How to Find the Right Mortgage Lender

Selecting a mortgage lender can be one of the most difficult and confusing aspects of the mortgage application process. Do you go through a broker or work alone? Do you select a bank or a credit union? How do you narrow your options? These are pressing questions for any potential homebuyer. Because the decision you make can have a significant impact on your interest rates and loan terms, it’s important to select your lender with caution.

Know What Questions to Ask

First and foremost, it’s important to know what questions to ask when “interviewing” potential mortgage lenders. Many applicants simply ask about interest rates and fees, but it’s important to be more specific than this to get a better sense of what a lending institution is really like and whether they have your best interest at heart. For example, ask about the various types of loans they offer, how soon they can provide a good faith estimate, and what their closing costs are. Additionally, ask them to explain their rate and fee scales, rather than just listing off numbers.

Ask Around

It’s also important to inquire about the mortgage application and loan process outside of the lending institution sector as well. If you have friends who have recently purchased a home, ask them about their lender. Were they happy with the rates and fees? Did any of their loan terms change unexpectedly? Were they hit with hidden fees? Did the lender walk them through the mortgage application process carefully and thoughtfully? A positive review from a trusted friend can be a great sign.

Consult a Professional

If you are working with a real estate agent that you trust, he or she can also be a sound resource for lender referrals.  After all, an agent who is truly acting on your behalf will never direct you to a lender who has proven unreliable in the past, as this bad advice can negatively affect the agent’s reputation and future business. If a real estate agent is hesitant to provide a single name, ask them to at least provide you with a short list of the most reliable and reputable lenders, which will help narrow down your options.

Decide Whether You Want a Broker

If you find the task of selecting a lending institution on your own to be too overwhelming, you may want to consider working through a mortgage broker. A broker acts as a liaison between the applicant and the lender, and he or she will typically choose the bank or credit union that will service your loan. They will also help in drawing up and explaining all of the paperwork and application details. Mortgage brokers can streamline the application process, but they do charge a fee, so you’ll need to factor them into your budget.

The key to selecting the best mortgage lender is research. If you are prepared and informed when you enter into the mortgage application process, you’ll be much better equipped to identify unreliable lenders and to ultimately select a lender who will truly work in your best interest.

Mistakes to Avoid During the Mortgage Application Process

Buying a home can be an exciting experience, especially once you think you’ve finally found the house of your dreams. At times, the relief felt in finally locating such a home can be so overwhelming that it’s tempting to rush into the purchase process—a tendency that can lead to a number of missteps. When applying for a mortgage, it’s important to be cautious, so you can avoid some of the following most common mortgage mistakes made by novice homebuyers.

Spending Too Much

The desire to complete a purchase as quickly as possible can often lead prospective buyers to borrow too much money from a lender. Typically, buyers will not even realize this is happening. This is because lenders calculate mortgages based on an applicant’s income and level of debt, so when they explain these calculations to buyers, the numbers make sense. However, lenders often fail to consider the numerous other expenses in an applicant’s life, which may ultimately make it quite difficult to make the mortgage payments.

Neglecting Credit Scores and Prequalification

Another one of the major mortgage mistakes that homebuyers make is applying for a loan before they’ve been able to repair a bad credit score.  Ideally, individuals should have scores of 720 or higher, in order to receive the best interest rates.  In fact, a score below 680 can end up costing homeowners thousands of dollars in added interest costs. Thus, before diving into the mortgage application process with a lower credit score, consider whether it would be worth the added cost to buy so soon.  To get the best sense of what your interest rates will be with your current score, be sure to go through an official prequalification.

Choosing the Wrong Loan Term

Those who rush into the mortgage application process also tend to take the first loan term suggested, which is typically a 30 year mortgage. Though these are the most popular options available, they are not necessarily the best for everyone. If there is a chance that you might relocate before 30 years are up, consider a 5-1 ARM loan, which is an adjustable interest rate loan in which you pay the lowest interest rates for the first 5 years, at which point rates typically go up. This way, you can end up saving some money if you need to sell. On the other hand, those who are closer to retirement should consider a shorter loan term (either 10-15 years), so they can get the most out of their investment.

The best ways to avoid making these mortgage mistakes is to plan your budget carefully prior to house hunting or meeting with a lender. Set limits for how much you’ll be able to spend on a mortgage so you don’t get roped into borrowing too much, make sure your credit is in order before applying, and take the time to go through the prequalification process. All of these steps will help ensure that you make a sound decision about a serious investment.
 

What Rising Interest Rates Mean For You

Mortgage interest rates have been steadily increasing over the past few months, and in recent weeks have experienced significant gains. Currently, interests rates hover close to 4%, and analysts predict that they will continue to climb. As a potential homebuyer, you may wonder what this means for you. Is it still a good time to buy? Is the housing market in distress? Though there has been some debate on this point, the ultimate answer to both of these questions is no

The Skeptic’s Concerns

Though market prices in every sector always fluctuate, the rising mortgage interest rates have sparked more debate than usual. This is largely due to the real estate market’s role in the financial crisis of 2008; that economic crash is still fresh in everyone’s mind, so any small change in market price or value is closely scrutinized. Some sellers feel that an interest increase will reduce their sales, thus sending the demand for homes back down. Other individuals worry that these rate changes are a sign of too much stress on the market in general.

Signs of Recovery

It is natural to view any sort of rise in home prices with some skepticism. After all, no one wants to end up paying more for his or her home, particularly when prices have been at record lows for the past few years.  Yet rather than viewing the rate increase as detrimental to the market or to your wallet, however, try to look at the bigger picture. That is, the steady rate increase signals an increased confidence in real estate—prices are going up because demand is increasing and supply is decreasing. This is a far cry from several years ago, when thousands of empty and foreclosed homes—with low interest rates—stood waiting to be sold.

The Final Verdict

While the increase in mortgage interest rates is not a bad thing, it is important to keep an eye on prices, as these are connected directly to a property’s value—if they go too high, appreciation will slow down. Still, on the whole, now is still a smart time to apply for a home loan. In fact, the success of the market relies on the confidence and buying power of the consumer; if everyone panics in the face of mortgage rate increases and opts not to buy a home, then the market will indeed suffer. Just keep in mind that a slight rise in interest rates is not only a normal part of the market’s cycle, but is also a signal that the economy itself is improving

If you do decide to invest in a home before interest rates increase any further, just be sure to work through a reputable lender. If any institution tries to charge you a mortgage interest rate over 4%, shop around before you sign anything. With the exception of seller financing, which is bound by fewer restrictions, all mortgage transactions should adhere to market trends, so do a bit of research into current interest rates before applying to ensure you’re getting a fair deal.

Navigating the Loan Modification Process

At some point or another, many people face unexpected financial trouble that makes it difficult, if not impossible, for them to make their mortgage payments. In the face of these financial difficulties, whether they arise from job layoffs or other added expenses, some fear that foreclosure is their only option. This, however, is not the case—these days, loan modification is available as an alternative.

What is Loan Modification?

Loan modification is similar to mortgage refinancing in that the terms and conditions of the loan and/or loan payments are altered partway through the repayment. Whereas a refinance replaces an existing mortgage with a brand new one, however, loan modification simply adjusts the monthly principal and interest payments to accommodate drastic changes to a homeowner’s financial situation. Typically, loan modification periods are only temporary, intended to help homeowners just until they can recover from their financial issues. Some programs may last several months, while others can last a couple of years.

Government Loan Programs

In order to assist those families who are falling behind on their mortgage payments, and who thus may require a loan modification, the government has designed a program called The Home Affordable Modification Program (HAMP). This program was set up in response to the mortgage crisis of 2008, when thousands of individuals faced possible foreclosures. To help such struggling families keep their homes, HAMP sets forth guidelines to help mortgage lenders and borrowers as they navigate the ins and outs of loan modification.

HAMP Requirements for Borrowers

In order to qualify for HAMP assistance, homeowners must first be able to demonstrate clear evidence of financial struggle. To be eligible, the original mortgage must also have been approved no earlier than January 1, 2009.   Homeowners must owe less than $730,000 on their mortgage (interest not included), and must also be able to prove that their current mortgage payment is at least 31% of their monthly gross income. Homeowners will also need to provide a significant amount of financial info, from income report documents to receipts from social security and disability payments, depending on the scenario.

HAMP Requirements for Lenders

As mentioned above, HAMP also sets forth guidelines for mortgage lenders, to ensure the smooth and efficient processing of any loan modification plans. For example, lenders are required to collect specific information from borrowers, including at least two of the most recent pay stubs from each person listed on the original mortgage, a detailed outline of the homeowner’s budget, the previous year’s tax returns, and a signed affidavit provided by HAMP. The servicer or lender in charge of the modification then submits all of the required documentation to HAMP coordinators.

If an applicant is approved for a loan modification, it is typically on a trial basis. For instance, most borrowers get the green light for a 3-month conditional modification; if they are able to successfully make the required payments during this time, then they can begin the official modification term. If they fail to make these payments, then foreclosure may unfortunately be the only alternative.

 

 

 

The Pros and Cons of Seller Financing

While many potential homebuyers choose to obtain their mortgage through a bank or other lending institution, it is also possible to receive a home loan from an independent seller. This option, referred to as seller financing, keeps all financial transactions between the buyer and the seller, removing the participation of a third party lender. While this can be a risky enterprise with a few drawbacks, there are a number of benefits to selecting this route for your mortgage.

Expedited Sale

One of the benefits of obtaining seller financing as opposed to a bank loan is that it can speed up the sale process. The process of applying for a loan through a bank can be quite time consuming, particularly if a loan applicant goes through a pre-approval and pre-qualification process before finally signing into the loan. When a seller manages the mortgage financing, the application is simplified, with fewer steps required to obtain their approval.

Simpler Qualifications

Another reason that seller financing can expedite the process of closing on a home is because the qualifications for the loan are much more relaxed. Part of the reason that applying for a bank mortgage can take so long is because of the stringent standards and restrictions for approval. An independent seller will most likely run a credit check to ensure that the buyer’s history isn’t a disaster, but that is typically the extent of financial background checks. Moreover, an seller will also grant loans to those with lower credit scores, which can be a saving grace to those with a spotty credit history.

Reduced Costs

Opting to go with seller financing can also reduce or entirely eliminate the fees associated with closing on a home. When a homebuyer receives a loan from a bank, he or she will have to pay closing costs to the lender and broker who have helped finance the loan and drawn up the mortgage papers. These costs are eliminated in a seller-financed mortgage. An independent seller who is anxious to sell will also be more likely to cut applicants a deal in other areas as well, and thus may accept lower down payments.

Drawbacks

There are specific reasons why seller financing is not more popular, however. First of all, though a legal and binding contract is still drawn up and signed by both parties, entering into business with a seller as opposed to a bank can be risky, since the transaction does not have the backing of a large and reputable institution. Moreover, while some sellers will grant home loans to those with a less than stellar credit history, in return they may significantly increase the asking price or the interest rates.

Homebuyers who need to purchase a home quickly without the hassle of working with a bank or those who fear their applications may be rejected due to a poor credit history may find seller financing to be a viable option. To reduce the risks involved with this kind of mortgage, applicants should be sure to have all papers reviewed by a lawyer or real estate professional, to ensure that the rates and loan terms are fair and reasonable.