, for example, would be to (a) save up until we had enough to pay cash, or (b) live with our parents until they passed on and left us their house. Personally, I don’t find either of those particularly promising. Thanks to the modern mortgage structure, however, almost anyone can finance their home over a 15 or 30-year period. Lenders still care about your credit history and such, but they have the home itself as collateral as well, which allows the sorts of ridiculously low interest rates we’re currently experiencing in home loans.

Let’s Talk Terms (The Terminology of Collateral Loans)

Before we push ahead with different situations in which collateral loans might be a good option, it might be helpful to clarify a few of the terms I’m going to use or which you’re likely to encounter if you’re researching collateral loans for your own use.

Collateral / Collateralization

As you’ve no doubt picked up on by now, “collateral” refers to the home, car, or another item of value you offer as security for a loan. When you use your property or assets this way, they become “collateralized.” The term “collateralization” can be used in reference to the process itself or in reference to the loan or the items offered up as security. You will thus hear that the loan has been “collateralized” or remember that you can’t sell your truck because it’s “collateralized” for a small personal loan on which you’re still paying. You may also come across a reference to the “collateral value” of your property, referring to the amount it’s worth as collateral. This may be different than what you paid for it or how much it’s worth to you personally.

Secured Loans / Security

If your loan is backed up by collateral, it’s a “secured loan.” The term references the lower risk taken by the lender when an item of value is being offered as “security.” If you don’t make your payments, they take ownership of your collateral and sell it to recoup their losses. That’s not really what lenders want to do; they’re not looking to make a living selling used boats or whatever. What this does, however, is enable lenders to offer loans they might not otherwise, based on your credit score or credit history, and to extend better terms than they would even if they did approve the loan minus your collateral.

Unsecured Loans

If your loan is NOT backed up by collateral, it’s an “unsecured loan.” These rely entirely on your creditworthiness as indicated by your credit history and current credit score. Lenders may, to a lesser extent, factor in your current reliable income and job situation. Failure to make your payments on time, or to make them at all, will hurt your credit (making it even harder to borrow money on decent terms in the future) and may lead to collections or legal action, but it WON’T directly result in losing your home or car because those things haven’t been offered up as collateral. Because this means greater risk to the lender, expect lower loan limits and higher interest rates on most unsecured loans.

Together with Fiona, we connect you with reputable lenders in a matter of seconds. Sounds impossible? But it’s true! We find unique offers based on the information you put in this form below, and if you get approved for a loan, you may have the funds in your account by tomorrow. If you are looking for an unsecured loan, start here:


Assets

Your “assets” are anything you own that has financial value and are thus might be used as collateral. Some assets, like your home or car (assuming you have enough “equity” in them – that you’ve paid enough on THEIR loans that you “own” part of their value) are fairly typical as collateral.

They’re easily converted into cash if necessary and have a fairly predictable value. Savings accounts or investments are also “assets.” Their value to lenders depends on how “liquid” they are (how easily they can be transferred and converted into cash) and the likelihood they’ll hold their value over the life of your “secured” loan. Atypical assets – your semi-rare comic book collection, those sacred mummy heads you inherited and are currently on loan to the local museum, that one-of-a-kind triple-neck 8-string guitar designed, built, and signed by Rick Nielsen of Cheap Trick – may be more difficult to use as collateral since their value is slightly more subjective and they’d be more difficult to convert to cash.

Equity

This is the “stored value” you own in various forms. If you’re halfway through paying off your car, and its current value is $12,000, you have around $6,000 worth equity in it. The same holds true for your home. If its market value is currently $195,000 and you owe $115,000, you have equity of about $80,000 to work with (although most lenders won’t advance more than 80% of the value of whatever you’re collateralizing). Savings accounts or investments are a bit easier to compute. If you have $7,341 dollars in savings, that’s equity worth $7,341.

NOTE: We’re using “assets” and “equity” more or less interchangeably here, but technically they’re not the same. In the most formal financial sense, “assets” tend to be things of value – tangible items – that have financial value. “Equity,” when having a very serious business-type discussion, refers to the cash value of everything you could convert to cash easily, minus existing liabilities. In other words, Equity = Assets – Debts/Obligations. This distinction is useful in some contexts, but for our purposes it’s like arguing about whether the U.S. is a “democracy” or a “republic.” It depends on who’s using the terms and what they’re using them for.

Liquidity

You’re no doubt aware that liquids easily change form to adapt to circumstances. Pour your drink into a tall, thin glass, and your drink fills up the tall, thin shape. Spill it on your keyboard, and it quickly fills in every crevice and finds its way into the inner workings of your computer. “Liquid Assets” are those easily converted into cash. “Liquidity” refers to how easy (or not) this conversion is. Used cars in good shape have great liquidity; rare books in ancient languages may be just as valuable, technically, but are harder to immediately turn into cash.

Interest

Interest is the primary cost of a loan. Figured as a percentage of the total borrowed. Interest rates tend to be higher if you have a limited credit history or a low credit score. Because the lender is assuming a greater risk by loaning you money and hoping you’ll repay. Greater risk means greater reward, at least in modern American capitalism. Interest rates are typically lower if you have a good credit score because the risk is less. The same is true if you’re able to offer up collateral of greater value than the loan amount. The same rate of interest can be computed in numerous ways (which we won’t go into here). So it’s important to pay attention to the details when rate shopping for your best loan options.

Default / Recourse

“Default” is a fancy word for “stopped paying” and “recourse” is a fancy word for what the lender has a right to do if you stop paying. If you still owe money on a loan and you stop paying for any reason, you’ll eventually be declared “in default.” Whether this is triggered at 30 days, 60 days, or longer, and what penalties are triggered once you’ve “defaulted” varies from loan to loan. This is the point, however, at which lenders can report you to a collection agency, take legal action, or seize control of whatever assets you collateralized to secure the loan.

So, to summarize, the reason you may be asked to offer part of your assets as collateral is so that the lender has recourse if you default. You agree because you wanted to secure a lower interest rate than you could get with an unsecured loan. And you know you have sufficient equity for adequate collateralization. (See how much fancier that sounds than “I had to sign a paper saying the bank will take my truck if I don’t make my loan payments”?)

Advantages of Collateral Loans

There are a wide variety of collateral loans, each with its own features and potential pitfalls.
If you’re thinking about finding a credible, trustworthy lender, Loanry can help you.

In general, however, there are a number of positives to collateralizing your assets in order to get the best terms on a secured loan. (I thought we might get more comfortable with all the fancy terms if we used them more.) What I’m saying is, there are reasons you might want to explore collateral loans for whatever your current needs might be.

Available for Poor Credit

If you have limited or poor credit, offering collateral might make the difference between getting a loan and being denied. Lenders have to make a reasonable profit – that’s how business works. In their case, that means two primary things have to happen with some regularity. First, they have to loan out money at interest (with interest being their profit), and second, they have to get repaid with a minimum of extra effort. If it costs them twice what they’re making in interest to track you down and force you to pay, the lender loses money in addition to your credit being damaged. That’s no fun for anyone. With collateral, there’s a better chance you’ll pay, and better protection for the lender if you don’t.

Lower Interest Rate

Offering collateral can secure you a better interest rate. This works for the same reasons we just discussed a loan approval. Lower risk means lenders can offer better terms – especially a lower interest rate. They don’t have to make a LOT on each loan if they’re relatively sure of repayment. Plus, lenders want you to be happy and say nice things about them. And come back to them for your future financial needs as well. Reputable lenders aren’t looking to “defeat” you; they want you both to come out OK on the other end because that’s what’s best for business.

Your Collateral Allows You to Take a Higher Amount

You may be able to borrow a larger amount if you have sufficient collateral. Let’s say you’re planning some major home renovation and remodeling. You’ve run the numbers, and it’s the best thing for your family now and the value of your home in the coming years. But the estimates you’ve gathered for getting the work done are higher than you’d hoped, and your credit is OK, but not great. Being able to use your home’s equity as collateral gives lenders the security they need to extend you the full amount. The risk is less for them but greater for you… if for some reason you’re unable to make your payments in the future, you could lose your nicely remodeled and renovated home.

Collateral Loans Provide “liquidity”

If your wealth is largely tied up on assets with low liquidity, it might make more sense to borrow against them than to convert them in order to finance whatever you need to do. This is more often the case with businesses than with personal collateral loans.

Collateral Loans are a Great Way to Build Credit

One of the realities of modern American life is that almost all of us need access to financing multiple times over the years. At some point, you’re going to want to buy a home, finance a car or truck, pay for a wedding, take a vacation, pay off medical bills, or start a small business. Each time you do, potential lenders will check your credit. The higher it is, the more flexibility you’ll have and the better the terms you’re likely to be offered. The lower it is, the more difficult it is to do, well… pretty much everything.

Collateral loans are also a good way to finance debt consolidation. If you’re ready to get serious about your household budget and take more effective control of your personal finances, collateral loans can act as a foundation for making that happen.

You are not your credit score. It’s not a reflection on you as a person. It is seriously inconvenient, however, and expensive over time. A few small collateral loans allow you to obtain credit. But just as importantly, as you pay them back, you’re building your credit history and raising your credit score. So that’s pretty awesome.

Potential Pitfalls of Collateral Loans

Well, there’s the biggie – if for any reason you’re unable to repay the loan in full, you can lose whatever you’ve put up as collateral. Even if the lender takes your collateral and sells it to recoup their investment, late or unpaid loans will still damage your credit substantially. As with ANY loan in ANY form for ANY reason, make sure you have a budget. And a good reason to borrow and a clear pathway to repayment before you even begin rate shopping.

There are a few minor inconveniences as well. Obviously you have to have an asset or assets of value in order to offer them up as security. There’s more paperwork than with an unsecured loan. Because lenders will require a formal valuation of the assets you’re offering as collateral. That means it may take a bit longer to get your loan as well.

Final Thoughts

We’re never going to tell you what the best choice for you or your family is when it’s time to borrow or refinance. What we will do is try to give you all of the information necessary for you to make an informed decision.

It probably won’t surprise you to know that we’re big fans of online lending around here. We don’t loan money ourselves, but we maintain a curated database of reputable online lenders who specialize in creative solutions and surprisingly competitive terms. And many of them, as it turns out, aren’t as quick to request collateral as traditional financial institutions. I’m not saying it never happens – just that you’d be surprised at the options you might have.

If you’re looking to borrow or refinance, consider all of your options before making your final decision. Collateral loans are ONE of those options, but they’re probably not the ONLY one.

Let us know if we can help.

Important Mortgage Documents You’ll Need to Sign

Estate agent giving house keys to client after signing agreement contract real estate with approved mortgage application form

Buying a new house is an incredibly exciting time in your life. It can also be an incredibly stressful one. I am a firm believer in reducing stress by eliminating all the possible unknowns. I believe that buying a house is stressful (aside from a large amount of money you are spending) because few people really know what to expect. It just seems like one more document to fill out, another set of statements to fax, and one more phone call to make. If you have an awareness of what is needed and a schedule when the paperwork and phone calls are needed, then you can be better prepared and relax a little bit. You can start by reading this article about residential mortgage documents so you can have some expectation of what is coming your way.

What Is A Mortgage?

Before I jump right into an explanation of mortgage documents, I want to first explain a mortgage. When you think about buying a house mortgage, I am sure you know that typically comes with a large loan and a relatively high monthly payment. This is will most likely be the biggest payment you make each month. There are not many people that can afford to pay for a house with the money they have saved, so they usually need to take out a loan, or mortgage, that allows them to buy a house and make payments to the lender until the loan is paid back. As with all loans, the lender adds interest to the money you borrow as a fee for allowing you to borrow the money in the first place. That is how the bank makes money, by charging you interest and fees.

When you borrow money for a mortgage, you are using the house that you are buying as collateral. That means you are stating that you promise you will repay the money and if you do not, the lender can take your house as payment. Mortgages can either be a fixed rate or an adjustable-rate mortgage. A fixed-rate mortgage means that the interest rate is fixed and remains the same for the life of your mortgage. An adjustable-rate mortgage means that the rate will change over the life of the mortgage. There are different adjustable-rate mortgages, so the rate changes based on the criteria around your mortgage.

 

Mortgage Application Documents

There is a lot to know about mortgages before you consider buying a house. To determine whether you’ll qualify for a mortgage loan, you need to know what mortgage lenders look at. Even though we live in a paperless world, one of the areas that have not gone paperless is mortgages. Not only is there a lot of paperwork for you to fill out, but there are a lot of mortgage documents and statements that you need to provide to the lender. What is good to know is that the documents are relatively easy to fill out, there are just a lot of them. When you get any document that you need to fill out, make sure you read the entire document and fill out the form completely. Do not skip over any areas and make sure the information is as correct as possible.

Listed below are many of the documents you must fill out or provide when applying for a mortgage.

Mortgage Application

One of the most important mortgage documents you will fill out is the actual loan application. It is called a Uniform Residential Loan Application. It requires information from every person whose name is going on the loan. That may be you, you and your spouse, or you and your partner. No matter who is it, you all must fill out the loan application. This document requires information about you, the house you want to purchase, previous employer information, financial information, and some other questions. It is important that you fill out the information completely and correctly. One of the next steps is the lender asking you for proof of all of the information on this document. You can think of this document as the first page of all your mortgage paperwork. The closing documents are the last pages and all the supporting information goes in the middle.


Income Verification

You will come to realize that all of the mortgage documents are important. When the lender asks you to fill out a document, or submit proof of something, they give you a due date. It is important that you meet those requirements because failure to do so can result in being denied a mortgage. On your loan application, you list your income and then the lender wants to see proof of it. They want to know that you earn enough money to pay the mortgage payment. They want to know how long you have been with your current employer as well as how much you earn. When you have a long term employment history with the same employer, lenders see that to mean that you are reliable.

The documents a lender may request are:

W2s

A lender is most likely going to request W2s for the past two years for each person applying for the mortgage. If you do not have access to these records, you may have to contact the IRS to get copies. If you have breaks in your employment, you may need to write a written explanation as to why

Pay stubs

These are the best way for a lender to see what amount of money is coming home with each payment. Most likely, you will need to provide 30 days of pay stubs. For most people that is two pay stubs, but for those who are paid weekly, they will need to provide four. If you receive any other payments that you are reporting on your application, you must provide proof of that, too

Tax returns

Lenders want to see how much you claimed and deducted on your tax returns. In addition to providing tax returns, you may also fill out a form that allows the lender to request the transcript directly from IRS

Additional income

If you are self-employed, then you may have to provide some additional documentation, such as a profit and loss statement, 1099s, and three years of tax returns. If you receive any type of alimony or child support, you may need to provide the court order along with bank statements or checks to prove this

Assets and Debts

Some additional mortgage documents that you should be aware you will need to provide are ones that show your assets and debts. Lenders are especially interested in your debt and your debt to income ratio. They want to know how much debt you have in relation to the amount of income you have coming in each month. It may be helpful to you, especially if you have a high amount of debt, if you create an account to save money to pay for your house so that you can show you have money prepared for that. This fund can also help you when it comes to early costs with purchasing a home, such as furniture, or any repairs or upgrades that you may have to make. Lenders are interested that you are making sound financial decisions in general.

Their goal is to make sure that you will be able to continue to pay your mortgage for the entire length of your mortgage. On the mortgage application, you list out all of your debts and the lender may want to see proof of those debts as well as your bank statements to show your assets.

The documents a lender may request are:

Bank statements

Lenders may request two to three statements of all your bank accounts. They use these documents to verify your income, balances in your accounts, and where you are getting the money for your down payment. If you have large deposits in your account, the lender is going to want an explanation of the source. Some, but not all lenders, allow you to use a gift for a down payment. If your lender allows a gift, you may have to get the gifter to sign a document stating that it was a gift and repayment is not expected

Retirement accounts

Lenders want to see two to three months of statements from any investment accounts that you list on the mortgage application. This can include 401k, IRAs, CDs, and stocks.

Closing Documents

The mortgage documents that I mentioned above are the documents that are requested when you are applying for a mortgage and typically before you are actually approved for the loan. If you apply for one loan and it is not approved, you may decide to apply for a different one. If that is the case, you should expect to have to provide the same documentation again. There may be some additional documents that you have to provide, depending on your situation.

If you have been renting a home for at least a year, you may need to provide proof of that rent. If you have recently divorced, you may need to provide the divorce decree and child support. This information may also be important if the divorce has impacted your credit. If you have had a bankruptcy and foreclosure, then you may have to provide some additional documentation. You may need to provide proof that the debts have been paid. You also may need to wait at least seven years to purchase a home.

Closing Disclosure

Once you have finally made it to closing, you may not be out of the woods, yet, as far as mortgage documents are concerned. You still have some additional forms to sign. You may not have to fill them out, but you have to review them and sign them. And you should have the opportunity to review the documents three days prior to your scheduled closing date. When you review these documents, you want to verify that your name is spelled correctly. In addition, verify that the loan amount, interest rate, loan type, and purpose line up with what you are expecting. You do not want any surprises when it comes to those documents.

In addition, read all of the fine print to determine if there is a penalty if you pay off your mortgage early. You also want to make sure that there is not a balloon payment for your mortgage that you were not previously aware of before signing the paperwork. You also want to make sure that the estimated monthly payment matches the estimate that you received for your loan. The amount of money that you must bring to closing is also listed on these documents, so you want to make sure that you are aware of that amount and that you have the cash to bring to closing. You do not want to get into the office to sign the paperwork and be surprised.

Promissory Note

This is one of the mortgage documents that is your agreement to repay the money you borrow. It should list the amount you are borrowing, late payment penalties, and your interest rate. If you have an adjustable interest rate, there should be details about how and when your rate can change.

Deed of Trust

In the list of mortgage documents, this is the one that gives you your rights as a borrower. It also states that if you do not pay your mortgage, the lender can foreclose and take your house. This document contains a section that states you will not use hazardous material in your home. It also states that if you sell the home listed on the documents, then you must repay the loan in full.

Escrow and Right of Recission

These mortgage documents tell you some important information. Escrow is an account that holds money for you and then pays your taxes and homeowners insurance. This account takes money from each mortgage payment and it sits there until those bills need to be paid. This document outlines how much money is being put in your escrow account and then outlining how it is being used. You want to make sure you understand the money that is going in and out of this account.

The right of recission document basically states that you have the right to cancel your loan within three business days. This document is only included when you are refinancing your primary residence. If this is not a refinance, you will not sign this document.

Difference Between a Bank and Mortgage Company

When you are looking for a mortgage lender, you have two options available to you, a traditional bank or a mortgage company. A bank is probably the lender type with which you are most familiar. They usually have one person dedicated to mortgages. This person completely understands all of the mortgage products the bank offers. They help you with your financial situation by taking an in depth look at your financial situation and looking for ways you can improve it. They may not be able to offer you a loan if your credit score is too low. Typically, the bank pays its employees a salary so they are not charging you extra fees for their services.

A mortgage company employs a large number of employees that specialize in lending and financial products. They have more options to provide you. If you have a low credit score, a mortgage company may be able to get you approved for loans whereas a traditional bank may not be able to. A mortgage company will assess your credit score and income and look for mortgage options that are the best fit for you. Mortgage companies work off commission and may pass that cost along to you in extra fees. The other side of that is they may work harder for you to get your mortgage approved. No matter which option you choose, the mortgage documents that you need to fill out will remain the same.

Conclusion

I have run through a list of mortgage documents that you are going to have to fill out and sign when you want a mortgage. There are always special circumstances that may require you to fill out some additional documents that are not listed here. These are the major ones that you should expect to sign. If you do not sign them, you may want to ask your lender why you did not get that document. You do not want to get to the final days right before closing and find out you have to obtain some more documents and you only have hours to do so.

How Do Rent-to-Own Home Agreements Work?

Symbol of the house with silver key on vintage wooden background.

For most people, getting married and buying a house are two of their main goals and dreams in life. While most people’s ideas of the perfect home and family are completely different, it is normal to want a home to call your own. Reaching your goals is not impossible, even if you are someone who has less than perfect credit.

There are several ways to purchase a home, including saving up to buy one, taking out a mortgage from a bank, broker, or other financial institution, taking out a personal loan, and rent-to-own home agreements. Each of these has different consequences, and it is important to understand how they work.

Rent-to-Own Home Agreements

Rent-to-Own Home Agreements are great for people who want to go ahead and buy their own homes before they have great credit. Getting a mortgage can be difficult, especially if you don’t have a good credit score or a large enough down payment. Personal loans are limited, and you may not be able to borrow enough to purchase real estate. With Rent-to-Own Home Agreements, you can avoid those problems.

Rent-to-Own Home Agreements Process

Rent-to-Own Home Agreements are simple in nature. Someone who has entered into a rent-to-own agreement is paying rent like a regular tenant, but with the ability to buy the property under certain agreed upon conditions. There are two parts to rent-to-own home agreements:

  • a standard lease agreement between the owner and the person taking over the property and
  • an option to buy the property

However, rent-to-own home agreements are more complicated than regular lease agreements, where neither party has a real commitment. Anyone entering into a rent-to-own home agreement needs to be very careful about protecting their rights to make sure they are really working toward their homeownership goals.

Here are some of the most important caveats when it comes to renting to own:

  • The agreement is basically a contract, and the person who wishes to rent to own is required to pay rent for at least a certain amount of time.
  • There are two basic ways a Rent-to-Own Home Agreement allows renters to buy the property — renters either have the option to purchase the property when the lease expires or, if there is a lease-purchase agreement, the renter is required to buy the property as part of the contract. In the first instance, the renter has the option to buy but is not obligated.
  • Sometimes — but not always — some of the rent payments will be applied to the purchase price of the home.
  • Depending on the contract, you may be required to maintain the property while you rent, repairing fixtures, taking care of the lawn, and performing other jobs that a landlord is often responsible for.

Non-refundable Upfront Fees

When you enter a rent-to-own agreement, you will be required to pay a fee upfront, usually between 2.5% and 7% of the total purchase price, that will give you the option of purchasing the property later. This fee may be called the option consideration, the option fee, or option money.

Advantages and Disadvantages of Lease-option vs Lease-purchase

Again, the lease-option gives you the option of buying the home at the end of the lease, but if you choose, you can just walk away at that point. You will lose your upfront fees and you won’t have anything extra to show for your time paying rent, but you can make the choice to move on to a better option without any extra fees or punishment.

With a lease-purchase contract, you are obligated to buy the home as part of the terms of the contract. If it turns out that you cannot afford the property, or if you have to move, or if you just really hated living in the house, you are still required to buy the home under the terms of the contract.

Purchase Price Agreements

This is tricky in a rent-to-own situation. Is the purchase price going to be determined by the current market value or the value at the time you finally purchase the home at the end of the contract? Often in rent-to-own situations, the purchase price is higher than the current market value, but you may be able to lock in a lower price if you negotiate.

Applying Rent to the Principal Balance

Many people are shocked at the end of the rent-to-own period when they discover that their rent payments were not applied to the purchase price. Sometimes the credit is equal to a certain percentage of the rent, and the rent is higher to accommodate for that. You may even be able to have your option money applied to the principal as part of the contract.

Home Maintenance and Expenses

Most landlords pay for repairs and maintenance, but you need to make sure to note what the contract says. You may be responsible for all of those duties plus homeowner’s association fees and other fees. You should also carry renter’s insurance so you are protected in case anything happens.

Renting vs. Owning Your Home

The first thing you need to decide is if you should rent or own your home right now. Even if your eventual goal is to own a house, you need to consider your current situation and goals before making a decision. Buying a house takes some time, and by the time you get started, you can feel confident that you are making the right decision for yourself and your family at the same time. When you rent a place, you can simply apply with the landlord/owner, hand over your deposit and first month’s rent, and move in. When you purchase a home, you will need to go through several steps and be patient.

Saving Money is Always Important

You can use a rent vs buy calculator to compare your rental costs to your expected mortgage costs. You can plug in the amount of the down payment, how long you plan to pay on your home and current interest rates. There are times when you can save a lot of money by renting. If you can cut down on your monthly expenses, you can pay down some of your other debt, save up for a down payment for your home, or take care of other important financial obligations while you save money.

How Long Will You be Staying in Your Current Location?

There may be many reasons that you don’t expect to be in the same location for very long. You may plan to move to a neighborhood with better schools when you have children, or you may be wanting to move closer to your family when you get a chance. Some people are in a job where they know they can expect to be relocated within a certain amount of time. While it is not always necessarily true, you will probably spend less money renting if you are only going to be in a specific home for a few years.

Other Factors That Make a Difference

There are some differences you have to consider when estimating the difference between renting and owning. Renter’s insurance may cost less than homeowner’s insurance, and utilities will cost more in a big old house. You can get a security deposit back, but the down payment on the house is part of the house price. The rent vs buy calculator also takes into account factors such as fluctuating home prices and the accumulation of equity when you make mortgage payments.

Deciding Whether to Stay in Your Rental

Sometimes through no fault of your own, you find that you are unable to pay your rent and you don’t have another place to go. You could be facing eviction and a black mark on your credit report. In those cases, it might be best for you to take out a rent loan. So you and your family can stay there while you recover from whatever financial disaster has occurred. You may be able to take out a security deposit loan, backed by the money you paid when you moved in, a good credit rent loan, if your credit is good, or a bad credit rent loan, even if your credit is not good or you don’t have much history. If you don’t want to stay in your rental but can’t afford a house, Rent-to-Own Home Agreements might be a good alternative.

Before You Take Out a Mortgage

A mortgage is just a loan for real property, such as a house and/or a piece of land. Just like with any loan, you will have to pay interest on your loan. And the lower the amount of interest, the less money you will end up paying. This is especially important when you consider the amount you are borrowing. Before you even consider trying to find a lender so you can get a mortgage, you should evaluate your current circumstances. There are a lot of factors a lender will consider before offering you a loan, and it helps if you are prepared.

Your Income

This is one of the most important considerations for any loan. Because it speaks to your ability to pay back the loan. The lender will want to know that you are earning enough money to be able to afford your monthly mortgage payment. And that means that you need to be able to prove that you earn not just the mortgage amount but that you have enough left over to pay your other bills and expenses. Your lender will want to know your work history, too. Because they want to know that you are able to stay in a job long enough to pay off the mortgage.

Your Savings

Your lender will want to see that you have savings. Because this proves that you are proficient at managing your money. Also, you should have some savings to put toward a down payment. As a homeowner, you also might need to pay for your own repairs now that you are no longer renting.

Your Down Payment

How much money are you willing and able to commit to your mortgage down payment? Anything you pay down at the beginning is money you won’t have to pay interest on later. Also, you can get a better interest rate with a bigger down payment. Besides that, when you put a big chunk of your own money down at the beginning, lenders know you’re really committed.

Credit History

Do you have a history of making regular on-time payments? If not, lenders will think you aren’t reliable. If you can, you should start early in building your credit history. So that future potential lenders will look on you favorably.

How Much You Already Owe

Lenders look at how much money you owe and how much credit you still have left on your credit cards. Every debt means another monthly payment, and lenders don’t want to give someone money who’s already drowning in debt.

Your New Home

Even though you are the one who will be living there, lenders care a lot about the property you’re purchasing. If you can’t pay, they want to be able to take the house and get their investment back. Most lenders will require you to get an inspection and carry homeowner’s insurance and mortgage insurance (although you can cancel your mortgage insurance once you have 20% equity in your home).

Choosing a Mortgage Lender

It never hurts to start boosting your credit before shopping around for a mortgage lender. Once you do finally start, shopping around for the best. The most trustworthy lender with the best rates can save you money and stress. Even if you don’t feel very secure because of your credit history, it still makes sense to put yourself in the best position possible when buying a new home. When you go through the pre-approval process, you can make multiple inquiries without affecting your credit score as long as you do it within a two week period. You will get different options depending on what kind of rate you are looking for and how much you qualify for.

It’s important that you go to the right lender when taking out a mortgage loan. Our advice is to consider the following lenders brought to you by Fiona, our trusted partner. By putting in your information, you will be able to see the lenders you may qualify for, and you may even get offers from them:


Mortgage Tips

Especially if you have never purchased your own home before, the process can seem overwhelming. There are several steps you need to take and there is also a lot of waiting in between. Here are some mortgage tips to make the process smoother and less stressful.

Start Saving Early

You don’t need to start saving for your new house. Go ahead and start as soon as you start earning money. Keep the money in a special account that you don’t let yourself touch until you need it.

Compare Your Loan Options

There are different kinds of loans based on whether you can get government backing and how much you can afford to make as a down payment. Making a bigger down payment may get you better loan terms and will also cut down on your monthly payments.

  • A conventional type of mortgage is basically regular home loans that aren’t backed by the government. You may be able to put down as little as 3% for your down payment.
  • If you take out an FHA loan, you can put down as little as 3.5%. And the loan will be backed by the Federal Housing Administration, meaning you might be able to get better terms.
  • VA Loans are guaranteed by the Department of Veterans Affairs and may not require a down payment at all.
  • Rent-to-Own Home Agreements will be based on the terms of the contract. And will be decided between you and the seller.
  • You may also be able to choose between adjustable-rate loans, where the interest rate varies depending on the economy, and fixed-rate loans, which never change. In the beginning, your payments go mostly toward interest.

And don’t forget One of the most important things to know – what factors mortgage lenders are looking at.

Find Programs for Local and State Assistance

Especially if you are buying a home for the first time, you may be able to get help with your down payment, closing costs, and lower interest rates.

Get a Preapproval Letter

When you have a letter in hand, you will know how much you can spend. And under what terms when you approach a seller to make an offer.

Find a Good Buyer’s Agent

It can make a world of difference to go through the home buying process with a good real estate agent by your side. Your agent can help you make sure you are getting the house and neighborhood you want. And answer any questions about the process as you go through it.

Make Sure you Budget the Other Necessary Expenses

When you buy a house, you have to consider closing costs, moving expenses, and other necessary expenses. You may have to buy new curtains, rugs, furniture, and other important items to make your new house a home.

Taking Out a Personal Loan for Large Purchases Instead of a Home Mortgage

When you take out a personal loan, you can use the money for anything you want instead of being committed to buying something specific. If you don’t use the property as collateral, you can only borrow up to about $50,000 with a personal loan. But if you can’t use traditional methods, this might be the best way for you to purchase a home. The terms of your loan will depend on your creditworthiness.

Conclusion

There are a lot of ways to buy a home, depending on your current financial situation. You may be able to get a house mortgage or a personal loan for a large purchase, or you may be able to enter into a rent-to-own home agreement. Whichever you decide is best, make sure you understand what you’re agreeing to so you can protect your interests.

How to End Your Mortgage PMI Payments Immediately?

Female hands holding small house, natural background

When you get a house mortgage with a down payment that is less than 20%, the lender will require you to buy private mortgage insurance. The same would be true if you refinanced with less than 20% equity. However, mortgage PMI payments can be expensive so it’s best to remove them as soon as you can.

Ways to Get Rid of Your Mortgage PMI Payments

There are different ways to get rid of your mortgage PMI payments, depending on your situation.

Pay Down Mortgage for Automatic Termination of PMI

This is not going to be the fastest way to get your mortgage PMI payments over with, but under the rules, mortgage lenders are required to drop PMI when your balance reaches 78% of the original purchase price, and you haven’t missed any payments and are in good standing. The lender also requires you to stop the PMI at the halfway point of your amortization schedule. For example, if you have a 30-year loan this midpoint is 15 years. The lender needs to cancel the PMI then, even if your balance hasn’t reached the percentage point. This is called final termination. Removing PMI in this manner works for those with traditional mortgages who have paid according to the payment schedule. Remember, you need to be up to date on payments.

Request PMI Cancelation When Your Balances Reaches 80%

Instead of just waiting for an automatic cancellation, a faster option is to ask the servicer to cancel PMI once the loan balance is at 80% of the home’s original value. If you are going to be making your payments as scheduled, you will be able to find this date on your PMI disclosure form. You can also request this from the servicer. If you have some cash on hand, you can get to this point faster by making some extra payments. You can also prepay the principal on the loan and reduce the balance. This will help you build some equity faster to get to this point and help you save on interest payments. Even something as small as an extra $50 a month can mean a big drop in your balance and interest over the term of the loan.

Some people decide to do a lump sum toward the principal or make just an extra mortgage payment every year. In order to estimate the amount, your balance needs to be eligible for cancellation, just multiply the original home price by 0.8. To cancel your PMI, you need to send a request to your lender in writing, be current on payments and have a good payment history. You may also need to meet other requirements for the lender, such as making sure there aren’t any liens on the home. You may also need to get a home appraisal. If, by chance, your home value has lowered, it’s possible you won’t be able to cancel PMI.

Refinance to Get Rid of Your Mortgage PMI Payments

If mortgage rates are low then you may want to consider a refinance for a number of benefits. Mortgage refinancing can save on interest costs or reduce your monthly payments. In addition to helping you save money, refinancing may enable you to get rid of your PMI. If your new mortgage balance is below 80% of the home value then you can get even more savings. In order for this refinancing strategy to work, your home needs to have gained value since the last time you got a mortgage. With refinancing, you want to weigh the closing costs against the potential savings from the new loan terms to see if it is worth it.

Refinancing is a strategy that works well in neighborhoods where home values are rising. If your home value has declined then refinancing may have the opposite effect. It’s possible that, if you want to refinance your mortgage, you may need to add PMI if your home equity has dropped. Refinancing to get rid of your mortgage PMI payments usually doesn’t work well for a new homeowner. Some loans have a requirement that makes you wait at least two years before you are able to refinance to get rid of these payments. If your loan is less than two years old then you can ask about this but it’s not possible that you will be guaranteed approval.

Get a Reappraisal if Your Home Has Gained Value

In an area where homes are increasing in value, your home equity could reach 20% ahead of the schedule.

If this is the case, you may find that it’s worth it to pay for a new appraisal. Let’s suppose you have owned your home for at least five years and the loan balance isn’t more than 80% of the new valuation then you can ask for PMI to be canceled. If you have owned the home for at least two years then the remaining mortgage balance can’t be any greater than 75%.

Appraisals can range between $450 and $600, depending on your area. Some lenders might be willing to accept a broker’s price opinion instead and this can be a much cheaper option for you. If this is the case for you, it’s best to speak with your lender about the potential to cancel your PMI requirement. If you have added some extra amenities or even renovated parts of your home then the home could have also increased in value, which also means more equity. Whether it’s a pool, common upgrades, or an extra room, check to see if it increases your value.

What to Know About Getting Rid of Mortgage PMI Payments

Whether you are paying PMI every month or as part of a lump sum, it’s not fun. However, you should be aware not to make your financial situation worse by trying too hard to get rid of PMI. Many financial experts will agree that it’s important to have some liquidity in case of an emergency. You don’t want to tap into your retirement funds or savings to reach that 20% equity mark. Speak with a financial advisor to make sure you are on the right track to reach it instead of tapping into savings.

As long as you aren’t taking on an FHA loan, you won’t be married to PMI. You are able to drop it once you get that 20% in equity. This means you may only be paying for a few years, depending on how fast your home appreciates. Don’t feel the need to use every last bit of your cash to make a bigger down payment that avoids PMI. You don’t want to be left in a situation that doesn’t provide you with financial flexibility, especially as you move into a new home.

Requirements to Cancel PMI

No matter how you are canceling your PMI, there will be different requirements. Any PMI cancellation must be done in writing. You need to have a good payment history and be current on your payments. You will need to make sure that you don’t have any liens on the home and have to prove this. For example, you can’t have a home equity line of credit. An appraisal can be helpful to demonstrate that the loan balance isn’t too high compared to the home’s current value.

How Does Mortgage Insurance Work?

While you may be paying mortgage insurance, it only covers the lender. There are different types of mortgage insurance and each will work a little differently, depending on your type of home buying options.

PMI for a Conventional Mortgage

Many lenders will still offer conventional mortgages with low down payment requirements and some are as low as 3%. A lender will require that you pay for this private mortgage insurance, also known as PMI if you have a down payment that is less than 20%. Before you buy a home, it’s best to use a PMI calculator in order to estimate the cost of your PMI. This will vary according to the size of the loan, your credit score, and some other factors. Typically, this will be added to your monthly mortgage payment.

FHA Mortgage Insurance Premiums

FHA loans are insured by the Federal Housing Administration. And these loans have down payments as low as 3.5% and there are easier credit qualifications when compared to conventional loans. This loan requires you to pay mortgage insurance upfront and an annual payment, regardless of what you have for a down payment. The upfront premium will be 1.75% of the loan amount. The annual premiums can range from 0.45% to 1.05% of the outstanding balance. You will pay this for the life of the FHA loan.

USDA Mortgage Insurance

USDA loans, backed by the U.S. Department of Agriculture, usually are 0% down loans for suburban and rural homebuyers. There can be two different charges for mortgage insurance, including an upfront guarantee fee paid in the beginning and an annual fee you need to pay for the life of the loan. The federal government will evaluate the fee each fiscal year and can change it. However, your fee doesn’t fluctuate and they are fixed when the loan closes.

VA Mortgage Insurance

VA loans, similar to other government-backed loans, don’t have any down payments and feature low-interest rates for retired, disabled, and active military members. While these loans don’t require mortgage insurance, many borrowers will pay a funding fee that is between 1.25% and 3.3% of the loan amount. This fee will depend on a variety of different factors, including whether or not you have applied for a loan before and how big your down payment is.

What Does Mortgage Insurance Do?

Mortgage insurance is designed to reimburse the lender if you default on your home loan. You, as the borrower, are responsible for paying the mortgage PMI payments. When a company sells the insurance it’s known as private mortgage insurance. However, the government does sell mortgage insurance as well. This means PMI doesn’t apply to all mortgages with down payments below 20%. For example, government-backed VA and FHA loans with low down payment requirements have different rules. There may also be private lenders that sometimes offer conventional loans with a small down payment option that also don’t need PMI. There can usually be other higher interest costs.

How much your mortgage PMI payments are will depend on your credit score and your down payment.

Can You Avoid Mortgage Insurance?

The main way to avoid mortgage PMI payments is to make a down payment that equals 20%, or one-fifth, of the purchase price of the home. For example, if the home costs $180,000 then you would need to pay at least $36,000 to avoid paying PMI. While it’s the easiest way to avoid mortgage insurance, a down payment of this size may not be a feasible option.

Another option to avoid paying this is for qualified borrowers to get a piggyback mortgage. A home equity loan or second mortgage is taken out at the same time as the first mortgage. This means that 80% of the purchase price is then covered by the first mortgage, 10% is covered by the second loan, and then the final 10% is covered by the down payment. This will eliminate the need for PMI. With a home valued at $180,000, the first mortgage would be $144,000, the second mortgage would be about $18,000, and your down payment would be $18,000. This may be a more feasible option when saving.

A final option is the option of lender paid mortgage insurance where the cost of PMI is included in your interest rate for the life of the loan. While you are technically avoiding PMI payments, this means you are paying more in interest over the life of the loan.

Know Your Rights about Mortgage PMI Payments

Those who are making mortgage PMI payments should be aware of their rights under the Homeowners Protection Act. This is a federal law that will protect you from excessive PMI charges. This means you have the right to get rid of your payments once you have built up a certain amount of equity in the home. Lenders will all have different rules for canceling PMI but they have to let you do so. Before you get a mortgage with PMI, ask for an explanation of PMI rules and the schedule and make sure you understand it. This will help you actually track progress toward ending the payment. If you feel like your lender isn’t following the rules for getting rid of PMI, you can report the situation to the Consumer Financial Protection Bureau.

Reasons to Avoid PMI

There are plenty of reasons to avoid PMI and to get rid of mortgage PMI payments as soon as you can.

Cost

PMI will cost you on the entire amount yearly. You could pay up to $1,000 a year on a $100,000 loan, depending on your PMI fee.

No Longer Deductible

PMI used to be deductible on taxes, but only for certain people. This is no longer the case and it’s not deductible for anyone.

Heirs Get Nothing

Homeowners may hear the word “insurance” and think that their kids or spouse will get some money if they die, which is not the case at all. The lending institution is the only one that benefits from this policy. And the proceeds are paid directly to the lender. If you want to protect your heirs then you need to get a separate insurance policy.

Giving Away Money

You are going to have to pay PMI until your equity reaches 20%. This can take a while and the mount of money you are paying is equivalent to giving it away. If you take the money you are spending on PMI and invest it, you can easily grow the money.

Hard to Cancel

While there are different ways to get rid of your mortgage PMI payments, sometimes it can be hard to eliminate. You can’t just not send in the payment once you get your equity to 20%. You need to draft a formal letter and have a formal appraisal before you are able to cancel it. This could take a while, depending on the lender. And during the time you are working on this, you still have to make the payments.

Payment Can Go On and On

Some lenders will require you to maintain the PMI for a predetermined period of time. This means that even after you have met the required equity, you are still going to have to keep paying for the mortgage insurance. In order to prevent this from happening to you, you need to read the fine print on your PMI contact carefully.

In Conclusion

There are some ways to avoid PMI but in many instances, it isn’t feasible for a borrower. This is why a borrower may be looking for a way to end mortgage PMI payments immediately. There are four different ways to do this, depending on your financial situation and the type of loan you have. There are reasons to avoid PMI so it’s best to get to the point where you can cancel it as soon as possible, as long as you aren’t getting into worse financial shape by doing so.


First-Time Homebuyer Tips You Don’t Want to Miss

Model house, construction plan for house building, keys, calculator and clipboard.

You have just made a really big decision. The decision to stop renting from someone else and buy your own home. Buying your first home is not only a big life decision it is a big financial decision. It will change the way you spend money and your priorities within your budget. But it’s also exciting to have a place to call your own. A place where you can paint the walls without asking anyone for permission. A place where you can change out the faucets just because you feel like it. If you are embarking on this process here are some first-time homebuyer tips you don’t want to miss.

First Time Homebuyer? Do Not Miss These Helpful Tips

Buying a home is usually the largest financial decision a person makes. But following our homebuyer tips will help get you through the mortgage process. The first thing to do is to save enough money for both the down payment on the property and all of the costs that come up while trying to close the deal. Once you’ve saved the money run your own credit check before any potential lenders do to assess your credit score and catch anything that has been reported in error. Once you are confident in your credit, visit several lenders and become pre-approved for a mortgage. That makes you more attractive to sellers.

Start Saving

Ideally, you are paying yourself first out of every paycheck and are building savings. In order to buy a home, your lender is going to require a cash down payment, usually of 20 percent of the purchase price. According to the real estate website Zillow, the median price of a home in the United States is $247,084. While certainly there are some areas where houses are less expensive and other areas where houses are more expensive, 20 percent of the median price of $247,084 is a down payment of almost $50,000.

Even if you have been saving regularly, you may not have enough for the full down payment. So if you are committed to purchasing your own home, you may have to readjust your budget to divert more money to savings. This might be a time to set a financial goal of having a certain amount of down payment money saved by a specific date.

It’s also not enough to just save the amount of the down payment. You will also need enough cash on hand to pay the costs associated with closing on the property.

Check Your Credit Score

If you are going to try and qualify for a mortgage you should probably do your own credit checkup first. Check with some of the major credit reporting agencies like Experian, Equifax, and TransUnion to see what your credit score is like. A credit score is generally calculated as a three-digit number. Scores that are in the high 600s are thought of as good credit and scores in the middle 800s are considered to be excellent. Higher credit scores give you access to mortgages with lower interest rates.

One of our first-time homebuyer tips is to do your own credit checkup you can also catch potential problems in advance and get them resolved. Maybe a credit agency reported that you made a late payment when you didn’t. Or maybe there is something on the report that doesn’t have anything at all to do with you. If you see the problems in advance you have the opportunity to address them and clean up your credit history.

Get Pre-Approved for a Loan

Once the down payment money is saved and you’ve checked on your credit score one of our next first-time homebuyer tips is to get approved for a residential mortgage. This is where you begin encountering the paperwork portion of this process. In order to get pre-approved for a home loan, you will need to provide a prospective lender with:

  • Social Security Number
  • Tax returns from the last 2 years
  • W-2s from employers for the last 2 years
  • 30 days worth of paycheck stubs
  • 60 days worth of bank account activity statements

During the pre-approval, process lenders will dig into your financial well-being. They want to establish your creditworthiness, your debt-to-income ratio, employment history, current income and a tally of your assets and liabilities. Once they pre-approve you they will you a letter that says that. Many sellers want to see that letter before they will consider an offer. The letter is generally good for 60 to 90 days.

You aren’t limited to just visiting one lender for pre-approval. You can shop around to several.

Find Your New Home

Things to consider when buying a new house

Once you have saved enough money to cover the down payment and closing costs and you have been pre-approved for a mortgage it is time to go shopping for that new home. You can start to get a feel for the housing market where you want to live by taking advantage of online listings. One of our first-time homebuyer tips is to browse through the real estate listings at Realtor.com, Trulia and Zillow. You can see what the inventory is like that is in your price range. How many bedrooms? How many bathrooms? Are you looking at single-family or multi-family dwellings? What are prices like in the center of the city as opposed to 15 miles away in the suburbs?

The photos and virtual house tour videos let you get a real glimpse of what you’ll find inside. Is the kitchen hopelessly outdated in harvest gold and avocado or has it already been updated with more modern finishes? Do the bedrooms have walk-in closets or are they much smaller? Are the bathrooms small or spa-like?

Once you get a better feel for where you want to be and what you can afford one of our first-time homebuyer tips is to engage a buyer’s agent in your search. Buying a property is a major financial and emotional investment. Experts agree that a first-time homebuyer needs an agent in their court. A real estate professional can interpret the market, explain trends, comb through the legalese and negotiate on your behalf. You want a real estate agent making offers on your behalf and evaluating any counter-offers. Your realtor should be able to tell you when the time is right to sign on the dotted line and when you shouldn’t.

How Do I Find a Real Estate Agent?

The best place to get a referral to a real estate agent is through word of mouth. If you have had any friends or colleagues rave about their recent home buying experience, find out who their agent was. Another one of our first-time homebuyer tips is to select a realtor that is connected to you or your circle.

If you don’t know anyone who has a great real estate agent, look for an agency with positive reviews. And keep in mind there are different realtors with expertise in different parts of the market. You might not want to engage with a specialist in million-dollar homes if the top of your budget is $250,000. That agent may have different expertise than you need.

One of our homebuyer tips during the search is to remember that there might not be a perfect home. To satisfy your budget you might have to compromise. A garage might have been tops on your wish list until you find that perfect cottage with a gravel driveway. A fireplace might have been non-negotiable until you found that townhouse with the family room built-in bookcases instead.

Trust your instincts. You will be living in the house. When you feel like you have found the perfect place, you probably have. This is the part where you need a professional real estate agent to guide you through the process of making an offer on the property and potentially having to come up with a counteroffer. Expect some back and forth before you come to an agreement.

Choose the Right Mortgage

When this process began you learned where to shop for a mortgage by visiting several lenders to get pre-approved for a loan. Once you have settled on a purchase price you have to go back to these lenders and formally apply for a loan. They will likely have some mortgage options for you.

We connect you to reputable lenders quickly and efficiently. By filling out this form below, you allow us to research the database and find unique offers suitable for your situation. Sounds good? You can see if you can get a mortgage loan, right now:


Fixed-Rate Mortgage

A fixed-rate mortgage has one pre-determined interest rate that lasts for the life of the loan. The payment on a fixed-rate loan doesn’t change over time. That means the payment will be a consistent financial obligation for the homeowner.

Adjustable-Rate Mortgage

This type of mortgage begins with lower interest rates but will be adjusted in the future to correspond with current market trends. An adjustable-rate mortgage is like a game of chance. After a certain amount of time, the interest rate and the payments could go up, or they could go down. Adjustable Rate Mortgages are often favored by buyers who want to get into a home in the least expensive way but are prepared to increase their financial commitment down the road.

Balloon Mortgages

Balloon mortgages are the least common types of mortgages. They have a fixed monthly payment but at the end of the loan an extra payment, usually a very large one, is due.

There are some federally backed mortgage options for those who qualify.

FHA Loans

These loans are guaranteed by the Federal Housing Administration. They were created for low to moderate-income homebuyers. FHA loans require smaller down payments than conventional loans and usually have lower interest rates. FHA loans have strict terms but they are popular with first-time homebuyers because of the reduced down payment.

VA Loans

U.S. Armed Forces veterans may qualify for loans from the Department of Veterans Affairs. Sometimes the VA loans will act as a bank and provide direct loans for veterans. Other times the VA will guarantee a portion of the loan that is made by a private lender.

What are the Terms of a Mortgage?

Lenders usually write mortgages for either 15 or 30 years. The longer the loan the more you will pay in interest, but your monthly payments will be lower.

What is Private Mortgage Insurance?

Private Mortgage Insurance, or PMI, is purchased when the buyer is making a down payment of less than 20 percent of the selling price. It protects the lender in case the borrower defaults on the loan. The lender arranges for this type of coverage with a private insurance company. Sometimes the total cost of the PMI is due in one big payment at the closing. More commonly it is rolled into the monthly mortgage payment. One of our first-time homebuyer tips is to monitor how much equity you have built up over time by making mortgage payments. When you get to a certain amount you will be able to cancel your PMI.

What are Mortgage Points?

Mortgage points are fees homebuyers pay to lenders to get a reduced interest rate on a mortgage. That’s why they are also known as discount points or a way to buy down the interest. Generally, each point is worth 1 percent of the amount of the loan. Financial experts often recommend this strategy for homebuyers who are planning to stay in their homes for a lengthy amount of time because it lowers the interest. One of our first-time homebuyer tips is to calculate whether or not you should pay points for the interest rate deduction you by looking for your “break-even” point. Divide the cost of the points by the monthly savings you get from the points to find out how long you have to stay in the house to make it financially worthwhile.

Home Inspection

After the seller has accepted your offer and your lender is exploring mortgage options there is one very important step to take. Another of our first-time homebuyer tips is to schedule a home inspection. A professional home inspector is trained to look for things that may already be a problem with the home or things that are about to become a problem. Having a home inspection helps to eliminate surprises after the deal is closed.

Home inspectors generally look at the quality of the roof and whether or not there is any termite damage or damage from other pests around the home. They can look at the well or water system, the septic system and test for radon. They also look at fireplaces, chimneys, HVAC systems, the condition of the windows and more.

Once you have the home inspection report in hand you will be able to make decisions about repairs and whether to ask the seller to take care of some things before closing. Sometimes sellers will hire someone to do the work that was uncovered in the home inspection. Sometimes they will reduce the selling price but leave it up to the buyer to make repairs.

Don’t Underestimate Closing Costs

It is quite an accomplishment to save enough money for a down payment on a house. But the costs associated with buying a home don’t stop there. There are costs associated with trying to get a mortgage including an application fee, an origination fee and a fee for the lender to run a credit check. The lender will require an appraisal of the property to determine its value and that is a cost that is absorbed by the buyer. The buyer will pay for the home inspection. The property lines also have to be surveyed before the sale and the buyer pays for that. The buyer will also have to place in escrow a deposit that is generally equal to two months worth of property taxes. The buyer also has to purchase homeowner’s insurance in advance and pay any fees to transfer membership in the home owner’s association.

If your state requires an attorney at the closing you’ll pay that as the buyer. There will be a fee that covers the closing and maybe even a courier fee for transporting documents.

So another one of our first-time homebuyer tips is to save more money than you think you need to cover both the down payment and all of the costs that can be associated with closing on a property.

Conclusion

Take your time shopping for a home and learn all you can about the market where you want to live. Engage a real estate professional who can guide you every step of the way from searching for a home to unlocking the front door. Once you have a deal on a property go back to the lenders who pre-approved you and begin exploring mortgage terms and interest rates to figure out what works best for your budget. Take care of due diligence before the property is yours by ordering a complete home inspection. And before you sign the closing documents make sure you know how much money you have to bring to the table to walk away as a homeowner.

The Top Places to Shop for a Mortgage Loan

Man pushing a shopping cart with home model put on the old wood in the public park

You want to buy a house and you know it is going to cost a large amount. That might be all that you know about buying a house for the first time. There is much more to it and you should understand more of the details. In order to get the best deal that you can, you should have some awareness of the various items that go along with purchasing a home. Even if this is not your first house, there is probably some information you could benefit from knowing. In addition to understanding the details of a mortgage, it is important to understand where to shop for a mortgage loan.

The Top Places For Your Mortgage Loan

The most common type of mortgage that you will find is a fixed mortgage. A fixed mortgage has a rate that is fixed and the agreed-upon interest rate remains the same for the entire life of the mortgage. The most common length of a mortgage is 15 or 30 year terms. Lenders prefer that you have a 20 percent down payment for your mortgage. If you cannot afford to put down 20 percent for your mortgage, the lender requires you to have private mortgage insurance (PMI). Lenders want you to have a higher credit score to qualify for a traditional mortgage.

When you shop for a mortgage loan, you should keep these lenders in mind:

Rocket Mortgage

Rocket mortgage loanRocket Mortgage has been providing quality and affordable mortgages for over 30 years. They pride themselves on their customer service. You might want to start here when you shop for a mortgage loan. This type of loan is available online only and is a self-service type of loan. They are looking for you to have a credit score of at least 620 with a minimum down payment of 3 percent. They specialize in home purchases, refinances, FHA, fixed and variable rate loans. You can find out how much money you qualify for in minutes, partially due to Rocket Mortgage’s ability to retrieve documents.

NBKC Bank

NBKC bank logoNBKC Bank allows you to completely fill out your application on the bank’s website. You are able to sign all of your documents in the application. In addition, you can track your application. They do offer an actual building for you to visit in person, but only within the Kansas City area. They have a mobile application for iOS and Androids. NBKC bank does want you to have a minimum credit score of at least 620. Also, they want you to have at least 3 percent to put down for your house purchase. They also specialize in home purchases, refinances, FHA, fixed and variable rate loans. They charge a mortgage origination fee for most borrowers.

Quicken Loans

Quicken Loans has an application that is completely online but has mortgage advisors available to you. They provide amazing customer service. They can instantly verify your employment and income for over half of the people that apply. Also, they offer mortgage terms from 8 to 30 years. They do want you to have a minimum credit score of at least 620. They want you to have at least 3 percent to put down for your house purchase. Quicken Loans also specialize in home purchases, refinances, fixed and variable rate loans. They provide FHA backed loans.

New American Funding

newamerican funding logoNew American Funding is a great way to shop for a mortgage loan when you have a low credit score because they use a manual underwriting process. They have a full range of online options available to you. You can apply online, as well as get rate quotes and upload all of your needed documents. Their services are not available in all states. They only require to have 3 percent down with a minimum credit score of 620.

Fairway Independent Mortgage

Fairway Independent mortgage logoIf you are interested in an FHA loan when you shop for a mortgage loan, Fairway Independent Mortgage may be the best lender for you. They offer a large variety of loan options. Not only can you apply for a mortgage with them online, but you can apply with their mobile app. They claim their loan application can be completed in 10 minutes. Their website is a full-service site complete with online help and FAQs. They do require you to have 3 percent down. They do not post their interest rates online, so you have to fill out the application for more details.

Citibank

CitibankCitibank is a great choice for a mortgage because they are a large scale mortgage that provides you with a wide range of products, including fixed and adjustable-rate mortgages. They are available in all states. They look at other credit data items to determine if they want to approve you for a mortgage. Citibank allows for low down payments and offers special discounts if you are already a Citibank customer. You cannot fill out your application online and they do charge application fees.

Bank of America

Bank of America logoBank of America has unique down payment and closing cost programs that can provide assistance to you. They look at alternate data elements to determine your creditworthiness. You are able to complete the entire application online. They will accept a minimum down payment of 3 percent. They do, however, charge a hefty application fee, which can fall into the $1,200 range. Bank of America is not known for their great customer service. They have a fairly high amount of complaints.

PNC

PNC bank logoPNC Mortgage is part of PNC Bank, which is a well-established bank. They do have some online capabilities, but you cannot fill out the entire application online. They offer over 2,000 branches, but they are not in every state. PNC has a large number of online tools available to you to help you estimate your payments and track the status of your application. They do look at credit data that many traditional lenders do not determine your creditworthiness. They will consider rent payments and other nontraditional data elements.

SoFi

SoFi, which stands for Social Finance, is a digital finance company that gives you an entire catalog of products, from investment accounts, cash management, and mortgages. You have the ability to fill out the entire mortgage application online. They do not require private mortgage insurance, but they want you to have at least 10 percent down. They are willing to work with borrowers that are self-employed. If you are already a customer, you can qualify for a $500 discount on the mortgage fees. They do not offer mortgages for government loans, like FHA, or even VA. They are not available in all states. Once you have a loan with SoFi, you are considered a member, which has perks such as access to special events and financial planning.

What Is A Mortgage?

You cannot begin to shop for a mortgage loan if you do not understand what a mortgage really is. I want to take a few minutes to give you some much-needed information about the basics of a mortgage. A mortgage is what you need when you want money to purchase a home. A mortgage loan and as with any loan, you pay back the money over time by making regular monthly payments.

As with all loans, the lender adds a fee to the loan, called interest, for allowing you to borrow money from them. There is a major difference between a mortgage and other loans because, with a mortgage, you are using your house or property as collateral. That means that if you stop paying on your mortgage, the lender has the right to take your house. You do not own the house completely until you pay the mortgage in full.

What Happens During The Mortgage Process?

Regardless of what type of loan you want and where you shop, the process for a mortgage loan is usually the same. One of the first steps you should take is to check your credit. This way you will know your credit score and have an idea of the type of mortgage for which you might qualify.

Once you have determined your credit score, then you can look for the right lender for your needs. This is when you should shop mortgage lenders. You may also want to consider getting pre-approved for your financing. This shows realtors that you are serious about buying a house and the amount of a mortgage for which you should qualify. This does not replace the mortgage process, this is just a letter stating that you qualify for a certain amount. Once you have taken those steps, you should begin to look for a house.

Since you have a pre-approval amount, you know what your price range is for a house. This helps you refine your search for the houses you can actually afford. This keeps you from going outside of your price range. Once you have picked out the house you want, you can make an offer. Before you make an offer or even start looking at houses, you might want to consider finding a good real estate agent. A good agent can help you determine what a good starting price might be based on the market and the area. Once your offer is accepted, the real mortgage paperwork begins. You have to fill out the application and provide all the documentation.

Income and financial information, such as pay stubs, W2s, and bank statements, are going to be needed. After all this information is collected, it goes to an underwriter who studies all the documents and the value and price of the house.

Where Can I Find A Mortgage?

When you want to shop for a mortgage loan, the key is to actually shop around for a mortgage. There are many lending options available to you when you are looking for a mortgage. You should find out as much as you can about potential mortgages. You do not have to take the first offer you find and you should wait until you have the right mortgage for you. Keep in mind this mortgage will take anywhere from 15 to 30 years to pay off, so it will be with you for a long time.

You can shop for a mortgage loan online, which would give you a large amount of money. A quick internet search will help you find all the mortgage information you need. You want to determine the amount of money you want to borrow and how much money you have to put down. Then, you want to understand the interest rate for your mortgage and what that means for your monthly payments. Also, you want to know about any fees you may have to pay. In the end, you want to understand different types of mortgages and all of the fine print.

Finding the right lender for your situation is extremely important. You can get help from Loanry. If you leave the required information in the form below, we will get you offers from reputable lenders, and from there all you need to do is compare them and apply. Start here:


What Do I Need To Know About A Down Payment?

Before you shop for a mortgage loan, you should consider how much money you have for a down payment. A down payment is the amount of money you are putting up for the house that comes from you. You are not borrowing this money from a lender. A down payment impacts how much money you have to borrow from a lender and have to pay back. I mentioned earlier that lenders want you to have 20 percent down.

If you want to purchase a $300,000 house, 20 percent of that amount is $60,000. That is how much you would have to put down from your account. The percentage goes up or down based on the total cost of your house. The larger your down payment is then the lower interest rate you might get from the lender.

If you cannot put down 20 percent, a lender wants you to have private mortgage insurance (PMI). PMI is insurance just as the name states and it gives the lender a stronger sense of security that they will not lose the money they are letting you borrow. You have to pay for the insurance so it will add to the cost of your monthly mortgage payments. It is possible for you to find lenders that will allow you to borrow money even if you do not have 20 percent to put down.

Should I Be Pre-Approved?

Before you shop for a mortgage loan, you want to consider getting pre-approved. Keep in mind, a pre-approval is different from a pre-qualification.

A pre-approval is when the bank approves you for a set amount of money for your mortgage. The lender gives you a letter stating how much you are approved. It gives real estate agents and sellers an idea of how much you can afford. When you get pre-approved for a loan, the lender does a hard hit to your credit. It also shows that you are serious about purchasing a home. This shows sellers how much you can afford to pay for a house. If they have your offer with a pre-approval and another potential buyer with an offer that is not pre-approved, the seller may pick your offer over another.

A pre-qualification is a rough idea of how much money for which you may qualify. This is not a guarantee of how much you will get from a lender, but it is an idea of how much you can get. This type of qualification is only a soft hit to your credit. It is not a deep look into your finances. It is free to be pre-qualified for a mortgage.

Conclusion

This article contains a lot of information, including the best lenders to shop for a mortgage loan. There is a lot of information available to you and you should learn as much of it as you can. When you want to purchase a house, it is your responsibility to be well informed. When all is said and done, you are going to be responsible for making the mortgage payments and maintaining your house. You want to make sure that you can afford to do both of those things by first making sure you know all your mortgage options. Second, you need to make sure that you can afford to pay the mortgage once you have agreed to do so.

A mortgage is a binding contract and you are legally responsible for making the agreed-upon payment amounts on time. You should do all that you can to ensure you are able to do so. If you do not think you can afford a mortgage than it is probably not the right one for you.

What Factors do Mortgage Lenders Use During the Loan Process?

A real estate agent with a key. Red roof house.

The purchase of a home is one of the biggest purchases you’ll ever make. As such, securing adequate financing through mortgage lenders to make the purchase is essential for most homeowners. Some consumers are concerned about whether they will be eligible for a mortgage loan.

If you’re not sure whether you’ll be approved, you need to do your research. The more you know about possibilities and resources, the easier it will be to buy a home. You need to understand what a mortgage loan is and how it works. One of the most important things to know is what factors mortgage lenders are looking at.

Getting ready to buy a home is exciting. It can also feel overwhelming as well. There is a lot of information to process. Your primary concern should be finding mortgage lenders who will approve you. Acquiring financing is generally the biggest obstacle to overcome. However, you should be able to find a mortgage loan appropriate for your needs and budget with persistence.

What is Important About Your Finance Status to the Mortgage Lenders

All this information is no doubt helpful. However, what you’re probably most interested in is whether you qualify for a mortgage loan. To determine whether you’ll qualify, you need to know what lenders look at. All mortgage lenders look at certain factors when deciding on a loan application.

Knowing what factors lenders look at helps you to know what to expect. You want to be prepared when you apply. You also don’t want to apply if there is very little chance you’ll be approved. Therefore, you should know that the following six factors help determine your mortgage loan worthiness.

Your Income

Your income is an important factor. The lender wants to see that you’re earning enough to keep up with mortgage payments. You’ll need to provide details on how much you make per year. You’ll also need to provide information on how long you’ve been at the same job.

The lender doesn’t just want to know you’re making money. The lender also wants to know that your income is reliable and will continue throughout the life of your mortgage. If you’ve been at the same job for several years, mortgage lenders consider your income reliable. If you’ve just started your first job, it may be more difficult to be approved.

Your Savings

Mortgage lenders will probably want to know what’s in your savings accounts. Having extensive savings shows that you are financially stable. Not having a lot of money saved up doesn’t necessarily mean you won’t qualify. However, large savings accounts certainly give the lender greater peace of mind. Anyone who is interested in purchasing a home in the near future should start growing their savings.

Your Credit History

Your credit history is one of the number one considerations to consider. Obviously, lenders will not want to lend to you if you’ve defaulted in the recent past. Also, lenders will be less inclined to approve you if you have a history of missing payments.

Lenders want to know that you’re reliable as a borrower. You need to show that through your performance with your credit accounts. You need to start and nurture a strong credit history. If you have never had a credit card or loan before, you have no credit history. Lenders might be less inclined to lend to someone with no credit history than someone with a lower credit score. Having no credit history means mortgage lenders can’t really know what kind of borrower you will be.

Your Down Payment

The larger your down payment, the better it looks to lenders. When you make a large down payment, you’ve got some skin in the game regarding your home purchase. Lenders know that keeping up with payments will be all the more important for you when you’ve already made a significant investment in the property.

Making a larger down payment doesn’t just make you more attractive to lenders. It also minimizes your interest costs. You don’t have to pay interest on your down payment. The more your down payment is, the less of your home purchase price you have to pay interest on.

Your Current Debt Load

Mortgage lenders will want to look into how much you already owe. If you’re currently dealing with a heavy debt load, lenders will consider that taking on more debt is not a good idea. Every debt you have means an additional expense each month.

Lenders don’t just look at the total amount you owe. They also look at how much you owe in relation to how much available credit you have. If all your credit cards are maxed out, then you’re already using most of your available credit. If your debt load is heavy, you might want to take time to pay it down before buying a home.

The Home You’re Buying

Lenders don’t want to lend money for a home purchase that is overpriced. They also don’t want to provide a loan for the purchase of a run-down house. The house you purchase is basically collateral on your loan. The lender will repossess the home if you fail to make payments. However, the lender won’t be able to recuperate the loan money if they can’t sell the property to cover the outstanding loan balance.

Mortgage lenders often want to inspect the home that the borrower is purchasing. They want to make sure that the property is a good investment. Therefore, the home you want to buy could influence the decision lenders to make on offering you a mortgage loan.

Understanding Mortgages

A mortgage loan is much like any other type of loan. It is an agreement where a lender agrees to loan you the money you’ll use to buy a property. You’ll gradually pay the lender back the loan money. As you pay your mortgage loan, you build up equity in your home. Once you finish paying your mortgage, you own your home outright. However, the lender can repossess your property if you fall behind on payments.

You have to pay interest on your mortgage loan. That’s how mortgage lenders make money. The lower the interest rate on the loan, the less expensive it is. You need to understand all your home buying options before taking out a mortgage.

Choosing to take out a mortgage is a big decision. You don’t want to take out a mortgage that is going to be hard on your budget. Your credit will be severely damaged if you default on your mortgage loan. Make sure you plan your budget carefully. While owning a home may be your goal, you still need to protect yourself financially. Be careful you’re not getting in over your head with an excessively large monthly mortgage payment.

Going to a Banker or a Broker?

Both mortgage bankers and brokers offer mortgage loans. If you’re buying a home, you can choose between working with a banker or broker. There are advantages to each method of acquiring a mortgage loan.

Working with a mortgage banker means you go directly to a bank or credit union. Then, you inquire about their available mortgage loan products. You’re only going to be considering mortgages available through that particular financial institution.

When you borrow through a mortgage broker, your broker can analyze your unique situation. Your broker has more resources at his or her disposal than a banker might. The broker can compare mortgage loans from a variety of different financial institutions. This means greater customization of services.

A broker may be able to pinpoint the perfect mortgage for you. However, you’ll have to pay a broker fee if you work with a broker. Borrowing directly from a bank also tends to be a little more reliable and predictable. Mortgage brokers are independent professionals while bankers are working for large and established financial institutions.

Types of Mortgages to Consider

You need to consider mortgage type in addition to considering whether to work with a banker or a broker. Those who buy a home for the first time are often surprised by the variety of mortgages. There are quite a few different types to consider.

Here are some of the basic mortgage types to look into.

Fixed-rate Mortgage

A fixed-rate mortgage is among the most basic mortgage types. With a fixed-rate mortgage, the interest rate doesn’t change throughout the life of the loan. Also, the amount that’s paid on the loan each month doesn’t change. There are options for different term lengths with a fixed-rate mortgage. You can pay off the mortgage in only 10 years. You could also opt for a longer loan term of 30 or 40 years.

Fixed-rate mortgages are especially advantageous if interest rates are low when you purchase your home. This way, you know your interest rate won’t go up with fluctuations in the market.

Adjustable-rate Mortgage

Adjustable-rate mortgages are another common type of mortgage loan. Unlike fixed-rate mortgages, adjustable-rate mortgages experience changes in the interest rate depending on the economy.

There are numerous possible arrangements for an adjustable-rate mortgage. One common option is a 5/1 adjustable-rate mortgage. With this setup, the interest rate will not change until five years have gone by. Afterward, the interest rate can fluctuate with the market.

You need to be careful with adjustable-rate mortgages. If your monthly payment and interest rate gets too high, you could struggle to keep up with payments.

Interest-only Mortgage

When you take out an interest-only mortgage, you focus on paying the interest off right away. You pay the interest on the mortgage off during the first few years. This can help minimize interest costs. Once all the interest is paid, you pay the remaining balance off. This balance is then paid off much like a fixed-rate mortgage would be.

FHA Loans

FHA loans are government-subsidized loans. The Federal Housing Administration guarantees these loans. This makes FHA loans a little easier to qualify for. If you have a low credit score, you might want to look into FHA loans. FHA loans aren’t just more flexible when it comes to credit score. They’re also more flexible regarding income. You might not make enough money to qualify for a traditional loan. However, you might find that you can be approved for an FHA loan thanks to more lax underwriting.

VA Loans

If you are a veteran, you may be able to take advantage of a VA loan. These loans are made available to those who have served in the armed forces. One big advantage of VA loans is that you don’t have to put a down payment on the home. VA loans also generally offer great terms and flexible options.

Balloon

A balloon mortgage arrangement requires you to pay off the interest first. Once the interest is paid, you’ll be expected to pay off the entire principal of the loan.

Subprime Mortgage Loan

If you don’t have the best credit, you’ll be shopping for the subprime mortgage loan market. Mortgage lenders are often willing to lend to those with poor credit. However, they will charge higher interest rates on subprime loans.

Dealing with subprime mortgage loans can be tough. You need to be reasonable and avoid excessive mortgage costs. If you’re looking at subprime offers that are expensive, you might want to wait and improve your credit before buying.

How the Process Works

The process of applying for a mortgage loan is similar to the process of applying for any loan type. The lender will ask you to fill out an application. You’ll provide information about your identity. You’ll also provide information about your employment situation. The lender will want to know how much money you’re making. The lender will ask you for your social security number and run a credit check.

Every lender is a little different. The way mortgage lenders process and evaluate applications varies. Generally, you should know quickly whether you’re approved.

Research and Getting Quotes

You shouldn’t just jump into applying for a mortgage loan right away. There is some important research to do first. This research involves first looking into your options. Evaluate your credit and income situation. Find mortgage lenders who are likely to be willing to work with you.

Some lenders might offer a loan estimate when you’re shopping for a mortgage. This allows you to see how much you can qualify for without actually applying. Once you’ve found some lenders who you think may approve you, it’s time to apply.

Enter your information below and find out who may be willing to give you a mortgage loan based on the information you provide us with here:


Applying

Filling out mortgage loan applications is generally fairly simple. Most of the information you’re asked on the application will be things you know off the top of your head. Some mortgage lenders allow prospective borrowers to apply online for pre-approval. Others might require a paper application.

When it comes to applying, you’ll generally be looking for pre-approval. Usually, with home shopping, you don’t officially apply until you’ve found a home that you’re interested in buying. You’ll, therefore, seek out pre-approval as an important step in the mortgage loan process.

Closing the Sale

Once you’re pre-approved for a mortgage, you can start home shopping in earnest. Then, you can make an offer on the right home. If your offer is accepted, you’ll take the next steps with your mortgage loan. Your mortgage lender might want to do some research on the property you’re buying.

When you and the seller are ready to close, the mortgage loan funds will go right to the seller. You will probably have to pay closing fees, mortgage insurance premiums, and a commission for the real estate agent in addition to paying for the sale value of your new home.

In Conclusion

Now that you’ve done some research on mortgage loan shopping, it’s time to get started. You should start improving your qualifications for a mortgage loan right away. Focus on the factors mortgage lenders looks at mentioned above. You want to make yourself more attractive as a borrower.

Analyze your financial situation and determine what you need to work on. If you’re carrying a heavy debt load, pay down your debt. If you have missed payments, focus on making all your payment due dates from here on out. Don’t feel discouraged. Your credit score changes over time. In fact, you can bring your credit score up quickly with effort. Patience and persistence pay off. Make sure you choose a mortgage loan offering reasonable terms. Your mortgage loan will affect your finances for years to come. This means you need to stay away from mortgage loans with excessively high-interest rates.