Tips for Completing a Mortgage Application

Taking out a mortgage can be exciting but stress-filled process. As if budgeting for a home and searching for an ideal property weren’t enough of a headache, the paperwork involved in the official mortgage application can prove to be time consuming and confusing as well. Before embarking on the application process, therefore, it can be helpful to know what information will be required of you, so you can compile all of the necessary documents and details ahead of time.

Personal Information

Of course, any loan application is going to ask you for your basic personal info (name, address, etc.), but mortgage loan applications ask you to detail your owning and renting history as well. Be prepared to enter information pertaining to your previous residences dating at least two years back, regardless of whether you rented or owned property. If you rented, the lender will contact your landlord to obtain information about your rent payments and any eviction histories. If you owned, the lender will require all information pertaining to previous mortgages and mortgage payment histories. If you are taking out the loan with a spouse or family member, keep in mind that both parties are required to provide this information.

Property and Loan Description

In addition to providing a detailed history of your previous residences, you will also need to describe the property you hope to purchase if granted the mortgage for which you are applying. The application will ask you not only to itemize the kind of loan you are requesting (i.e. whether it is a conventional loan or a government subsidized mortgage like an FHA loan), but will also ask you to describe the size and history of the property. You will need to list the year the property was built, the number of different rooms, the square footage, and any other necessary information. If you are taking out a construction loan, be prepared to list all of the anticipated construction and repair work planned.

Employment and Income Verification

Before filling out a mortgage application, you’ll also want to carefully compile information pertaining to your household income, including any assets or investments. Lenders will need to know how much you’re worth—and what kind of mortgage payment you can afford—before processing or approving a home loan. You will also be asked to provide the address and phone number of your current job, as well as a contact name so that the lender can verify your employment. If you have held your current job for two years or less, you will also be required to provide the same information with regard to your previous job.

When filling out a mortgage application, you will also be asked to itemize any liabilities—such as debt—that may impact your ability to make mortgage payments. It is important to  be as accurate and honest as possible when providing this information, as accuracy will help you secure the most appropriate (and, in many cases, the lowest) mortgage rate possible.

Patience and Planning: The Keys to Finding Your Dream Home

While the decision to purchase a home is exciting, sometimes this excitement can blind prospective homebuyers to the realities of applying for a mortgage. Many individuals are tempted to rush into the purchase process so they can finally arrive at their dream home—but this can be a costly mistake in more ways than one. In order to receive the best home and the best mortgage rates, it’s important to practice patience and caution during the application process.

Budget and Pre-Qualification

One of the most important steps to take when embarking on the mortgage application process involves working out a detailed budget. Take the time to sit down, itemize your income and expenses, and decide exactly what you’ll be able to afford. Once you’ve done this, contact a bank or lender to complete a loan pre-qualification process. This will give you an idea of what kind of mortgage you’ll receive based on your financial situation, and will help ensure that you don’t overextend yourself.

Develop a Plan

Once you’ve got an idea of what kind of home (and mortgage payment) you’ll be able to afford, you will be able to conduct a more informed search of properties for sale. To help organize your search, decide what kind of neighborhood you want to live in, and what amenities you’d like to have close by. Are there any characteristics that would rule out a piece of property? Are there certain things that your ideal home absolutely must have? Carefully planning out your strategy and articulating your needs will help you and your real estate agent locate the best house for your family.

Research the Neighborhood

Remember that a house itself is more than just a sum of its parts—its value is also tied up in the surrounding neighborhood. Your real estate agent might show you a home that seems on the surface to be perfect, but that doesn’t mean that you should rush into a purchase. Instead, research the neighborhood and surrounding area. Is it safe? Are there construction plans in development that might tear up nearby streets? Ask around and get familiar with the area, so you have all of the information you need before taking out a mortgage that you may regret.

Assess Need for Repairs

Don’t forget to budget for any necessary repairs or remodels prior to completing your mortgage application. You might have found a house that falls within your budget—but will it need to be painted? Will you need to build a new fence, rewire the electrical system, or pull up old carpeting? Those who rush into the mortgage application and purchase process often fail to budget for renovations, and then find themselves struggling to make mortgage payments.

Of course, it is also possible to go too far in the other direction by unnecessarily dragging out the search for a home. This often happens when prospective buyers become overwhelmed by options, are unable to make a final decision, or begin to find small flaws in every property. Remember: no home will be perfect! When you embark on the search for a new home, be ready to compromise. Property with a few perceived flaws may reduce your overall down payment.

The Ins and Outs of the FHA 203k

Are you a DIY enthusiast looking to purchase a home primarily in order to fix it up? Are you a prospective homebuyer whose budget will only allow you to purchase a “fixer-upper?” Or are you a current homeowner whose house is in dire need of repair? If you answered yes to any of these questions, then you may want to consider the possibility of taking out an FHA 203k home loan, an alternative to a traditional bank mortgage or refinancing option.

What is the FHA 203k?

An FHA 203k is a government-backed home loan designed to foster the rehabilitation of run-down homes, particularly in socioeconomically underprivileged or underdeveloped communities. Since the purchase of these homes can be a risky investment for prospective buyers, the FHA has drastically decreased the required down payment for this loan as an enticement (though, as described below, there are some added costs associated with the 203k). Moreover, the eligibility requirements for the 203k are much less strict than for other mortgages.

Does Your Home Qualify?

While eligibility requirements for buyers are more relaxed, the FHA has set forth some strict stipulations for the home itself. To qualify for the 203k loan, for instance, a home’s original foundation must remain in tact amidst the repairs; in other words, the loan cannot be used to tear down a property and build an entirely new one. The 203k will also only cover certain designated repairs, including HVAC improvements, roof repairs, outfitting for energy efficiency, increased handicapped access, and kitchen or bathroom remodeling, among others. Additionally, buyers themselves must show proof that they will live in the home.

Financial Considerations

One of the financial benefits of the FHA 203k loan is the fact that it bundles the base mortgage together with the cost of repairs, thus allowing homebuyers to kill two birds with one stone. However, because the starting value of the home will be low due to its need for repair, and because the impending repairs will not necessarily guarantee an increase in value, the loans are riskier than others—a fact that will inevitably drive up interest rates. Moreover, because the paperwork associated with the loan can be dense and difficult, it may be necessary to hire an FHA loan specialist to help prepare the application, which will tack on extra fees as well.

Time and Paperwork

Taking out an FHA 203k loan can be beneficial to a homeowner looking to repair a rundown house, but it is also important to note that these loans can be difficult to get, simply because it is more difficult to find a lender who will process the loan. Government loans by nature require more paperwork and involve more red tape than traditional mortgages, and it can take up to 3 months to finalize the loan documents. Thus, if you’re planning to take out one of these home loans, be sure to budget for time as well as for the increased interest rates.

If you do decide to opt for an FHA 203k loan, be prepared to provide all of the standard personal information required for any mortgage application, including income levels, credit ratings, and a list of assets. You will also need to provide an itemized list of the repairs you will be undertaking, as well as the home’s estimated value both before and after the rehabilitation.

 

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.

Cautions and Caveats: Protecting Your Mortgage

Obtaining a mortgage is a major accomplishment, and should be something to celebrate. Unfortunately, however, signing the papers on your home loan doesn’t mean that it will always be smooth sailing down the line. Once the mortgage is set up, there are still a number of different factors that may come into play, which may change the status of your loan. What follows is a list of some of the details of which every borrower should be aware.

What To Know About Escrow

Many first-time homebuyers express some confusion over the role of escrow in their mortgage.  After taking out a home loan, a lender will set up an escrow account for the buyer. A portion of the monthly loan payment will be deposited into this account, and will be used to pay taxes and insurance on the home. This is not mandatory, but can save homeowners the stress of being hit with a large annual tax or insurance payment all at once. Make sure to speak with your lender or loan servicer about escrow, to set up the option that’s best for you.

Effects of Divorce and Ownership Transfer

Many homebuyers are couples, and thus there are often two signatures on all of the loan documents. In fact, in some states, the law requires that both parties living in the home be listed as co-signers on the loan. In the event of a divorce, this can be somewhat of a legal headache; one spouse will need to transfer ownership of the mortgage to another, and this will involve a trip to court. While no one wants to plan for ownership transfer under these circumstances, it is a good idea to at least be aware of the state laws and legal repercussions of a divorce on the status of a mortgage.

Be Aware of Your Rights

Many borrowers are not aware that they have certain rights that will help protect their mortgage and their home in the event of any financial difficulties. For example, there are strict rules that dictate how a lender can and should contact a borrower in the event of a delinquent loan: they are not allowed to call someone at their place of employment, they can only call during certain hours, and they must state the delinquent status in a letter mailed to the borrower. There are a number of other dictates set forth in the loan agreement, so make sure you know how you are protected, just in case.

Avoiding Fraud

There are certain lenders and brokers who may attempt to take advantage of borrowers by inflating the value of a home or pocketing some of the equity. For example, occasionally a seller will work with a broker to flip a house, selling it first to a “set-up” buyer for an inflated price, who will then help sell it for an even higher price to an unsuspecting buyer. When this happens, a borrower may take out a much higher mortgage than necessary. In order to avoid fraudulent deals like this, make sure to work through reputable, licensed brokers and lenders, and avoid buying directly from an independent seller.

It can also be helpful to hire a lawyer to help navigate some of these issues. While this will add to the expense of the mortgage process, it can save hundreds or even thousands of dollars that might have been lost in a misguided, fraudulent, or poorly constructed deal.

Bacon Shortens Your Mortgage Term

Bacon Shortens Mortgage Term

Applying extra dollars or “bacon” toward mortgage payments is an economical method to rid of one’s mortgage early.  When closing on a home loan, most mortgage borrowers go into shock when they discover the total amount they will be paying to finance their home.  There are several ways to shorten the mortgage term to save thousands.

Bi-Weekly Payments

Borrowers can use simply make use of the 52 weeks in a year to add an extra payment to the principal.  A Bi-Weekly program has 26 opportunities to make payments to the bank using what adds up to a payment annually.  The extra “bacon” applied annually as a payment will reduce a mortgage term by a little over six (6) years.

Homeowners can inquire with their lender about a bi-weekly payment program to save on their payments over the long run.  The Bi-Weekly program is excellent for borrowers who want an easy to manage payment option.

Six Reasons Housing Inventory Keeps Declining

See on Scoop.it – Mortgage Knowledge and Technology

Home sales in December dropped by 1% from November, the National Association of Realtors reported on Tuesday, but still stood nearly 13% above the levels of one year ago.

Jeff Chin‘s insight:

A clear signal that the market is on the upswing.  Homebuyers should get ready for a more frantic buying market.  Connecting with a lender to review mortgage options will take some of the stress out of home buying.  Mortgage shopping early for a 30 year fixed mortgage or a 5/1 adjustable rate mortgage can be done early.

See on blogs.wsj.com

Millennials Expected to Dominate Housing Market by 2020

See on Scoop.it – Real Estate Research

Though the housing market has made significant strides over the last year or so, many experts believe it will continue to improve in the short term. However, new data also shows that it could continue to do so decades into the future as well.

Jeff Chin‘s insight:

Housing purchases are forecasted to pick up in 2013.  Homebuyers need to star looking to prequalify themselves with lenders to shop for a suitable mortgage product.  Lenders will advice on a 30 year fixed rate mortgage, 15 year fixed rate mortgage or 5/1 adjustable rate mortgage.

See on blog.credit.com