Want to Know How to Get the Best Mortgage Deal in America? by Terry Clark - HTML preview

Want to Know How to Get the Best Mortgage Deal In America?

"First Time-Home Buyers Tips & Advice Before You Hand Over Your Money~Also Learn a Thing or Two About Foreclosures"....

 

 

by Terry Clark

 

 

 

Table of Content

 

1. How Much Can You Borrow

2. How Do You Qualify for a Mortgage

3. The Importance of Your Credit Score and Where to Find it

4. What is Mortgage Pre-Approval and Do You Need One

5. Banks and Mortgages

6. Brokers and Mortgages

7. Should You Find Financing Online

8. What You Should Watch out for When Shopping for a Mortgage

9. What to Compare When Shopping for a Lender

10. Is Fixed or Adjustable Rate Interest Best for You

11. The Basic Setup of a Mortgage

12. How to Figure Out Your Loan Amortization

13. What You Need to Know About Prepaying Your Loan

14. What Can You Do Without a Down Payment

15. Where to Find Special Financing Programs for Home Buyers

16. Getting a Mortgage When You’re Self-Employed

17. Why Lower Interest is NOT Always Better

18. How Much Insurance Do You Need for Your Mortgage

19. Can You Get a Government Loan to Buy a House

20. What to Do If You Can’t Make Your Mortgage Payment

21. Are Bi-Weekly Mortgages a Good Idea

22. Should You Accept Seller Financing

23. Who Regulates Mortgage Lenders

24. How to Refinance Your Mortgage

25. How to Reverse Your Mortgage for Retirement

 

**Learn a Thing or Two About Foreclosure

 

1. What is Foreclosure

2. How will Foreclosure Affect Your Credit

3. Is Foreclosure Your Only Option

4. Steps to Take to Avoid Home Foreclosur

5. How Debt Counseling Can Help

6. Can You Rework Your Mortgage

7.Find Out if Your Lender Will Give You a Grace Period

8. Is Selling Your Home an Option

9. How to Protect Your Home with a Trust Account

10. Should You Sign Your Home Over to the Lender

11. How Bankruptcy May Stop a Foreclosure

12. Are There Organizations That Can Help You

13. What Information Will You Need to Provide

14. Tips for Getting Your Lender to HELP You

15. Why You Need to Act Quickly to Prevent Foreclosure

16. How Common is Foreclosure

17. What is the Government Doing to Stop Foreclosures

18. Can You Stop a Foreclosure

19.What to Do If the Bank Decides to Foreclose

20. I Missed a Payment - Will the Bank Foreclose

21. Why Lenders DON’T Want to Foreclose on Your Home

22. Common Myths About Foreclosure

23. What is an Out-of-Court or Power of Sale

24. What is Judicial Foreclosure

25. What is Uniform Commercial Code Foreclosure

 

 

 

 

1. How Much Can You Borrow

 

How much you can borrow for a home mortgage depends on several factors, all of which are important. How much your income is and what debts you have are two things that will be looked at closely. Your credit rating is another component, and how much - if any - you have saved for a deposit is yet another one.

 

To decide what amount you are eligible for, the lender calculates your debt to income ratio. This tells them how much of your total monthly income you must use to pay off your debts - and how much is left over. In simple language, if a lot of your income is used to pay off others debts then you won’t have much left over to pay off the loan. In this case you either won’t get a loan, or you won’t get much of a loan.

 

To borrow enough for a home you need to have a good income - or preferably two - not much other debt and at least some deposit. If you have no deposit, then the terms of your loan and your interest rate will be higher. But don’t despair; because there are many aid programs out there to help low-income families get a home.

 

The most used debt to income ratio is referred to as 33/38. What this means is that your housing costs should take no more than 33% of your total income, while adding the rest of the consumer debt you have should bring it up to no more than 38%.  These guidelines are flexible depending on the amount of down payment you have and they also vary according to the lender. Some lenders allow a 29/41 ratio to qualify for a loan.

 

So basically, how much you can borrow will depend on your debt to income ratio, your down payment and your credit history. You may find it easy to figure out what your income is per month, but if you are paid with a bonus or commission system as well as a wage, then it is a little more difficult.

 

Lenders only calculate your income based on what you’ve earned in the past, not what you are earning now. You will need the records of your bonuses from the last two years. You can work it out by looking at your W2 forms for the last two years. Add them up, divide the total by 24 and the answer will be your total monthly income.

 

If you are self-employed your income must still be figured out using records from the last two years. Working it out yourself will keep you a step ahead of the lender and you’ll know what to expect when he starts to ask questions.

 

 

2. How Do You Qualify for a Mortgage

 

To qualify for a mortgage you need to at least have an income - one that is not being gobbled up by any other debt. That is not to say you cannot have any other debt. It simply means that it should not exceed a certain percentage of your income. Remember that when you get a mortgage, you have to be able to pay it back. And you’ll be paying back heaps more than you borrow because of the interest rate charged.

 

When lenders start to examine your income, they like to be sure that they will get their money back. After all, that is what they lend it for; to make money through the interest. If they think you are a risk, they will require you to take out loan insurance. This will be even more cost to you, but will ensure that they get paid. A person who is considered a risk will also have higher interest to pay.

 

Your credit rating will be one of the things that a lender looks at to decide whether you are a risk or not. If you’ve had a history of late repayments or even just one repayment that is late, their alarm bells start to ring. They believe that if a person has paid late once before they will be more likely to do it again. Statistics show they are right.

 

So if you’ve had late repayments - even though it was through no fault of your own - then this will go against you in qualifying for a mortgage. It will not necessarily prevent you from getting one, but it will cost you in terms of interest and insurance.

 

Having a steady job that you’ve kept for at least two years will help you to qualify for a mortgage, especially if your income is a good one. If you’ve changed your career in the past and are just starting out on a new one, this will go against you. What lenders are looking for is that rock solid steady employment history in the same line of work. They want you to be earning something like twice as much as the amount that you have to pay them back.

 

If a lender offers you much more than you expected or need, be wary. While you might have sudden visions of the beautiful home you’ll now be able to afford, you will have to pay it back - if you can. The more the lender lends you, the more he will make; that is all some are interested in. Over-extending yourself is never a good idea.

 

 

3. The Importance of Your Credit Score and Where to Find it

 

Your credit score is one of the most important issues that a lender will take into account when deciding whether to lend you money. If you have lots of debt and late payments, then you will likely have a bad or poor credit score. Having a bad credit score will not prevent you from getting a loan, but it will make it harder and you’ll have to pay more in interest and loan insurance.

 

And in fact, your poor credit rating may not be your fault at all, but due to inaccurate late payments registered by credit bureaus. Take careful note of your payment history and get mistakes fixed immediately to keep your credit score squeaky clean.

 

So where do you find out what your credit score is? Since no one can get by without money, everyone has a credit score. The score most used for larger loans is that developed by Fair, Isaac and Co, commonly called the FICO score. Lenders apply to the three national credit bureaus, TransUnion, Fairfax and Experian to find out your credit score. You can do the same thing.

 

You should get your credit score at least six months before you need to apply for your loan. This is because it takes up to three months or more to fix any mistakes that have been made on it. Then you need to have at least three months of good history to show.

 

If you habitually make late payments without even realizing it, then you need to put in place a plan. If you have a computer, you can set up your bank account to pay automatically at a certain time. If not, make sure of when your payments are due and mark the date on your calendar. If you have a PDA, you can set it to remind you when to make the payments.

 

These things will help your credit score to improve. Another thing to help is to make sure you keep your balance under that credit card limit by at least 25%. If at all possible, pay off the credit card debt you have completely, before applying for the loan. The amount of money you owe on your credit card is a vital factor in your credit score.

 

So don’t get down about having a poor credit score, these are things you can do to improve it. Get cracking and make a new start. You’ll be glad you did.

 

 

4. What is Mortgage Pre-Approval and Do You Need One

 

To get pre-approval for a mortgage the lender must closely examined your credit history and affirm that you qualify for a loan. He will tell you what sort of mortgage you qualify for and discuss interest rates. Better still, he will tell you the amount of loan you should be able to get.

 

While this pre-approval is not a firm offer of a loan, it lets you go shopping for a home with more confidence, because you know that the lender will look on your formal application with favor. Since you now have a specific amount of money in view, you can narrow your choices down to fit in with the amount of the loan.

 

The pre-approval differs from pre-qualification. To run a pre-qualification check, the lender does not look closely at your credit history. It is only a general look at your debt to income ratio. You can do this yourself using the many online calculators available. Or you can get your real estate agent or a lender to do it for you. Loan terms and interest rates don’t figure in the pre-qualification equation.

 

To get loan pre-approval, you’ll need to talk to the lender and put in an application. The lender will need all the details of your financial history and your permission to make a credit search. Once you have pre-approval for a home loan, then the seller will be more than likely to accept your offer to buy.

 

When the buyer’s market for homes becomes competitive, as it is these days, a pre-approval may be just the thing to give you an edge in buying the home of your dreams. You can often apply for pre-approval online. This usually results in an agent contacting you to set up an appointment. Only by actually talking to you and examining all your details can the agent judge whether to give you pre-approval.

 

Pre-approval is not a binding agreement on either side. It simply means that your home loan application would be looked on with favor by the lending institution. And from your side, you could go to another lender for the mortgage you want, instead of staying with the one who gave you pre-approval. You will then have to present all your credit history again. You may want to do this if a long time has elapsed before you can find the house you want and the financial climate has changed. You might then find a better deal through a different lender.

 

 

5. Banks and Mortgages

 

Traditionally, people who need a mortgage go to a bank. They feel that a bank has lots of money and is more likely to give them a loan. When you go to a bank, you will be offered the choice of several different loans - assuming you qualify - but they will all be from the same financial institution; the bank you have chosen.

 

The loan officer at the bank you’ve chosen works for that bank and their job is to offer loans on behalf of the bank. The bank loan officer will not get a commission for successfully signing you up as the bank’s customer.

 

This mean that you are stuck with the interest rate they offer, so if you see another bank offering better interest rates, go there instead. Or you may be the type of person who enjoys a bit of haggling, in which case you may be able to point out the difference in what another bank is offering. If you are persuasive enough, the loans officer may try to match it - if he is allowed.

 

One point in favor of using your local bank is that it is there on the spot and understands exactly what is meant by various real estate terms. This means there should be minimal delays in getting closure, once all the details have been sorted out. If you use one that is a long way off, there could be delays.

 

Banks are financial institutions - they don’t really want to get into real estate. So they do their utmost to help you keep going financially when things get tough. They may be happy to re-finance your loan if you lose you job and find it difficult to meet payments. This is because they know that if they have to foreclose, they also have to pay all the costs associated with it, like taxes and upkeep. Banks would much prefer to make money via their interest rate, than pay it out in these costs.

 

This is encouraging for borrowers as often with just a little help from their bank, they can avoid losing their home and even take steps to make living a little easier by negotiation. This should be done in a pro-active manner. Never wait until the debt collector is ready to throw you out of the house before asking for help.

 

While it may be harder for the new borrower to get a foot in the banks lending door, those who are already in will usually be helped if they ask. And making it harder to borrow is not such a bad thing. It’s better not to borrow at all if the result means financial hardship or even bankruptcy further down the track.

 

 

6. Brokers and Mortgages

 

When looking for a mortgage many people will go to a mortgage broker. Mortgage brokers have access to many lending plans from many different lending institutions. A good broker should be able to get the best mortgage deal for you - and may even be able to get a far better interest rate than your local bank is offering.

 

The trouble is that brokers need to make money to live too, so where are they going to get it from if they don’t work for a bank or other lending institution? You, of course! They add a bit on to the interest rate of your loan and have that as their commission. They may also get paid an extra commission from the lending institution they get your loan with.

 

While there are some baddies out there, most brokers are honest. They have to be to keep their jobs. It doesn’t take long for a bad reputation to spread. And there are plenty of laws to protect you from a shonky broker. Competition for work is hot, so brokers need to stay honest and give good deals to keep themselves in a job.

 

That doesn’t mean you shouldn’t take steps to protect yourself. Always be sure that you get everything in writing from your broker, and then you will be protected. Remember too that when brokers quote you a price they can lower it. They’ve added their fee on and will no doubt have made sure they get plenty. You can’t blame them for that.

 

But feel free to negotiate to lower the interest rates. Your broker may even expect you to do this and have accounted for it in his original quote. So don’t feel that you are stealing bread from his mouth. And while you are at the negotiating table, you can also look at his fees. He is allowed to charge you a fee by law, but you are also allowed to try and get them reduced. Don’t accept too high a fee from a broker, because he is making his money off of those extra interest rates.

 

On the other hand, you should try to be reasonable. If you beat him about too much, he will lose the incentive to get you a good deal and work with you. If you hate trying to negotiate, let the broker do it for you by speaking to two or three and let them compete with each other. This way you will be the winner, because they will vie to get your custom.

 

You can initiate the first steps online to make the task less daunting. Once you go to a broker’s website, you’ll find it easy to put your first details into their question boxes and get the ball rolling that way.

 

 

7. Should You Find Financing Online

 

These days so much is done online that it seems everything we could possibly want is available. You can buy clothes, sign up for newsletters about everything under the sun, find out all about the news, wind and weather and generally have fun - all online. So what about the more serious side of life - that of getting finance to purchase your dream home? Should that be done online too? Is it safe?

 

Certainly the first steps to finding finance can and should be done online. By researching various sources of finance, you can compare their rates and requirements in just a few minutes. To do this by going to each one physically and speaking to the loan officer would take days or weeks.

 

It takes only a few moments to log into the website of a bank, other lending institution, or a broker and find out what they can offer you. They too want to save time and money. They do this by making the online experience as easy and helpful as they possibly can.

 

Many have online calculators freely available to any would-be customer to use. While these are limited in actually getting your loan settled, they provide a vital first step in seeing what is available and whether you fulfill the criteria. This saves time spent unnecessarily by a loans officer in telling you what you need to qualify.

 

To actually find financing online, you need to be a bit more wary. Make sure you are dealing with a reputable and honest company, whether it is a broker you are looking for or an actual financial package. Another thing to watch for is if the company is close to your home. If you choose to deal with a lending institution on the other side of the country, there could easily be delays.

 

These come about by the simple fact of them not understanding exactly what some terms mean. They need to be sure exactly what is meant in the contract, and so there is a delay while they find out. While it may not be much, it is something you need to be aware of.

 

There are many different types of mortgages, so when you are researching take your time and don’t rush it. If you don’t know too much about the topic, then you’ll need to do thorough research. If you don’t have the time or inclination, it may be a better option for you to go straight to a broker or a bank.

 

 

8. What You Should Watch out for When Shopping for a Mortgage

 

When shopping for a mortgage there are some things that you should know to help streamline the process. One of these things is to present your own credit rating to the lender, rather than waiting for him to get it. In fact, you should get this credit rating several months in advance of shopping for a mortgage so that you can be sure it is a good rating. If it is not, then you can do something to clean it up before talking to any lender.

 

You can order a free copy of your credit score by going to www.annualcreditreport.com. You can also phone 1-877-322-8228 or fill in an annual credit report request from the Federal Trade Commission. Once you have your credit score, it is important to check it for inaccuracies such as late payments.

 

One of the most important things to watch out for when choosing a mortgage is the type of interest. If you don’t want any nasty surprises about the monthly costs soaring, then you would choose a fixed interest rate. While this may seem to cost more, if interest rates soar, you can laugh because you won’t be affected. If you’ve chosen an amount that you can comfortably afford to pay back each month, you won’t be in danger of losing your home.

 

An adjustable rate mortgage - where the interest rates start out low and then rise - is more suitable for when you know you will not be in the home for more than say, three years. Then you’ll be selling it before the high rates of interest apply. Or if you are sure your income is going to increase in a few years.

 

What if all goes well financially and you decide to pay extra off your loan to get it finished with ahead of time? If you haven’t checked the terms of the loan you may find that you are penalized for doing what seems to be a good thing. Many loans have a penalty clause that states you have to pay extra if you want to exit early. This is because the quicker you pay it off, the less interest the lender makes.

 

To make a penalty seem less likely, the box that is checked often contains the wording: “a penalty may be applicable”. There is usually no ‘may’ about it. Read ‘will’ for ‘may’.

 

Negative amortization should be avoided at all costs. You want to see the amount you must pay back decrease, not increase, but with negative amortization this is what could happen. An adjustable mortgage with a payment cap is the bad apple. If the payment cap doesn’t cover the whole interest payment, then that amount is added to the principal.

 

 

9. What to Compare When Shopping for a Lender

 

It is always wise to make comparisons between different lenders when you are looking for a mortgage. Only by comparing the different rates and terms can you find the best deal. Some financial institutions may be operating as both lender and broker, so be sure to ask. Otherwise, you may be hit with extra costs on closing that you hadn’t expected.

 

You need to know all the costs that you are expected to pay. Finding out the interest rates and monthly repayment is important, but it is not enough. You need the type of loan and the loan term on the same amount from different lenders. Then you’ll be able to compare them equally.

 

You need to ask about the annual percentage rate (APR). This includes not only interest, but also other costs associated with the loan. There could be broker’s fees, points or other credit charges. Points are the fees that are paid to a broker. Ask them to be quoted in a dollar amount rather than as points, as this will give a truer picture of your costs.

 

Ask for a list of fees. These may not even be mentioned until closing if you don’t ask. They can include not just brokers fees, but closing costs, transaction costs and settlement costs. In many cases, these fees are negotiable. There are also application and appraisal fees that are payable before closing. Watch out for no-cost loans as they often have higher interest rates.

 

Compare the down payment required on your loan. Some lenders want 20% and if you don’t have it, you’ll have to pay private mortgage insurance (PMI). Others lenders will by happy with 5% down payment and not ask for insurance. If you can take advantage of a government-assisted scheme, then the down payments are frequently much smaller. If you have to pay PMI, ask what the monthly payments will be with that included.

 

When shopping for a lender be sure to compare apples with apples. If you compare different loan types for different lenders, you won’t get a true picture of the differences. That is not to say you should not compare different types of mortgages. You need to compare mortgages just as carefully as you compare lenders.

 

Once you understand the basic differences in the products available, you’ll be able to make the choice that is most suited to your particular situation. Who wants to pay more than they need to?

 

 

10. Is Fixed or Adjustable Rate Interest Best for You

 

This is the sixty-four dollar question when buying a home. Should you choose a mortgage with fixed interest rates or adjustable interest rates? It all depends on your individual circumstances.

 

If you choose a fixed rate, then the interest rates will stay the same for the entire time of the loan. This means that you pay the same rate of payment per month - though in some cases insurance and other costs may rise, so your payment will rise with them. However, it won’t rise nearly as much as the payments of an adjustable-rate mortgage (ARM) will.

 

If an ARM is chosen, the payments are typically lower to start with, and then increase over time. Just when they start to increase depends on the terms of the loan. It could be fixed rate for the first year, two years or even three years. Or it could be only for the first three months of the loan.

 

Those who choose an adjustable rate do so because they either intend to sell their house before the fixed rate period is up, or they believe that their income will have increased enough by then to cover the extra cost. Adjustable-rate mortgages are usually for larger sums than the fixed-rate loans.

 

While it may seem something of a gamble to get an ARM in case the interest rates soar, there are protections in place for both the borrower and the lender. These are in the form of interest rate caps. This means that over a certain period of time specific to the terms of the loan, the interest rates are not allowed to rise or fall more than a certain number of points.

 

This saves the borrower from having to pay an exorbitant amount of interest and it saves the lender from missing out on his profit should the interest rates drop dramatically.

 

Statistics show that most homebuyers now prefer the fixed rate home loan. While the cost may seem to be more initially, over the long term, they save. These homebuyers intend to keep their home for a lot longer than 5-7 years. They will have a steady income, but don’t expect it to rise substantially in the future.

 

Therefore, they want payments that they can be sure won’t rise to any great extent either. In this way, they have peace of mind, knowing that as long as they can work, they can pay their loan off. So really, you are the only one who can decide which one is best for you.

 

 

11. The Basic Setup of a Mortgage

 

A mortgage is usually used for the single biggest loan most people make over their lifetime - that of purchasing their family home. The two most important elements of the mortgage are the capital and the interest. The capital is the amount you get to purchase the home, and the interest is the money that you have to pay the lender for the loan - in other words, his profit.

 

The capital does not always cover the full purchase price of the home, though it can. In some cases it may be only 75%, or maybe a little more. If the borrower has saved up enough for a deposit, he won’t need to borrow the full purchase price.

 

Having a deposit is good for the borrower, because it enables him to improve his loan to value ratio (LTV) with the lender. The lender will give him better terms when there is a good deposit saved up. It implies that the borrower will be better able to pay off his loan. And in fact, the borrower is better off using his savings as a deposit. He will save a great deal more on his mortgage interest rates than he will make as interest in a savings account.

 

But back to the mortgage. The interest rate of a mortgage will vary with the lender. It will be either fixed rate or adjustable rate interest (ARM). Additionally, the ARM has a capped interest to protect both lender and borrower as we