10
Questions to Ask Your Lender
1. What are the most popular mortgages you offer? Why
are they so popular?
2. Which type of mortgage plan do
you think would be best for me? Why?
3. Are your rates, terms, fees, and
closing costs negotiable?
4. Will I have to buy private
mortgage insurance? If so, how much will it cost, and how long will it be
required? (NOTE: Private mortgage insurance is usually required if your down
payment is less than 20 percent. However, most lenders will let you discontinue
PMI when you’ve acquired a certain amount of equity by paying down the loan.)
5. Who will service the loan — your
bank or another company?
6. What escrow requirements do you
have?
7. How long will this loan be in a
lock-in period (in other words, the time that the quoted interest rate will be
honored)? Will I be able to obtain a lower rate if it drops during this period?
8. How long will the loan approval
process take?
9. How long will it take to close
the loan?
10. Are there any charges or
penalties for prepaying the loan?
Loan Types to Consider
Brush up on these mortgage basics to help you determine the loan that
will best suit your needs.
·
Mortgage terms. Mortgages
are generally available at 15-, 20-, or 30-year terms. In general, the longer
the term, the lower the monthly payment. However, you pay more interest overall
if you borrow for a longer term.
·
Fixed or adjustable interest rates. A fixed
rate allows you to lock in a low rate as long as you hold the mortgage and, in
general, is usually a good choice if interest rates are low. An adjustable-rate
mortgage is designed so that your loan’s interest rate will rise as market interest
rates increase. ARMs usually offer a lower rate in the first years of the
mortgage. ARMs also usually have a limit as to how much the interest rate can
be increased and how frequently they can be raised. These types of mortgages are
a good choice when fixed interest rates are high or when you expect your income
to grow significantly in the coming years.
·
Balloon mortgages. These mortgages offer very low interest rates for a short period of time — often
three to seven years. Payments usually cover only the interest so the principal
owed is not reduced. However, this type of loan may be a good choice if you
think you will sell your home in a few years.
·
Government-backed loans. These loans are sponsored by agencies such as the Federal Housing Administration
(www.fha.gov) or the Department of Veterans
Affairs (www.va.gov) and offer
special terms, including lower down payments or reduced interest rates to
qualified buyers.
Slight
variations in interest rates, loan amounts, and terms can significantly affect
your monthly payment. For help in determining how much your monthly payment
will be for various loan amounts, use Fannie Mae’s online
mortgage calculators.
Lender Checklist: What You Need for a
Mortgage
□
W-2 forms — or business tax return forms if you're self-employed —
for the last two or three years for every
person signing the loan.
□
Copies of at least one pay stub for each person signing the loan.
□
Account numbers of all your credit cards and the amounts for any
outstanding balances.
□
Copies of two to four months of bank or credit union statements
for both checking and savings
accounts.
□
Lender, loan number, and amount owed on other installment loans,
such as student loans and
car loans.
□
Addresses where you’ve lived for the last five to seven years,
with names of landlords if
appropriate.
□
Copies of brokerage account statements for two to four months, as
well as a list of any other major assets of
value, such as a boat, RV, or
stocks or bonds not held in a brokerage account.
□
Copies of your most recent 401(k) or other retirement account
statement.
□
Documentation to verify additional income, such as child support
or a pension.
□
Copies of personal tax forms for the last two to three years
Specialty
Mortgages: Risks and Rewards
In high-priced housing
markets, it can be difficult to afford a home. That’s why a growing number of
home buyers are forgoing traditional fixed-rate mortgages and standard
adjustable-rate mortgages and instead opting for a specialty mortgage that lets
them “stretch” their income so they can qualify for a larger loan.
But before you choose
one of these mortgages, make sure you understand the risks and how they work.
Specialty mortgages
often begin with a low introductory interest rate or payment plan — a “teaser”—
but the monthly mortgage payments are likely to increase a lot in the future.
Some are “low documentation” mortgages that come with easier standards for
qualifying, but also higher interest rates or higher fees. Some lenders will
loan you 100 percent or more of the home’s value, but these mortgages can
present a big financial risk if the value of the house drops.
Specialty Mortgages
Can:
·
Pose
a greater risk that you won’t be able to afford the mortgage payment in the
future, compared to fixed rate mortgages and traditional adjustable rate
mortgages.
·
Have
monthly payments that increase by as much as 50 percent or more when the
introductory period ends.
·
Cause
your loan balance (the amount you still owe) to get larger each month instead
of smaller.
Common Types of
Specialty Mortgages:
·
Interest-Only Mortgages: Your monthly mortgage
payment only covers the interest you owe on the loan for the first 5 to 10
years of the loan, and you pay nothing to reduce the total amount you borrowed
(this is called the “principal”). After the interest-only period, you start
paying higher monthly payments that cover both the interest and principal that
must be repaid over the remaining term of the loan.
·
Negative Amortization Mortgages: Your monthly payment
is less than the amount of interest you owe on the loan. The unpaid interest
gets added to the loan’s principal amount, causing the total amount you owe to
increase each month instead of getting smaller.
·
Option Payment ARM Mortgages: You have the option to
make different types of monthly payments with this mortgage. For example, you
may make a minimum payment that is less than the amount needed to cover the
interest and increases the total amount of your loan; an interest-only payment,
or payments calculated to pay off the loan over either 30 years or 15 years.
·
40-Year Mortgages: You pay off your loan over 40 years,
instead of the usual 30 years. While this reduces your monthly payment and
helps you qualify to buy a home, you pay off the balance of your loan much more
slowly and end up paying much more interest.
Questions to Consider
Before Choosing a Specialty Mortgage:
·
How
much can my monthly payments increase and how soon can these increases happen?
·
Do
I expect my income to increase or do I expect to move before my payments go up?
·
Will
I be able to afford the mortgage when the payments increase?
·
Am
I paying down my loan balance each month, or is it staying the same or even
increasing?
·
Will
I have to pay a penalty if I refinance my mortgage or sell my house?
·
What
is my goal in buying this property? Am I considering a riskier mortgage to buy
a more expensive house than I can realistically afford?
Be sure you work with a REALTOR® and
lender who can discuss different options and address your questions and
concerns!
5 Factors That Decide Your Credit Score
Credit
scores range between 200 and 800, with scores above 620 considered desirable
for obtaining a mortgage. The following factors affect your score:
1. Your payment history. Did you pay
your credit card obligations on time? If they were late, then how late?
Bankruptcy filing, liens, and collection activity also impact your history.
2. How much you owe. If you
owe a great deal of money on numerous accounts, it can indicate that you
are overextended. However, it’s a good thing if you have a good proportion of
balances to total credit limits.
3. The length of your credit history.
In general, the longer you have had accounts opened, the better. The average
consumer's oldest obligation is 14 years old, indicating that he or she has
been managing credit for some time, according to Fair Isaac Corp., and only one
in 20 consumers have credit histories shorter than 2 years.
4. How much new credit you have. New
credit, either installment payments or new credit cards, are considered more
risky, even if you pay them promptly.
5. The types of credit you use.
Generally, it’s desirable to have more than one type of credit — installment
loans, credit cards, and a mortgage, for example.
For more on evaluating and understanding your credit score, visit www.myfico.com.
1. Investigate local, state, and
national down payment assistance programs. These programs give qualified
applicants loans or grants to cover all or part of your required down payment.
National programs include the Nehemiah program, www.getdownpayment.com, and the
American Dream Down Payment Fund from the Department of Housing and Urban
Development, www.hud.gov.
2. Explore seller financing. In some
cases, sellers may be willing to finance all or part of the purchase price of
the home and let you repay them gradually, just as you would do with a
mortgage.
3. Consider a shared-appreciation or
shared-equity arrangement. Under this arrangement, your family, friends, or
even a third-party may buy a portion of the home and share in any appreciation
when the home is sold. The owner/occupant usually pays the mortgage, property
taxes, and maintenance costs, but all the investors' names are usually on the
mortgage. Companies are available that can help you find such an investor, if
your family can’t participate.
4. Ask your family for help. Perhaps
a family member will loan you money for the down payment or act as a co-signer
for the mortgage. Lenders often like to have a co-signer if you have little
credit history.
5. Lease with the option to buy.
Renting the home for a year or more will give you the chance to save more
toward your down payment. And in many cases, owners will apply some of the
rental amount toward the purchase price. You usually have to pay a small,
nonrefundable option fee to the owner.
6. Consider a short-term second
mortgage. If you can qualify for a short-term second mortgage, this would
give you money to make a larger down payment. This may be possible if you’re in
good financial standing, with a strong income and little other debt.