A mortgage is a loan used to purchase a home or property. The amount borrowed is called the principle and each mortgage payment is a combination of principal and interest. The lender owns the property, while the borrower remains in possession of the property as long as payments are made as agreed. If a borrower becomes delinquent in payments, the lender has the right to repossess the property.
Ideally, you should shop for a mortgage before you look for a house. It’s best to find the right company and get pre-approved. Sellers are often anxious to find strong buyers, and will be more willing to negotiate with you when you have a pre-approval in-hand.
For pre-qualification, a loan officer will analyze your income, assets and current debts to estimate what you will be able to afford on a home purchase.
Pre-approval is an approval for a specific loan amount, with or without a property address for purchase. The loan is underwritten and you get a commitment from the lender.
Pre-approval can be a great advantage to you when dealing with a realtor or homeowner. With a pre-approval in-hand, you are a much stronger buyer because you already have financing available.
Pre-approval also tells you the maximum loan amount for which you qualify, and allows your realtor to show you the most realistic homes for your price range and saves time in negotiating.
Of course! There are hundreds of lenders who are willing to close loans even for those with less-than-perfect credit.
Your loan officer will need the following documents for pre-approval, or loan application:
If you are self-employed, paid by commission or if you own rental real estate, addition documentation is required including:
You can refinance to get a lower rate and/or payment, taking no cash out, which is called a “rate and term” refinance. If you’re looking for a way to get money out of your home without selling it, you can do what is called a “cash-out refinance”; if you have un-financed equity in your home, you can borrow against that equity for cash or debt consolidation. You may want to wrap your credit card, student loans and/or car debts into your mortgage; these debts will be paid off completely and you’ll be left with one tax-deductible payment. Proceeds from refinancing can also be used as down payments on investment properties, or you can pull out cash for home-improvement or business investments.
An interest-only loan can be a big advantage for many reasons, but is the best idea when the value of your property is guaranteed to increase either because of a rising market or home-improvement. In these cases, an interest-only loan provides lower payments because you’re not required to pay on the principle, but your equity still goes up because of the rising property value.
What does it mean to “lock-in” my rate?
To float your rate means that even though you’ve been approved at a certain interest rate, that rate is subject to change with the market until it has been locked-in.
Lenders generally require each loan to be locked before closing documents can be sent to the title company. However, you can float your interest rate as long as you want during the loan process. Once the rate is locked, it can no longer float. Your loan officer will discuss all your options and advise you as to the best time to lock your rate.
Below are some questions that will help you determine your current situation and find what you’re looking for. Discuss these items with your Valley View Lending loan officer to help you find what you need:
A fixed rate mortgage guarantees the same interest rate and payment for the duration of your loan, while an adjustable rate loan (ARM) has a fixed rate for a determined period of time (usually 3-7 years), after which time, the rate becomes variable and subject to change at pre-determined intervals. There are advantages to both kinds of loans.
A fixed rate loan never leaves you guessing; you’ll always know what your payment will be.
If you choose an ARM, your interest rate will generally be lower for the 3-7 year fixed-rate period (up to 1% lower). When the rate becomes adjustable, it will follow the market, and re-adjust as often as every month or as infrequently as every 7 years. (You will decide the adjustment period with your loan officer before closing.)
A loan with a balloon is a fixed-rate payment for the first five to seven years of the loan. The payments are amortized (or divided) over 30 years; however at the end of the fixed-rate payment period of five to seven years, the balance of the loan is due in one big payment, called a balloon payment.
A conforming loan fits all the requirements and guidelines set by Fannie Mae and Freddie Mac. (Fannie Mae and Freddie Mac are the two congressionally funded companies that buy mortgage loans from lenders. They ensure that mortgage funds are available at all times and in all locations.)
A non-conforming (sometimes known as a “jumbo” loan) does not fit the Fannie Mae/Freddie Mac requirements, most often because the loan amount is too high; both companies will only purchase loans up to a certain limit.
PITI represents the payments that are generally wrapped into your monthly mortgage payment:
Principal Interest Taxes & Insurance.
There are different kinds of points; origination points and discount points. One (1) point is equal to 1% of the loan value. For example, on a $100,000 loan, one point equals $1,000. A loan officer can charge 1-5 points for origination.
Borrowers also have the option of paying for discount points. Discount points represent additional money you can pay at closing to lower your rate. Generally your rate will be lowered by .125% for each point that you pay. For example, if your interest rate is 7.50% for a $100,000 loan, depending on your lender, you may be able to pay $1,000 and lower your interest rate to 7.375%. The longer you plan to stay in a loan, the more sense it makes to pay for discount points.
Points charged by the broker or lender for loan origination.
There are thousands of different loan programs, lenders, rate options and other factors that affect the loan process. Loan officers generally go through several options, taking into consideration their borrowers’ circumstances and needs. During this process, loan officers compare and re-compare rates and programs and other variables between different lenders. The loan officer then originates a loan for the borrower. The entire process is called loan origination.
Loan-To-Value; what you’re borrowing in a single loan versus the value of the property. Generally lenders have a maximum LTV and CLTV (see below) for each loan program. For example some programs allow borrowers an LTV of 100%, which would be no-money-down programs. Others will only lend to 80% of the property value.
Cumulative-Loan-To-Value; the total amount (1st and 2nd mortgages) of what you’re borrowing versus the value of the property. Generally lenders will not loan over 100% CLTV.
Note: A lender has to be careful about the properties in which he chooses to invest his money. The higher the LTV and CLTV, the higher the risk for the lender. Similarly, a lender will not approve a loan for more than the appraised value of the property; he will not be willing to invest more money than there is value to support.
How much will I need for a down-payment?
Your down-payment depends on several variables. Generally, the higher your down-payment, the lower your interest rate, however, there are several lenders that offer NO DOWN PAYMENT loan programs.
Note: A lender takes a risk by lending money, the more you put down, the lower his risk in lending you money. That’s why lenders are more willing to give lower interest rates when you have a high down-payment.
You can discuss your options and down-payment requirements with your Superior Lending loan officer.
The dictionary definition for “lien” is the legal right to keep or sell someone else’s property as security for a debt.
When you finance a home (or other piece of property – like a car or a boat), the lender places a lien against that property. The lien gives the lender legal right to the property if payments are not made as agreed.
Private as well as public liens can be placed on a property. For example, the state can place a lien on your home for unpaid property and income taxes, or a private debtor can place a lien on your home for unpaid debts. Liens are reported and recorded on the title report for each property. Because a title report is issued, reviewed and re-assigned with each transaction on the property, all liens must be satisfied before refinancing the property. If the property is sold, the title company is required to use sale proceeds to automatically pay off any liens.
Hazard insurance is the insurance that protects the investment in your home, and compensates you in case of property loss or damage. Lenders require hazard insurance on each loan to ensure that neither you nor they will lose their investment in the property.
Fees that both the buyer and seller must pay at closing, including:
You can find all these and other fees with their specific costs on your Good Faith Estimate.
In general, the entire loan process takes about 3 weeks. However, it can be done much faster, or it can be drawn out. We understand that time is important to you and critical in your investments. Your Superior Lending loan officer will work with you to decide when your loan needs to close, and work to get it done in that time frame.