Mortgage loans are frequently offered by mortgage lenders with a variety of different rate and point options for new borrowers.Â One option is for the borrower to pay more points in order to get a lower interest rate.Â This option involves paying discount points to get a discounted or lower rate and is generally referred to as a mortgage rate buydown.Â Â
A lower interest rate obtained through the buydown can save a borrower money on their monthly mortgage payment and can also reduce the total amount of interest the borrower pays over the life of the loan.Â In exchange for these valuable benefits achieved with the buydown option, the borrower pays more in closing via more points or discount points.Â
Points are identified as either origination points or discount points.Â Origination points are points paid to the lender to obtain a loan and pay for the overall loan origination process while discount points are points paid to obtain a specific interest rate.Â Each point will cost the borrower 1% of the mortgage balance.Â
As a general rule of thumb, one discount point will lower a fixed rate mortgage by 0.20% some mortgage analysts round the number up to 0.25% but they may be slightly generous.Â Of course, the difference between the rate and the points paid can vary from product to product as well as from lender to lender.
Paying more points in exchange for a lower rate and lower monthly payments may work for some borrowers and not for others.Â One obstacle with the buydown is simply the higher costs.Â Coming up with extra funds to pay the points, especially if the borrower is presented with an option for fewer points may just not be a viable financial option.Â Certainly, most first time homebuyers are fighting hard to put together enough funds for the down payment combines with the closing costs and reserves needed, and the option to come up with even more money fro discount points to get a lower rate is just not feasible.
The decision to pay more points or not will often be a reflection of a borrowerâ€™s current financial position and how long they intends to stay in the house or hold the mortgage loan.Â The longer the mortgage loan will be held, the greater the benefit of paying points and reducing the interest rate.Â Keep mind that predicting how long a loan will be held includes forecasting any future refinances along with the possibility of selling the home.Â In a nut shell, paying more or less points depends upon the discount available, the finances of the borrowers, and the length of time the loan will remain open.
When a borrower does their mortgage comparison shopping, they should make sure to investigate all the loan rate options as well as the fees that are being charged.
Mortgage rates often show a fairly wide spread between the interest rate available on a 30 year term loan and that of a 15 year term loan.Â During these cycles, a large number of borrowers are tempted by the low rates found on that shorter term, 15 year fixed rate mortgage.Â Borrowers that are refinancing an existing home loan are especially attracted with the shorter term financing option after having a 30 year loan for some time.Â But for many mortgage borrowers, the 30 year fixed rate loan may still be the best option.
The 15 year mortgage can offer some substantial savings on interest over the life of the loan for the borrower due to both, the lower interest rate and the shorter term.Â In addition, the shorter term yields a faster build up in equity for the home owner as the mortgage debt is retired or paid off faster.
The downside to the 15 year mortgage is the larger monthly mortgage payment it has compared to that of the 30 year loan.Â With that larger monthly payment obligation, the borrower has less financial flexibility than would be afforded with the 30 year loan.Â And while the 30 year loan has higher interest costs due to a slightly higher rate and longer term, the costs associated with the longer term can be ameliorated by paying the loan off early at a pace.Â The pace of paying the loan off early can be altered to match the borrowerâ€™s financial position with the 30 year and not so much with the 15 year.Â
There is no prepayment penalty on traditional conforming mortgages.Â Therefore, the 30 year home loan borrower can pay off the loan early by making extra payments at anytime during the year as long as the borrower is meeting the minimum monthly contractual payment obligation.Â The borrower can make an extra payment each year to retire the loan early and reduce the interest expense or make a larger payment each month or make extra payments on just certain months when the borrower feels financially confident enough to do so.Â The flexibility is certainly more constrained with the higher monthly payment obligation inherent with the shorter term home loan.
The after tax savings with a shorter term mortgage is also somewhat reduced due to the tax deduction that is allowed on the mortgage interest expense for most borrowers.Â The tax deduction allowed for mortgage interest effectively reduces the savings the borrower gets from the 15 year loan.Â Tax rates work on percentage basis and the tax break for mortgage interest reduces the initial savings or spread between the 15 year mortgage rate and the 30 year mortgage rate after the tax savings are calculated.
In addition to these considerations, fixed rate debt is a powerful financial tool when inflation rates increase and / or interest rates rise.Â A 30 year fixed rate loan has an interest rate that is fixed for the full 30 years regardless of what happens to interest rates and the financial markets after the loan has been obtained.Â When inflation rises, income generally rises as well.Â As income and inflation rises, the ability to pay back a long term loan that has a lower fixed interest rate obtained when inflation and interest rates were lower is a tremendous financial advantage.Â An advantage that is available with long term fixed rate home loans.
Whenever rates rise, consumers and businesses long to borrow money at the lower rates of days gone by.Â In fact, some businesses will borrow money long term when interest rates are low with the expectation that they will soon rise and they will eventually be repaying their debt with dollars that are less valuable due to the loss of purchasing power that is caused by inflation.
For many new home loan borrowers, the 15 year fixed rate mortgage may be the best choice based on the borrowerâ€™s budget and financial preferences.Â But other borrowers that are searching for a new refinance or home loan to purchase a property may find the 30 year mortgage a more shrewd decision.
In some situations where an existing homeowner is refinancing or seeking mortgage payment assistance, it is necessary to find out if either Fannie Mae or Freddie Mac are the end investors or owners of the current home loan.Â Information about the end investor or lender on a loan, whether it is Fannie Mae or Freddie Mac, should be available at the current mortgage lender.Â By contacting the current lender, a customer should be able to get information on whether Fannie Mae or Freddie Mac owns the loan.Â Fortunately, both Fannie Mae and Freddie Mac also have secure online look up tools that can be used to quickly find out if Fannie Mae or Freddie Mac owns the loan.Â
When using these loan look up tools online it is important to make sure all the information about the property and loan borrower is entered accurately, any data entry errors or typographical errors may impact the process or the accuracy of the information retrieved.
The Freddie Mac mortgage loan look up tool is located at the following address:
To find out if Fannie Mae owns the loan, an online look up tool can be found at:
In addition to this tool, consumers can find information by calling Fannie Mae directly at 1-800-7FANNIE.
If a home loan is owned by Freddie Mac or Fannie Mae, the mortgage borrower may be eligible to be considered for the federal mortgage assistance programs including the Home Affordable Refinance Program (HARP), the Home Affordable Modification Program (HAMP), and other applicable assistance options offered by the federal Making Home Affordable program.Â In addition, there may be situations where other programs and assistance is available exclusively to Fannie Mae or Freddie Mac borrowers.
Using pension income, retirement income or social security income to qualify for a mortgage loan is common aspect of mortgage processing.Â All sources of income that a borrower declares to qualify for a mortgage loan will be verified by the mortgage lender.Â Some forms of income are relatively easy for the lender to verify and quantify while other sources may require more paperwork and resources.Â Regardless of the income type, the general rule for the mortgage lenders is to verify the current level of income and the likelihood it will continue for the next few years.Â
To verify retirement, pension and social security income, the mortgage lender will generally ask for copies of the recent pension check stubs or a bank statement if the pension or retirement income is deposited directly into a bank account.Â If the income source has been received for the past two years, verification of the prior two years will be verified with w-2â€™s and supplemented with either a verbal verification with the institution paying the retirement funds or a written verification of income.Â
While mortgage lenders often use a two year history of income to support the gross monthly average income level used in the loan request, periods of less than two years are acceptable for new retirees or pension recipients or for those new borrowers that are just starting to receive social security benefits.
Sometimes it will also be necessary to verify that this income will continue for at least three years since some pension or retirement plans do not provide income for life.Â This can usually be verified with a copy of your award letter or other written verification with the pension or retirement income source.
Borrowers that are receiving tax-free income, such as non-taxed social security or retirement income may have the monthly income figure positively altered or increased by the lender for loan qualification purposes.Â By increasing non-taxed income or grossing up the income as it is often referred to in the mortgage industry, reflects the fact that taxes will not be deducted from the income and the borrower has more disposable income than if the income was taxable.Â Grossing up that amount puts it on equal footing with standard, taxable wages.
Most borrowers are told that they cannot borrow funds for the down payment to qualify for a mortgage on a new home.Â While this is generally true, there are some instances when a borrower may be able to borrow the funds for the down payment on a new home purchase.
The money needed for a down payment can be borrowed for the total required investment as long as satisfactory evidence is provided that the funds are fully secured by investment accounts or real property.Â This means that the borrower is essentially borrowing funds against their own assets to use as the down payment source to qualify for the mortgage and buy a home.
Examples of the type assets that can be used to secure a loan to use as down payment funds include loans on stocks and bonds that may be held in a brokerage account or held in a 401(k).Â Borrowers can also borrower funds against other real estate owned, but not the property being purchased with the down payment.Â Title loans for a car can also be used or generally any property that is marketable and has a value that can be ascertained by a third party.
The loan payment for most of these loans will have to be included in the debt ratio of the borrower to determine the qualification standards needed.Â In some cases, the loan repayment terms do not need to be included in the borrowerâ€™s debt ratio.Â Examples where the loan payment for borrower funds is not included often include 401(k) loans and loans made against the cash value of life insurance policies since these debts can be eliminated by the cash value of the property securing the loan.Â
Most forms of borrowed funds for the down payment are still excluded and cannot be used as a verified source of finds to qualify for a new mortgage loan.Â Home loan buyers cannot borrower the down payment with signature loans, loans from friends and family, cash advances on credit cards, borrowing against household goods and furniture and any other similar unsecured financing.Â The home seller, real estate agent or broker, mortgage lender, or other interested third parties are also prohibited from providing the down payment funds.
Home loan borrowers that are looking to buy more home or increase their monthly income to qualify for a new home loan will sometime look to include part time income into their total gross monthly income.Â Qualifying for a new mortgage loan using part time income can be a difficult proposition.
For mortgage loan qualifying purposes, part-time income generally refers to employment that is worked less than 32 hours per week.Â Part time employment may be the sole source of income for one or more the borrowers applying for a new home loan or it may taken to supplement the borrowerâ€™s income from regular, full time employment.
When a mortgage lenders works on qualifying a borrower, one key aspect of this process is to review and calculate the applicantâ€™s gross monthly income.Â In the process of calculating the monthly gross income, the mortgage lender must determine the amount of the income as well as whether the income is stable and dependable.
The lender will generally need to look at two years of the prospective borrowerâ€™s part time income history to determine the dependability of the income.Â In addition, the lender must determine that there is a reasonable expectation that the income will continue.
Part time income may be considered stable when the applicant has worked in the same line of work for at least two years.Â The general rule for using part time income to qualify the borrower is for the lender to document that the borrower has worked the part time job uninterrupted for the past two years, and plans to continue.Â Lenders may accept less than a two-year history but generally not less than a 12-month history of part time income if there is a strong likelihood that the applicant will continue to receive that income.
The monthly income calculation will usually be based on a two year average of the part time income earned.Â The lender will take an average of the part time income to avoid including recent income that may be artificially inflated due to a high work load, more hours per week that is not likely to continue.Â A consistent income stream is a key component in order for a mortgage lender to allow any kind of irregular income to be used in loan qualifications.
Part time income from a borrower that does not meet the qualifying requirements outlined is often used as a compensating factor by the lender but will not be used to calculate motherly income and debt ratio calculations.
New home loan borrowers generally do not have to fear the threat of an avalanche when it comes to securing a new mortgage loan but, avalanche threats can prevent some new home buyers from obtaining a new home loan in some areas of the nation.
With regards to FHA loans there is a Federal Code that requires that a property shall be free of those foreseeable hazards or adverse condition which may affect the health and safety of the occupants or the structural soundness of the property.Â While this regulation is open to wide interpretations, FHA has determined that the health and safety threat includes properties in avalanche slide or run-out areas.Â
The specific FHA lending rules clarify that a property located in either the Red or Blue Zones of avalanche designated areas are ineligible for FHA insurance and should be rejected.Â Red Zones are identified as high hazard areas.Â This zone includes terrain exposed to frequent and/or large powerful avalanches.Â Blue Zones have moderate hazard risks but still pose a risk to loss of life and property.Â Â
The rules followed by FHA regarding the acceptance of mortgage loans is the area further states that due to the extreme hazards to the health and safety of the occupants, the Department will not entertain request for waivers of this requirement unless it has been determined that construction of diversionary structures have been constructed.
There has been no follow up to these mortgage lending rules with regards to the impact of global warming and the potential for a wider or narrower avalanche zones based on climate change.
Most mortgage lenders will not refinance mortgage loans on properties that are currently for sale or have been for sale in the past six months.Â Whether a property is for sale does not affect the ability to refinance it.Â It is the mortgage lenders discretion to establish rules that do not allow customers to refinance homes that are for sale or were recently on the market.
Mortgage lender, in general, do not want to refinance a house while it is on the market because they anticipate that the house will sell in a short period of time and the new mortgage loan would be paid off quickly.Â Mortgage lenders incur a fair amount of upfront costs to secure a new home loan and they make money by either reselling the loan at a premium and therefore recouping the costs and securing a small profit or they may make money from the ongoing interest payments collected on the loan.Â
If the mortgage lender makes their profit by collecting the monthly payments, an early payoff will restrict or eliminate their profit if the loan is paid off early with the home sale.Â If the mortgage lender is in the business of reselling the home loans they originate, they may lose that option if the loan is paid off quickly when the house is sold or they may have a crawl back provision in their loan sale agreements that allows the new loan servicer to recover money on loans that are paid off early within a predetermined time period after the loan is originated.
While a home that was on the market in the past six months is not an immediate problem for the lender, the mortgage lenders generally view homes that were recently for sale by the current owner as a property that is likely to be placed back on the market relatively quickly and the same risk of losses from originating a new refinance transaction exist for the mortgage lender.
Some banks may make a loan on a property that was recently for sale but reduce the loan to value on the mortgage request and possibly increase the upfront loan charges or points paid on the loan request.
Home inspections needed to obtain a new mortgage loan can cover a number of different features in a property.Â The most common home inspection, a general home inspection, is rarely a required process.Â A home inspection is commonly recommended by most professional in the housing and mortgage industry, FHA recommends new home buyers obtain an inspections part of the loan process.Â However, certain inspections may be required under a particular loan program or for a particular property or property location.
New mortgage borrowers should not be confused with the role an appraisal plays in the property evaluation and loan approval process.Â First and foremost, appraisals are for lenders where as the home inspection is performed by the buyer.Â As part of the mortgage lenders job of approving a mortgage loan, they will require an appraisal.Â An appraisal is different from a home inspection.Â The lender does an appraisal primarily to estimate the value of a house, to make sure that the house meets minimum property standards and to make sure that the house is marketable.Â The general home inspection is conducted to evaluate the physical condition: structure, construction, and mechanical systems, to identify items that need to be repaired or replaced and estimate the remaining useful life of certain physical aspects of the property.
While the general home inspection is not required, some inspections may be required by a mortgage lender to approve a home loan.Â With many FHA loans, a termite inspection or pest inspection will be required.Â Pest inspections or termite inspections are usually required if the property has signs of active termites or the region in which the property is located in is known for termite activity.Â Wood destroying pests can often be found in various parts of the country, but they are especially prevalent in warm climates and in the Southern United States.Â Not all properties are subject to termite inspections under FHA but many are.Â Â
Some home loans may require a well and septic inspection before the loan is approved.Â Well and septic inspections are performed on properties that are not using a municipal water and sewer system and are therefore have private wells and septic systems that most lenders will require are inspected for functionality.Â The well inspection will generally require a certified water test where as the septic tank often requires a simple inspection by an accepted inspector.
Roof inspections are not too uncommon for older homes or homes in which the appraiser has identified the roof as having potential problems with its structural integrity.Â
Radon tests may be required if the property or location leads the mortgage lender to believe there is a problem with radon gas in the property.
Lead paint inspections may be required but are seen far less in recent year as lead paint has not been allowed in homes for decades and most properties have had the issue ameliorated by now.
While certain inspections may be required under a particular loan program or because of the condition of a property, borrowers may want to consider some home inspections even if they are not required.
An essential phase of the mortgage loan process for the both borrower and mortgage lender is the completion and submission of the mortgage loan application.Â Once the mortgage shopping process is completed by the borrower, the process of obtaining a new mortgage loan starts with the loan application.Â The mortgage loan application is often completed in person with loan representative of a bank or mortgage lender but is increasingly being completed online, via a phone interview or even through the mail.Â Regardless of how the application is filled out and submitted, the borrower will need to supply a fair amount of information in order to complete the application.
The application is a significant starting point for the mortgage lender.Â The application lets the mortgage lender know key information about the borrower including their debts, income, assets, length of time at their residence and at their place of employment as well as the loan purposes and the specific details regarding the down payment, loan amount, mortgage term and interest rate.
The mortgage lender uses the information on the loan application to determine the borrowerâ€™s qualifications for a loan request.Â Of course, all of the information is verified.Â The mortgage lender does not simply accept the applicantâ€™s statements regarding their assets and income or even their debts.Â The applicants debts are generally verified with a credit report, the income is verified with the applicantâ€™s w-2â€™s, paystubs and direct verification with the employer while the assets are verified with bank statements and direct verification with the bank or other financial depository.
New home loan borrowers that are providing the information on the loan application should be well prepared to furnish their personal information such as their Social Security number, date of birth, marital status, and contact information as well as all of the financial and employment information.Â Mortgage loan applicants should also be prepared to provide the necessary supporting documents about their income, debts, debt payments and assets.Â
The easier and faster the mortgage lender can verify the borrowerâ€™s data and ascertain the qualifications of a borrower, the faster and easier the loan approval process will be.Â A detailed borrower will generally have their application processed and approved, or denied, much faster than an applicant that submits a loan request with missing information.
The process of applying for a mortgage loan does not have to be daunting.Â The difficulty can often hinge with the applicants ability to complete the application in detail and gather the necessary information to support their mortgage application.
The supporting documentation that must be provided to a mortgage lender may depend on the applicantâ€™s background and financial status.Â While standard supporting documents include the borrowerâ€™s w-2â€™s, paystubs and bank statements, additional documents may be needed for borrowers that have been divorced or are self employed or have other scenarios that may impact the income and debt obligations of the borrower.Â It is also common during the application processing and underwriting progression for the mortgage lender to request additional documents in support of the required qualification standards.
The amount of points charged for a mortgage loan is often a confusing issue for new home loan borrowers.Â There are some simple facts about the nature of points and the costs of mortgage loans that can hopefully simplify this matter as well as simplify the analysis for borrowers that are trying to determine if they should pay more or less points to obtain a home loan.
Loan points are fees calculated as a percentage of the amount of money borrowed on a new mortgage.Â One point equals one percent of the mortgage amount.Â If all other components of a mortgage request are held constant, the greater the amount or number of points charged, the greater the loan costs are for the borrower.Â
Mortgage shoppers should measure all points charged to get a clear picture of loan costs when comparing various mortgage loan offers.Â Different mortgage lenders may quote points and fees under different categories.Â Lenders may disclose these costs as simply points, loan discount points or fees, or loan origination points or fees.Â But these fees and points are really the same item stated differently.Â For instance, if a mortgage lender tells a borrower that a particular loan will cost one point as an origination fee and a one per cent loan discount fee, that lender is charging two points to obtain that mortgage.Â Â Â
Technically, loan points should be classified as origination points or discount points by the lender.Â Origination points are generally fees or costs charged to obtain the loan, whereas the discount points are charged to reduce the interest rate.Â To clarify the difference, a mortgage lender may charge 4.50 percent with 1.0 point to obtain a specific loan or offer the option of 4.25 percent with 2.0 points.Â The added point in this case is a discount point or fee charged for reducing the interest rate on the loan.Â
Rarely is it clear that the points charged are for an origination fee or a discount fee charged for a lower interest rate so borrowers need to assess all of the costs to fully compare the available loan alternatives.
While mortgage shoppers need to be aware of the interest rate and points charged on a loan, equally important are the overall fees or costs added on the loan.Â There are going to be very few mortgage lenders that charge the exact same mortgage rate, points and fees for identical loan requests.Â In other words, one bank may charge 4.00 percent and no points for a specific loan while another mortgage lender may charge 4.00 percent and 1.0 point.Â
On the face of it, the comparisons are fairly straight forward; the second lender is charging more points for the same rate and term and must be offering a more costly loan.Â But, what if lender one has total fees of $1,500.00 that would cover items or costs such as the credit report, appraisal, processing fees, tax service fees and various other administrative fees while mortgage lender number two is charging total fees of $2,700.00.Â Now the mortgage shopper has to compare the mortgage rates, fees and points to compare the true costs of the loans.Â
The total costs gets more complicated when the mortgage rate between the two lenders is different as well, which will be the case most of the time.Â And mortgage lenders are a wily bunch, mortgage shoppers will find mortgage rates with fees and costs that are labeled as a number of different charges from points to administrative fees.Â The final assessment for the prospective borrowerâ€™s point of view is the amount of the total costs at any given interest rate that is offered.Â Â
Consumer searching for a new home loan should call several mortgage lenders and provide as much information as possible about the loan request including the term requested, loan amount and approximate credit profile or credit score of the borrower or borrowers to assure the rate quote and cost is as accurate as possible.Â Calling at least three different mortgage lenders will provide a good resource to see what the rate and cost options that are available and compare the mortgage lenders that are offering the best rate and costs without sacrificing service.
Mortgage loans that are considered jumbo loans are those that exceed the limits that have been set by the government sponsored agencies, Fannie Mae and Freddie Mac.Â Fannie Mae and Freddie Mac each year set the limit on what constitutes a conforming loan.Â The conforming loan limit is established based on the October-to-October changes in mean home price.Â Every year the conforming loan limit is reset to a new value in the month of January.Â
The established conforming loan limit number is constantly changing on a yearly basis, with the most recent update establishing the maximum loan amount at $417,000 for condominiums and single-family homes.Â The Federal Housing Finance Agency (FHFA) publishes the conforming loan limits annually that apply to all conventional mortgages that are delivered to Fannie Mae.Â Once a mortgage loan exceeds this limit, it is no longer a conforming loan, but rather, has moved up into the jumbo loan category.
Once it is determined that a loan request will fall into the jumbo loan category based on the amount of the loan, borrowers should be aware that the market for these loans is going to be slightly different.Â Jumbo mortgage loans are not terribly different in terms of the loan structure in fact a jumbo loan will have many of the same options that are available on conforming loans.Â Jumbo loans will however, have many of the same restrictions regarding credit, capacity and collateral and will often have a few more.Â
Because both Fannie Mae and Freddie Mac only buy loans that are conforming loan size, to repackage into the secondary market, the secondary and demand for jumbo loans is much less liquid.Â Since these loans are not securitized by Fannie Mae or Freddie Mac, the less liquid market for jumbo loans leads to more restrictive standard and higher pricing or mortgage rates.Â The less liquid market and lack of a large secondary market guarantor or buyer also leads to a somewhat less uniform set of standards
The variety of loan types for jumbo loans is not usually as vast within the various loan programs but the loan products are predominantly the same.Â Borrower will certainly find 30 year fixed rate jumbo loans, 15 year fixed rate jumbo loans, adjustable rate jumbo mortgages, and a host of hybrid loan types similar to the product mix available for conforming loans.Â The key differences will be the mortgage rates and the down payment requirements.
Almost all of the varying jumbo loan programs will feature slightly higher interest rates than comparable conforming loan programs.Â A 30 year jumbo mortgage rate has historically been about 0.375 percent higher over that of the 30 year conforming mortgage rate.Â In some tighter credit markets, the spread widens and when there are less restrictive credit markets, the interest rate spread will contract slightly.Â Most of the closing costs should be similar; there are no special charges or costs, other than the interest rate differential, associated with jumbo loans compared to conforming loans.
The qualifying standards or underwriting requirements will also be slightly more stringent for jumbo mortgage borrowers.Â The credit profile of the borrower or required credit scores will need to be higher than that of a conforming borrower.Â This is a measure that will be hard to quantify due to the lack of consistent or homogenous standards in the jumbo market, but in general, it will be very difficult to obtain a jumbo loan with a credit score under 680.Â
Down payment requirements will also be more restrictive with down payments under 20 percent hard to come by.Â The financial reserves or liquid funds held by the borrower available after the loan is funded are expected to be more substantial than what is found on conforming loans.Â Conforming loan are often approved with two months of reserves which equal to two months of mortgage payments available in liquid assets after accounting for the down payment and closing costs.Â The condition for jumbo loan cash reserves will need to be several weeks of payments available.Â
Jumbo loan shoppers should be prepared that in order to borrow much more than the standard or conforming mortgage loan; the borrower will have to be subjected to a somewhat higher standard during the underwriting and loan approval process.
Home loan borrowers should shop and compare mortgage rates and terms from multiple lenders to get a feel for the market and make sure to let the mortgage lender know that it is a jumbo loan being requested.Â There is no point in researching the mortgage rates, costs and approval requirements on a 30 year fixed rate loan only to find out that the information you receive is for a conforming loan amount and not for a jumbo loan.Â Of course, just because a prospective home loan borrower needs a jumbo loan doesnâ€™t mean they have to pay a jumbo monthly payment that is not competitive within the mortgage marketplace.
To compare current mortgage rates and terms available in the jumbo loan market, refer to jumbo mortgage rates.
It can be difficult for a self-employed buyer to qualify for a mortgage.Â The primary issues with self employed borrowers are that a self employed borrowerâ€™s income can be highly variable and self employed borrowers tend to have better cash flow yet disclose less taxable income.Â Unfortunately for the later issue, mortgage lenders don not care or are not able to quantify unreported income and therefore do not use it for loan qualifications
Complicating the matter about loan approvals for the self employed even further is the historical problem of high default rates.Â Many low and no documentation loans were made to self-employed individuals prior to the current round of credit tightening in the mortgage lending industry.Â A large portion of these loans have since gone into default, casting self-employed home buyers in a negative light and making mortgage lenders hesitant to grant these home loans.
The key theme or problem resolution for lenders is to require self-employed borrowers demonstrate an appropriate net income before they can obtain a mortgage loan.Â Of course, this can be difficult when most self-employed business owners maximize their tax deductions or expenses each year, lowering their reported net income.Â This makes it hard for self-employed borrowers to show, on paper, that their business has sufficient net income.Â
Many self employed borrowers will try to argue the high earning potential of their business, but a mortgage lender is measuring current income with an eye on the possibility it may not continue and do not look at future earnings.Â As an example, a mortgage lender will not take into consideration the raise a standard, wage earning borrower may receive after a loan is due to close, no matter how much money the raise is.Â Earnings potential is not current income and mortgage lenders will not use it in the loan approval process.
To get qualified for a mortgage loan, the self employed borrower must show documented, earned income.Â Self-employed borrowers must demonstrate an appropriate net income level that is almost always determined by the individuals and business tax returns, before they can obtain a loan.Â Business tax returns are required in conjunction with personal tax returns if the self employed borrowers 25 percent or more of a company, including S corporations and C corporations.Â Only individual tax returns are required if the borrower is a sole proprietorship or receives commission income.
Self-employed borrowers generally have to provide a great deal more documentation to the potential lender over that of a wage earner to support the income.Â This is because there is more room for self-employed individuals to embellish or exaggerate figures, so everything must be documented appropriately.Â The current year and previous year tax returns are the pivotal documents.Â The personal or business tax returns are in addition to standard loan paperwork needed for the loan.
The mortgage underwriter will usually take the net income on the returns and add in any depreciation figures to obtain the most recent year and previous yearly earnings.Â These figures are added and divided by 24 to ascertain the monthly income.Â A written profit and loss statement is usually the accepted document to determine the current income level but, this document is used to support the income on the tax returns and will not be added to the average monthly gross income figures.Â Year to date income for the self employed is measured but almost always gets ignored for qualification purposes as it cannot be adequately verified.
Problems arise for self employed borrowers that show very little net income and borrowers that have a rising income level that will be watered down because of the need to take a two year average on the returns.Â Self employed borrowers that cannot produce two years of tax returns for the business are generally denied a loan.
Though the paperwork for the self employed borrower may be more burdensome, if the income is consistent and the appropriate tax returns are used, there should be very little problems qualifying for all mortgage types.
Credit, credit scores and credit histories are a key component in the mortgage approval process.Â Consumers should be aware of the fundamental practices to follow before and during the mortgage loan application process to make sure that credit issues donâ€™t impair their ability to get approved for a new loan.
In order to ensure the best possible credit profile for a new loan application, borrowers should find and review their credit history and credit score in advance of submitting the application.Â Not only is the loan approval dependent on the credit score and credit history but the mortgage interest rate and costs may also vary based on this information.Â
A borrower that may be considered well qualified with a 740 credit score may receive the best available rate and costs with a particular lender.Â If the credit score for that borrower comes in at 675 instead of 740 with all other parameters remaining the same, the interest rate or points charged will generally rise.Â The credit score affects the ability to obtain credit and the cost of credit.
The first step is therefore to know your credit history and credit score.Â Under federal law, consumers are entitled to receive a free copy of your credit report from each of the three main credit bureaus – Equifax, Experian and TransUnion – every 12 months.Â To get your copies, go to AnnualCreditReport.com.
The next step is to make sure to check the credit report for errors in advance of applying for a mortgage.Â Errors on a credit report are quite common.Â Studies have found that approximately 75 percent of credit reports may contain an error.Â Many errors do not adversely affect the credit score but some can be serious enough to result in the denial of credit.Â
If there is a discrepancy or error in your credit report, the credit bureaus should provide instructions on the credit report on how to contest an error.Â Be diligent and firm about fixing the error.
To further advance your credit profile and present your data in the best light possible; reduce the amount of debt outstanding.Â Prior to applying for a loan see if your can pay down open balances on accounts that show in your credit report with an emphasis on the revolving debt or credit card debt.Â A key component to the credit score is the amount of debt outstanding relative to the amount of credit available.Â A $3,000.00 credit card balance look better when there is an available credit limit of $10,000.0 0 as opposed to a $3,000.00 credit card balance on limit of $3,000.00.Â
In addition, credit card debt payments are based on the outstanding balance, a lower balance leads to a smaller contractual payment obligation which makes and applicants debt ratio look better.
Always try to pay your debts on time.Â Delinquent credit histories are the number one cause of low credit scores and biggest problem with the most loan approvals.Â The impact of a delinquent payment on an individualâ€™s credit score, however, gradually fades over time – as long as the accounts stay current.Â Of course, that also means that the more recent the delinquency occurs, the more damaging it is to the credit score.
Resist opening new credit before applying for a new mortgage or during the approval process.Â The number of times an individual applies for new credit, called inquiries, accounts for a small percent of a credit score.Â Lots of inquiries can damage a credit score.Â Equally as important, the length of time that a credit account is opened and paid on time impacts a credit score and new accounts will distort the relative number of accounts that have a long credit payment history.
Locking a mortgage loan rate is a procedure that must be done prior to the loan closing.Â A mortgage rate lock, or rate commitment, is the mortgage lender’s agreement to close the loan request at a certain interest rate and number of points.Â All mortgage rates that are discussed over the phone with a mortgage lender or advertised online or that are even actively in process with a loan application can change at any time until the rate is locked in with the mortgage lender.Â
A rate lock is necessary prior to closing in order to complete the paperwork and closing documents but can also be necessary to protect the mortgage rate for the borrower, keeping it from fluctuating up or down while the loan is in process.Â Locking in the rate will allow the applicant to maintain the rate for a specific length of time, usually between 15 and 60 days.
The rate lock process may take place shortly after the loan application is received by the mortgage lender or it may be locked at anytime up to a day or two before the loan closing.Â Mortgage rates are generally never locked in over the phone or online without the submission of a loan application.
The timing of the rate lock is up to the home loan applicant and the mortgage lender.Â When mortgage rates are moving lower or sideways, the importance of the rate lock is often overlooked since the mortgage rate on a loan request is not likely to rise or change significantly prior to the loan closing.Â But when the mortgage market is more volatile or interest rates are moving higher, the rate lock can make a big difference on the final loan costs.Â Locking in a rate during these times will secure the rate on the application, even if it rises before the loan closing.
When the rate is not locked, it is referred to as floating.Â Floating a mortgage rate will allow the rate to fluctuate, giving the applicant a chance to receive a lower loan rate if rates fall.Â If rates are stable or falling, borrowers can take chance and may benefit by waiting until the last possible moment to lock the loan, but this isnâ€™t guaranteed.Â Mortgage applicants must keep in mind that they could end up with a higher rate if there is no rate lock.
A rate lock protects against rate increases while the application is being processed.Â If mortgage rates are rising, a borrower may benefit by locking their loan early in the loan application process.Â
The mortgage rate lock will include the loan program (15 year, 30 year, FHA, etcâ€¦), the loan amount, the mortgage interest rate, any points that are charged by the lender and the length of the lock or lock expiration date.Â A mortgage lender generally charges increasingly higher points or a higher rate for longer lock periods.
Mortgage shoppers should discuss all of the details regarding a mortgage loan offer including the mortgage rates, costs or fees and the lock procedures and time period.
The mortgage market for purchases and refinances has been increasingly dominated by just two mortgage products.Â The two most popular home loan products obtained by consumers is the 30 year fixed rate conventional mortgage and the 30 year fixed rate FHA mortgage.
Buyers and existing homeowners still have a dizzying array of mortgage loan types to consider and not all new mortgages will fall into these two most popular loan types.Â Large loan amounts cannot be obtained with either a conventional loan, which has standard cap at $417,000.00, or an FHA mortgage, which caps the maximum loan amount at $271,050.00 for standard loans.Â And many borrowers choose other loan programs for the various attributes they posses.
For first-time home buyers, borrowers purchasing a second home or those homeowners ready to refinance, these two mortgage products are offered by 100â€™s of mortgage lenders with competitive interest rates and different cost options that can be designed to meet different needs.
Traditionally, the 30 year fixed rate loan has been the most popular loan when purchasing a home or refinancing.Â While the 30 year fixed rate mortgage is often the number one loan choice, borrowers gravitate even more towards the fixed rate mortgages over adjustable rates mortgages and balloon mortgages when interest rates are low.Â During periods of low interest rates, other loan terms offer few advantages over a fixed rate loans.Â In contrast, when interest rates are high the ability to obtain a measurably lower monthly mortgage payment with an adjustable rate mortgage or balloon loan becomes more appealing.
Fixed rate mortgages allow for repayment of a loan with equal monthly mortgage payments over a specified period of time, generally from 10 to 40 years.Â The 30 year amortization period is most common.Â This amortization schedule allows the borrower to have a reasonable payment plan on a monthly basis and pay off the loan in 30 years.Â Monthly mortgage payment stability is the big advantage with this loan.Â Borrowers know exactly how much their monthly mortgage payment will be and the interest that will paid over the term of the loan.
FHA mortgage loans have grown enormously in popularity for both purchases and to a lesser extent for refinance transactions.Â FHA mortgage loans are insured by the government but FHA does not make these loans rather they are offered by a number of approved FHA mortgage lenders including most major banks.Â The advantages of an FHA loan for home loan borrowers are twofold, low down payment requirements and easier qualification standards.Â
FHA loan programs typically require only a 3.5 percent down payment.Â Along with the low down payment requirements, which are some of the lowest available in the mortgage marketplace, these home loans can also help applicants who need more flexible income or credit requirements.Â Mortgage loan applicants with less than perfect credit may qualify for an FHA loan even though they fail to qualify for a standard conventional loan.Â The qualifications for credit are more lenient but are by no means absent, not all applicants will qualify and credit is still closely evaluated by the mortgage lender.
Mortgage rates for 30 year fixed FHA loans are generally close to conventional 30 year mortgage rates.Â The mortgage rates may vary within .125 to .250 percent of a conventional loan.Â FHA loans do require mortgage insurance that is funded into the loan.Â The current upfront mortgage insurance premium (UPMIP) of 1.75% is added to the loan balance instead of being paid as an out-of-pocket closing cost.Â In addition, there is a monthly mortgage insurance premium added to the monthly payment that is approximately 1.25 percent on an annual basis.Â
Conventional loans that are made with a less than 20 percent down payment also require mortgage insurance that is similar to the FHA mortgage insurance requirements.Â Most conventional loans do not require upfront mortgage insurance but rather a monthly mortgage insurance premium.
Prospective home loan borrowers should realize that there are a lot of mortgage alternatives to consider from various fixed rate loan terms to adjustable rate mortgages, interest only mortgages, balloon mortgages as well as other loan programs.Â The purpose of understand the lending alternatives available is to allow mortgage shoppers the opportunity to find the best home loan that will match their requirements and abilities.
USDA loans are home mortgages that are primarily used to help low to moderate income households purchase homes in rural areas.Â USDA loans offer 100% financing to qualified buyers, and allow for all closing costs to be either paid for by the seller or financed into the loan.Â The home loans are all 30 year fixed interest rates.Â Applicants under this program must purchase a home within the eligible rural areas which are typically defined as open country or rural towns with no more 20,000 in population.Â USDA loans are insured by the U.S. Department of Agriculture (USDA), the full name of this government insured mortgage loan programs is the USDA Rural Developmentâ€™s Single Family Housing Guaranteed Loan Program.Â
Borrowers that apply for a USDA loan must have an income that does not exceed 115% of the median income for the area.Â The households applying for the loans must be without adequate housing at the time of the application, but must be able to afford the proposed monthly mortgage payments, including taxes and insurance that would be present with the new USDA home loan.Â The loan requirements offer some flexibility regarding the credit history of the borrower; in general, the borrowers must have reasonable credit histories with non-traditional credit histories accepted.Â First time home buyers are can apply however; new borrowers are not required to be first time home buyers.
There is no maximum purchase price established for homes that are purchased through the loan program.Â The guidelines for the borrowerâ€™s debt to income qualifying ratios are 29% for housing costs and 41% for total debt.Â Qualifying debt ratios and the applicantâ€™s income are used to determine home affordability.Â Eligible loan closing costs and mortgage lender fees may be included in the loan or paid by the borrower.
Eligible property types that can be purchased include existing homes, new construction, modular homes, Planned Unit Developments (PUDâ€™s), eligible condominiums and new manufactured homes.Â Properties in need of repairs may be considered and the repairs and improvements may be included in the loan amount.
Applicants apply with an approved lender of their choice.Â Mortgage applications need to be handled by an approved USDA lender of which there are quite a large number.Â Approved mortgage lenders under the USDA loan program include: any state housing agency, mortgage lenders that are currently approved by the FHA, mortgage lenders currently approved by the U.S. Veterans Administration, Fannie Mae approved lender, Freddie Mac approved, any financial institution with direct lending authority with the Farm Credit System (FCS) and any mortgage lender participating in other USDA Rural Development and/or Farm Service Agency guaranteed loan programs.
A VA home mortgage is a home loan for a new home purchase of refinance that is guaranteed by the Department of Veterans Affairs (VA). Home loan borrowers can apply for a VA mortgage loan with any mortgage lender that participates in the VA home loan program.
The VA home loan program was established to ensure there is a supply of home financing to eligible veterans. In order to be eligible for VA mortgage loan, the borrower must meet one of the following eligibility requirements: military veterans, active duty personnel, certain military reservists and National Guard members, surviving spouses of persons who die on active duty or die as a result of service-connected disabilities, certain spouses of active duty personnel who are either missing in action, captured in the line of duty by a hostile force, or forcibly detained by a foreign government or power.
In order to process a VA mortgage loan request, the borrower will need to get a Certificate of Eligibility from the VA to prove to the mortgage lender that they are eligible for a VA loan.
Potential home loan borrowers that are looking to utilize the VA loan program need to apply with a bank or mortgage lender that offers VA home loans. As long as the loan request meets the VA loan program guidelines, the VA provides an insurance guarantee to the mortgage lender for losses they may incur due to a loan default by the borrower. The VA loan guaranty is the insurance provided to the mortgage lender to encourage lending to qualified veterans.
For qualified borrowers, there are a number of benefits that are available with VA home loans. Here are some advantages of the VA home loan program:
VA mortgage loans are available with no down payment. As long as the borrower qualifies in terms of income and credit and the sales price doesnâ€™t exceed the appraised value, the loan can be obtained with no down payment.
The borrower does not have to be a first-time homebuyer.
VA loan guidelines require that the loan cannot have a prepayment penalty and there are limits to the amount of closing costs that can be charged on the loan by the participating mortgage lenders.
The VA mortgage loan closing costs for a purchase transaction can be paid by the seller.
VA loans are available for owner occupied properties only, the borrower must live in the home as their primary residence.
All borrowers must qualify in terms of income and credit. Veterans can be turned down for a loan if they have less than satisfactory credit or their income is not sufficient to cover their debts and the loan request. Mortgage lenders that participate in the VA home loan programs must comply with VA income and credit standards.
To find current mortgage rate information on a variety of mortgage loans please refer to 15 year mortgage rates, 30 year mortgage rates, 10 year mortgage rates, FHA mortgage rates, jumbo mortgage rates or 20 year mortgage rates.
Mortgage refinance transactions are identified under two distinct and different classifications. One type of refinance is a rate and term refinance and the other type is a cash out refinance. Before you apply for a cash out refinance you should be able to understand what is a cash out refinance.
The basic difference between a rate and term refinance and a cash out refinance is that a rate and term refinance involves a new mortgage loan where either the mortgage rate or loan term or type of loan is refinanced and the borrower does not increase the amount of their new loan above that of the current mortgage loan and a cash out refinance is a mortgage loan with a larger principal than your current mortgage.
The increase in the loan principal with a cash out refinance does not have to be paid to you as cash. The more technical differentiation between the two different types of refinance transactions is that the rate and term refinance can cover the current mortgage loan amount being paid off and the closing costs for this loan and up to 2% of the loan amount with a maximum amount of $2000.00 cash back to the borrower. A cash out refinance involves a refinance loan amount that is larger than the loan amount to be paid off and the closing costs and cash back in excess of 2 percent of the loan amount.
It doesnâ€™t matter if the additional funds are used to consolidate debt or pay for home improvements or any other worthwhile purpose, a loan amount that is greater than the current loan amount and closing costs and the an additional 2 percent is a cash out refinance.
Mortgage refinance borrowers should be aware that refinancing a mortgage has costs similar to that of the mortgage used to buy the property in addition, the mortgage lender may charge a higher mortgage interest rate on a cash out refinance over that of a rate and term refinance. The cash out costs and mortgage rates can vary depending on the loan type, the mortgage lender, and the guidelines that they impose on these transactions.
A cash out refinance is a accepted way for home owners to use the equity in their homes to pay for other expenses. Cash out refinancing is based on the home equity that is available in your home. Mortgage lenders will typically have a cap on the amount of equity that can be withdrawn with a cash out refinance. Normally it will be between 80-95 percent of the homeâ€™s value.
To calculate the maximum mortgage amount you may qualify for and the amount of cash you can receive, take the property value and multiply it by the maximum amount the lender allows then subtract the current mortgage balance. So, if you have a home with a value of $200,000.00 and you owe $130,000.00, and the mortgage lender allows a cash out refinance up to 85% of the property value, then you could obtain a new loan in the amount of $170,000.00 which allows for cash back in the amount of $40,000.00 in cash at closing.
The key aspect of a cash out refinances is that they involve added risk for the mortagge lender and therefor the cost of a cash out refinance will be greater than that of a rate and term refinance. The reason the loan is riskier is that the loan amiunt is greater than the current debt on the property and the borrower is extracting to cash for other purposes that inherently increasing the risk over a simple rate and term refinance. To compensate for this higher risk, they impose pricing hits in the form of either higher closing costs, or higher mortgage interest rates for the borrower.
To find current mortgage rate information on a variety of mortgage loans please refer to 15 year mortgage rates, 30 year mortgage rates, 10 year mortgage rates, FHA mortgage rates, jumbo mortgage rates or 20 year mortgage rates.
Refinance fees or refinance closing costs can vary measurably from mortgage lender to mortgage lender. While many mortgage loan borrowers focus exclusively on mortgage rates when shopping for a mortgage refinance, without comparing both mortgage rates and mortgage fees a borrower is likely to get a less than optimal loan to meet their needs.
When comparing mortgage rates and refinance fees borrowers should be aware that loan costs can be dependent on the geographic region of the property and will vary from state to state. The refinance fees will also be dependent on the profile of the loan applicant; a loan applicant with a good credit score will generally pay lower fees than a borrower with bad credit. Mortgage lenders have fees that will increase the cost of the loan based on the credit score of the borrower. Low credit score borrowers may face the prospect of an increased mortgage rate or increased fees in the form of additional points charged for the loan.
In addition, if the mortgage refinance is for cash back, there may be additional fees based on the loan to value of the loan request. Many borrowers are aware that there will be added charges for mortgage insurance if the loan to value is at 80% or higher however, there will also be added costs for increased loan to values in the form of higher points as well.
Fortunately, shopping and comparing mortgage loan rates and costs can be accomplished fairly quickly and easily to determine the best combination of mortgage rate and fees to obtain the lowest cost home loan. Online mortgage shopping allows potential borrowers to see the mortgage rates and loan costs listed by a number of mortgage lenders quickly. Borrowers can and should call these mortgage lenders to discuss the fees as they apply to your individual loan request. By speaking directly with more than mortgage lender you can compare the refinance fees and costs and become better acquainted with the costs as well as the loan process.
Mortgage lenders are required by federal law to provide a document called a Good Faith Estimate within three days of receiving your mortgage loan application. The Good Faith Estimate (GFE) lists all of the closing costs associated with your home loan request. Review this document carefully and compare these costs with those for other loans.
Because refinance fees and costs may vary significantly from area to area and from mortgage lender to mortgage lender, the following refinance fees are estimates only.
Application fee. The application fee is a charge by the mortgage lender for processing the loan application and checking your credit report in some cases the application will also cover the appraisal fee. Application fees can range from $250.00 to $400.00.
Appraisal fee. The appraisal fee pays for an appraisal of your home to ascertain the fair market value and condition of the property. Appraisal fees can range from $300.00 to $500.00.
Loan origination fees. Loan origination fees include origination points and discount points. A point is equal to 1 percent of the amount of your mortgage loan. Discount points are paid to reduce the mortgage interest rate on the loan while the origination points are fees charged by mortgage lenders to earn money on the loan, but the distinction between the two is often blurred. Origination and discount points will vary and may be dependent on the mortgage rate on the loan request.
Credit report fee. The credit report fees are charged for obtaining a third party credit report on the borrower or borrowers so the mortgage lender can determine the creditworthiness of the applicant(s). Credit report fees range from $25.00 to $75.00.
Title search and title insurance fees. These fees on a refinance cover the cost of searching the propertyâ€™s records to check the owners of the property and any existing liens that may be on the property which should include the current mortgage that is going to be refinanced. The title search cover the cost of the search and the insurance covers the lender against errors in the results of the title search. Title search and insurance fees will vary based on the loan amount with higher insurance costs based on larger loan amounts.
Processing fees, underwriting fees, document preparation fees, flood certification fee, wire transfer fee and other administrative fees. These fees cover expenses for processing and approving the loan request and preparing the loan documents for the loan closing. Total costs for these administrative fees can range from $300.00 to $750.00.
Tax and insurance escrow. Mortgage lenders will often require that funds be set aside in an escrow account to pay for property taxes, homeowner’s insurance, and flood insurance (if applicable) as these expenses come due throughout the year. With an escrow account, the mortgage lender is holding the money in reserve so they may be disbursed to pay the taxes and insurance bills when they are due. These costs are paying for your propertyâ€™s taxes and insurance and will be included the Good Faith Estimate but are not identified as closing costs.
Interim interest or prepaid interest. Interim interest covers the time period from when the loan funds to the time of the first regularly month mortgage payment. Your first regular mortgage payment is usually due after the first full month from the time the loan disburses. Mortgage payments are made in arrears which mean the monthly mortgage payment is paying the interest for the month that has just passed the month the payment is made in. If your loan disburses on March 15th the first monthly mortgage payment will be May 1st which covers the interest from April 1 to April 30th. The interim interest charge covers the interest that accrues on the loan from March 15th to March 31st. The interim interest charges are directly based on the mortgage interest rate and mortgage loan amount.
To find current mortgage rate information on a variety of mortgage loans please refer to 15 year mortgage rates, 30 year mortgage rates, 10 year mortgage rates, FHA mortgage rates, jumbo mortgage rates or 20 year mortgage rates.