Buying a property is no longer the exclusive status symbol of previous generations and these days most people aspire to own their own home. However, the mortgage process can be confusing for those entering the market for the first time and an application can fall apart for one of several reasons.
Agreement in Principle
Before searching for the dream home, it is always a good idea to first get what is called an ‘agreement in principle’. This involves the lender stating what they are willing to offer and any terms and conditions they wish to impose on the application.
At this point, documentation is not required but it is essential that all information presented is accurate as the lender will ask for verification at a later stage and inconsistencies could lead to an offer being withdrawn.
Once the perfect property has been found, a full mortgage application is made which involves the completion of the form as well as providing evidence of key facts such as proof of income, identity, and address.
A credit check will also be carried out as well as some lenders obtaining financial references from sources such as banks, employers or accountants (for the self-employed).
Providing the lender is happy with all of the above, a formal mortgage offer will be made which is usually also sent to the solicitor acting for the purchase. Once the paperwork is signed and returned the lender cannot change their mind about providing the money, but sometimes a fee is required to secure the deal.
Unfortunately, the current economic climate means that whilst the process for applying for a mortgage remains the same, the chances of getting approved have dwindled somewhat as lenders are taking a far more cautious approach. Luckily there are a few steps that can be taken to improve the probability of being accepted.
Employment history is something a lender will look at closely so save any changes until after the house move is completed – a recent switch in jobs is often viewed very dimly. The same principle applies to become self-employed – and it will probably remain problematic to obtain a new mortgage for a few years to pick a deal that will remain competitive for a while.
Reduce Other Debts to A Minimum
Lenders assess how much is being shelled out each month before ascertaining what is affordable for repayments. Some lenders look at the worst-case scenario to take into account the total credit available, not the outstanding balance so closing any inactive accounts is a good idea.
Other than a mortgage company being concerned over affordability and financial security, credit history is one of the biggest reasons why an application may get rejected. Generally speaking, the bigger the deposit available to put down, the more likely the lender is to view an application more leniently.
However, even with a reasonably sized deposit, there will be cases where the lender decides the risk is too great to chance.
For those with a poor credit history, the way in which to maximize the chance of acceptance is by either going to a specialist broker or by researching the best companies to approach. Some lenders are far more willing to consider those with historical financial problems whereas others take a far tougher stance.
Sometimes it is not a problem with the borrower but the property that stalls a deal. In order to avoid disappointment at the last hurdle, it is important not to over-offer for a property – paying more than it`s worth just because you fall in love with it won`t cut any ice with the lender.
Ever Think of Applying for Family Mortgages?
Do you have any idea of what is a family mortgage and how to apply for it? The family mortgage is actually a home loan that is set up among family members. In other word, it is a loan that is supported by family members’ equity for their home.
In some cases, parents will want to help their children to buy/refinance a property, or relative who lives far away can help them to get a home loan. With the family mortgages, you will be able to buy a home where you would otherwise not qualify for a home loan with any lender.
Why You Might Want to Apply for Such Mortgage
– If you are having children who intended to purchase a home, they could possibly be restricted to the loan options that they are eligible for. Such constraints can be caused by their income or the amount of their deposit for the home. Comparatively little deposits equally mean greater rates of interest and loan insurance.
– As a caring parent, you would wish to help your children in getting home instead of making them save furiously until they have enough savings to pay for the home deposit.
– Your children are not having sufficient funds to purchase a high priced property now, however, they’re predicting in getting a better income in near future and thus can afford to pay for the property that they are intended to purchase.
How to apply for a Family Pledge Mortgage?
You are best to discuss your mortgage deal with a skilled mortgage loan officer who comprehends the sophistication of family mortgages or home loans as well as the limitation of a Guarantee. They are able to make an appropriate comparison of different mortgage lenders and locate the right one for your mortgage application.
Family Mortgage Refinancing
In case you are having a mortgage refinance with a family mortgage, you will require paying off your previous mortgage before entitle for the new deal. To start with, you need to choose a closing date and request your existing loan provider to figure out the way for you to pay off the mortgage on a specific date.
You need to ensure that you are conducting everything right if you are getting a family mortgage. The best practice in making everything official and having everyone covered is making use of a service for mortgage agreements, legal filings and servicing.
Getting a reputable family mortgage lender will ensure you not being scammed by any dishonest crook and you can stay in your dream house soon after you have such loan approve.
Seeking Interest Only Mortgage Advice
In these rough times, a number of people are defaulting on their loans and mortgages. If you are in a difficult financial situation you may want to see interest-only mortgage advice. It is also advisable that you go out and compare mortgage rates.
If you have home equity, often you can borrow against this fremoto consolidate your debt and lower your monthly payments. Most mortgage lenders have a mortgage calculator on their websites, you can use this handy tool to see exactly how much you can save.
Many people are up to their eyeballs in debt, we hold equity line of credit, credit card debts, car loans, personal loans, etc. The first step is to sit down and calculate how much you are paying out every month.
A high majority of people only pay their minimum payments on their credit cards, and then try to meet all of their other important payments. When you have created your list it is important that you also add the interest rate beside the debt.
In another column add your mortgage amount and how much you pay per month. You should also include when it will be amortized over the remaining years of the loan. This number should be close to that of the full term of the loan. Your lender finance expert will provide you with interest-only mortgage advice if this applies to your situation.
Getting Interest Only Mortgage Advice For Your Home
Now, you want to see exactly how much equity you have in your home. If the amount of equity is close to the amount of other debt you have it is likely a good idea to re-mortgage. Consult with the lender you are most comfortable with, and also compare mortgage rates with a few other lenders to ensure that you are getting a good deal.
Keep in mind sticking with your current lender may be easier so if the rates are comparable you are better off staying with the company that knows you. This will avoid potential down payment and prolonged application time. Keep in mind, if you are struggling financially it does not mean that lenders will not help you.
Often they will allow you to pull out your equity to balance your monthly payments. Most will also provide you with interest-only mortgage advice. In this case, you ensure that you are paying the minimum on your mortgage responsibility ‘the interest’ and hopefully over time you will be able then to assume normal payments to pay down the principal.
Paying Debt By Going For Interest Only Mortgage Advice
When you go to consolidate your debt with your home equity, it is important to make the decision on how you want to pay back the debt you options are typically fixed-rate and arms or taking a variable rate. You will be surprised at how much money you can save every month by taking this route.
You will also be free of debt quicker as you will have the term mortgage to pay and that’s it. As mentioned if you need interest-only mortgage advice it just takes a quick phone call or online consultation to explore your options.
Should You Go For 30 Year Mortgages?
The debate continues about a 15 year or a 30-year mortgage. In the past, it was very traditional to go with 30 years. Today, consumers have more knowledge though about the cost that they pay for interest over 30 years. They also want to have that heavy burden of debt wiped out. Owning their home free and clear is a good feeling. It can also help them to become financially secure at a younger age.
Even so, there are many benefits of a 30-year mortgage to consider including:
Payments are Less
When you spread out your mortgage loan over the span of 30 years versus 15 years, you will be able to pay less per month on your payments. You can use that money to put into savings. You can also use it to pay off your mortgage in less time. Many consumers find that they have too tight of a budget if they go with a 15-year mortgage.
For example, you may have a payment of $950 with a 30-year loan. If you go with the 15-year loan though that could be $1500 per month. That can be difficult when you have other things in your budget to pay for. With the fact that 1 in 10 homes are behind at least 1 payment right now due to the economy, you can’t be too careful.
Consumers seem to have more freedom when it comes to a 30-year mortgage. They can consider paying extra payments. They can also consider refinancing the home later on for a lower rate or lower payments. The economy has its ups and downs. Consumers just don’t know what the future has in store for them.
Right now they may be able to get by with a 15-year mortgage. Yet how will that play out 5 years from now? They may be struggling to pay the payments due to reduced income, health problems, and other scenarios. It is best to give yourself some type of safety net as you can get with a 30-year mortgage.
Control Over Cost
Even if you do get a 30-year mortgage, there is nothing stopping you from paying it off in 15. That is of course if you don’t have any prepayment penalties that can be assessed. You can pay extra payments as you go along. You can also choose to puts funds in savings. Then when you have several thousand saved up, you can use it to pay down a huge chunk of the principal on your mortgage.
Many consumers don’t realize it, but a 30-year mortgage can also help them out with their tax liability. While it may not be a significant amount, every little bit helps. It could be just enough to put you into a lower tax bracket too. Talk to your tax preparer to see how getting a 30-year mortgage rather than a 15-year mortgage can work to your advantage.
13 Steps in Obtaining A First Mortgage
Now that the economy is starting its climb to recovery, the real estate market is booming again at a rapid pace. It was only 18 months ago when homes were only being sold to investors who were trying to clean up the market by investing in foreclosed homes as rental properties.
Now, the doors are opening again for first-time homeowners and even those who may have lost their previous home during the economic recession. If you’re in the market, then you need to know these 13 critical steps in obtaining a first mortgage.
Step 1: Prequalification
Prequalification is a process in which a prospective home buyer works with a loan officer to find out how much the home buyer is eligible to borrow prior to the application of the loan. The duty of the loan officer is to prequalify a borrower by reviewing his or her credit and income and finding the program that is best suited for the borrower.
Step 2: Finding The Property:
A potential borrower will work with a realtor to find a property within the borrower’s price range. Once a property is found, an offer to purchase is made to the realtor representing the seller.
Step 3: Application Stage
If the offer is accepted, then all the involved parties will sign the purchase agreement. The loan officer (if the borrower is not already prequalified) will take the loan application, obtain authorization to order a credit report for the borrower, provide required pre-disclosures, request a credit report, and provide a preapproval letter to the realtor. An escrow or settlement company will be selected to collect all deposits and documentation for the sale.
Key Note: In conventional loan programs, a loan officer can take the loan, submit the loan through an automated underwriting system, and obtain approval. The borrower then has the option to lock in the rate at this application stage. If the borrower chooses not to lock in the rate, it is considered “floating”. The rate lock is in effect for a certain number of days. The longer the rate lock, the higher the interest rate.
Step 4: Processing Stage
The loan officer works with the processor to gather all the necessary documentation for the loan approval. An appraisal, title, and survey report will be requested. If required, a termite or pest report will be ordered. The processor will order all required verifications (employment, assets, mortgage or rental history).
Step 5: Lender Approval
If the loan officer is working for a mortgage broker, the processor will submit the loan to the lender for approval. If the borrower is working with a lender directly, the loan will begin the underwriting stage.
Key Note: Mortgage brokers typically send the loan to a lender and work as the intermediates between the lender and the borrower. This is referred to as “wholesale”. However, lenders may also have loan officers (originators) making loans directly to the consumer. This is referred to as “retail”. The lender actually provides the money for the loan through a warehouse line.
Step 6: Underwriting Stage
The underwriter working for the lender will underwrite the loan file and provide the decision on the loan.
Step 7: Conditional Approval or Denial
The processor receives either a conditional approval (meaning that the lender will approve the loan if the broker can provide the additional conditions requested) or denial from the underwriter. The processor will the items requested and advise the loan officer. The loan officer will notify the borrower and realtor of this status.
Step 8: Final Approval Stage
If all conditions are satisfactorily met, the lender will issue final approval.
Step 9: Loan Doc Stage
The loan processor coordinates the deliverance of the loan documents between the lender and the escrow or settlement company. The lender will either prepare the loan documents or order them through an independent loan doc preparation company.
Step 10: Signing Stage
The loan processor coordinates the date and time of the signing of the loan documents between the borrower and the escrow or settlement company. Once signed, the loan documents are returned to the lender.
Key Note: Round table closing is used in most states and is the most common kind of closing. In a round table closing, all parties appear at the closing table to sign the loan documents. In an escrow closing (used most notably in California), the closing takes place separately between parties.
Step 11: Review
The lender receives the loan documents and reviews them to ensure that all necessary documents have been received and signed properly. The lender will then prepare to release funds on the day agreed to by both the buyer and seller as defined in the purchase agreement. In a roundtable closing, the funds are released upon signing of the loan documents.
Step 12: Funding Stage
The lender releases funds (will wire the funds)to the escrow or settlement company. The escrow or settlement company receives and disburses the funds to the appropriate parties as indicated by both lender instructions and HUD-1 (settlement statement). The escrow or settlement company will instruct the title company to record the mortgage or deed of trust with the local public county recorder. (In California, the recording must occur prior to the releasing of the funds.) The loan is funded and recorded, and all parties are notified.
Step 13: Servicing Stage
The lender will set up the loan for servicing; this means setting up an account to begin the collection of the mortgage payments. Lenders who do not service their own loans will sell the servicing rights to an outside company. The borrower makes payments to the servicing company.
Your Guide to Mortgages
For a homebuyer, the problems of sifting through mortgage products go far beyond simply deciding on a provider. Once a lender has decided that a home buyer is a good risk and is willing to lend, there is an array of products to choose from, each of which will have its advantages and disadvantages.
In essence, there are two main types of mortgages for consumers to choose between, although there may be variations of each.
A repayment mortgage involves making a monthly payment which consists of part of the capital loan as well as the interest due. This means that at the end of the term of the mortgage the borrower knows for certain that the whole cost of the loan has been met.
Borrowers may also find that they do not have to take out life assurance and may be able to overpay during the lifetime of the loan. In this case, the interest charges would be less as interest is usually calculated on the outstanding balance.
However, borrowers should check the small print as there can be hefty penalties levied by mortgage companies for early settlement. It should also be remembered that during the earlier part of a repayment mortgage most of what is being repaid will be interest rather than capital. This is especially pertinent for those who may move around a lot.
Although not paying life assurance may sound appealing, it should be remembered that if the borrower dies before the term of the mortgage is up, it would still have to be repaid. This would in all likelihood mean the property would have to be sold just to satisfy the lender.
Interest-only mortgages were much in the news in recent years as borrowers who were talked into endowments suddenly found their savings plans would come nowhere near to the cost of their mortgage when the term was up. Rather than repaying the capital sum borrowed, an interest-only mortgage sees only the cost of the borrowing – the interest – being paid. The borrower has to pay into an alternative plan to make sure the amount of the original loan is paid in due course.
There are some advantages, though, for those whose plans payout over and above the amount of the loan to be covered – they will end up with an additional lump sum. The big disadvantage, of course, is that if the plan does not cover the cost of the mortgage then the borrower is left with the debt. This may be at a later stage of life, making finding a way to repay it more difficult.
Types of Interest
Lenders offer a wide range of products to potential borrowers, including fixed-rate mortgages where the monthly amount is set for a predetermined period, tracker mortgages that set their interest rate at an agreed rate above base rate and variable rates. There are also off-set mortgages, which involve borrowers paying interest on the difference between their mortgage loan and any amounts held in savings.
How to Determine How Much You Can Afford for Rent or Mortgage
In today’s tough economy, there are many great deals for potential purchasers – even in the area of housing. Because of the downturn in the real estate market, homes can be purchased in some cases for pennies on the dollars. Likewise, with landlords hoping to keep their rental properties full, the monthly cost of an apartment or rental home has also fallen.
Yet, regardless of whether you are seeking to buy or rent, you must be sure that you will be able to afford the monthly payment on your new home. This is a determination that should be made prior to even looking at potential properties. Therefore, there are a few calculations that you will first need to solve.
How Much Mortgage Can You Afford?
Now, like never before, it is truly a buyer’s market for those who wish to purchase a new home. With all of the great deals out there, though, it’s important to know just how much home you can afford before signing on the dotted line.
In coming up with a mortgage amount that you can easily pay each month, a good rule to follow is that your mortgage payment each month – which includes the payment for tax and insurance – should not be more than 28% of your gross monthly income – the amount that you make before taxes are taken out.
Therefore, when making your calculation, you must first determine how much you bring in before tax. Once you have done so, however, you should still sit down with a calculator and come up with a few more numbers. These include the amounts that you pay for fixed and monthly expenses each month.
When purchasing a new home, part of your fixed expenses will include your monthly mortgage payment. This payment will not only include your principal and interest amount but also likely an additional amount for homeowner’s insurance as well as for property taxes. In addition, if you have put less than 20% down payment towards your home’s purchase, you may also need to pay an amount for private mortgage insurance.
In addition to the 28% guideline for your mortgage payment, most lenders may require that your proposed monthly mortgage expenses coupled with your total amount of monthly debt service should not exceed 36% of your total gross monthly income.
Therefore, you must decipher just how much you will be spending in total for your overall housing costs. Remember, too, that the larger your down payment, the lower your monthly mortgage payment will be. Once this is done, you will have a much better idea of just how much mortgage you can afford and will likely qualify for.
Determining Your Ideal Rent Payment
Although it may be a buyer’s market, there are many good reasons why people choose to rent their home. In some cases, people often move from one city to another frequently due to their employer’s needs. In other cases, there may be the need to save more for a new home down payment. Whatever the case may be, before you begin looking at apartments or rental homes, you will need to determine what you need in terms of the home’s features as well as a rent budget that you can afford. Once you have done so, you will be better able to narrow down your search for the ideal new dwelling.
Deciding on the necessary features should not take long. This entails how many bedrooms and bathrooms you need, what amenities you would like access to such as a swimming pool or workout facility, and what location is preferable. When you have made your list, you will be able to get a better idea of what the going rental rate is for apartments or homes with such features.
In terms of making your budget, you should first take into account your net monthly income. This is the amount of income that you bring home after taxes have been taken out of your paycheck. Your net income amount tells you what you have each month to spend on living expenses and other wants and needs.
Next, determine what both your fixed and variable expenses will be. Some examples of fixed monthly expenses – those that remain the same amount each month – include:
- Auto payment
- Student loan
Once you have your list of fixed expenses, it is time to determine your variable expenses. These are the things you pay for regularly, yet the amounts may differ from month to month. Some examples of variable expenses include:
- Repairs / Emergencies
After you have a good idea of your total amount of monthly expenses, deduct the estimated amount from your total amount of net income. You will then have a much better idea of just how much you can comfortably afford to spend on rent for your potential new home.
A Guide on How to Apply for Section 8
With the Section 8 housing program, it is now possible for even a low-income family to find a decent place to live in. The following is a simplified guide for application for section 8. However, this is only a general guide as each state might have other requirements.
Determine if You are Qualified
Before you apply for Section 8, you need to make sure that you are qualified for it. To be eligible for the program, your monthly income has to be 50% less than the average monthly income in the area. In addition, you must not have any record of being evicted or involved in any criminal activity. You must also have an eligible immigrant status or a citizen of the US.
How to Apply for Section 8
If you meet the above requirements, you need to prepare the necessary documents like references, birth certificate, pay stubs, employment records, and tax records. Your state or country may require you to submit other documents and papers. When all the papers are ready, get in touch with your local public housing authority and inform them you want to avail of Section 8 housing.
Your local public housing authority will then place you on a waiting list to get an application. Since these waiting lists can be long, it is best to apply in different locations. Once you receive the application, you have to fill it up. Depending on your location you may have to fill it up online and submit, print it out or use pen and paper.
Make sure that you include in the application form the names of all individuals who will be living with you. You also need to provide a complete history of your rental history as well as the names of your previous landlords, your phone number and current address.
The application form will also require you to provide information about your employment, income and bank info. You also have to explain why you are applying for Section 8 housing. You need to be forthcoming about your explanation as you will be interviewed before you can receive the voucher.
The Section 8 Voucher
Once your application has been approved you will get the voucher that you will need to take part in Section 8 housing. Again, it has to be pointed out that this process can take a while simply because there are so many applicants. At any rate, once you get the voucher, you have 60 days to find a Section 8 unit that conforms to the Housing and Urban Development’s Housing Quality Standards.
Tips and Other Information
It isn’t that hard to find Section 8 housing now thanks to the web. But if for some reason you cannot find one within 60 days, you can request an extension. It must also be pointed out that besides meeting the requirements of HUD, you also need to make sure the home you are planning to rent conforms to the rules of Section 8.
However, this is really more of an issue between the HUD and the landlord. This really should not concern you much since the landlord will present information proving their apartment is part of Section 8.
Once you find a suitable home, you will enter into an agreement with the landlord just like you would with any other property. The only difference is that this unit will be inspected by someone from the HUD every year.