Author: altitudehl

Questions to Ask a Mortgage Lender

 

Buying a house is the first half of the battle. The second and the most important one is to choose a mortgage and a lender. Lenders are financial institutions or banks that facilitate home loans. Since you are likely to be paying off your mortgage for the next few years, it’s in your best interest to establish a working relationship with your lender. The right mortgage questions can help you navigate the process easier and obtain valuable information.

Our article brings to you the important questions to ask mortgage lenders, tips to help choose the best lender, and much more.

Essential Questions to Ask Your Mortgage Lender

Essential Questions to Ask Your Mortgage LenderAcquiring a mortgage can be a stressful and pretty complicated process, not to mention competitive. To make everything easier, here are a few questions you may want to ask your mortgage lender:

  • How much can I borrow?

The mortgage you can borrow depends on many factors including your income, credit history, and employment status, among others. Apart from that, there are special government programs you may be eligible for, i.e., veterans and first-time homebuyers, where you may be able to borrow much more than conventional loans.

  • What are the interest rate and the annual percentage rate?

Be sure to ask him about the interest rate as well as the corresponding annual percentage rate APR (Annual Percentage Rate). The latter counts for loan-related charges and the fees but not the early payoffs.

  • Which type of loan is the best for me?

Get your lender to explain the different loan options, including adjustable-rate loans, fixed-rate loans, interest-only loans, etc. Do not shy away from asking your lender about the pros and cons of each loan.

  • How many discount points does the loan include?

Discount points are essentially fees paid to the lender to bring down the interest rate. Every point equates to 1% of the loan amount. Check if discount points are included in the quoted rate and the benefits of buying more points.

  • What are the closing costs?

Closing costs makeup to 3-5% of the loan amount and include appraisal fees, attorney fees, origination fees, etc. Make sure that your lender provides you with a loan estimate covering the above.

  • Any other fees and costs I need to know about?

The lender should provide you with a closing disclosure containing other expenses and costs associated with the loan.

  • Can you guarantee on-time closing?

If, your lender cannot close within the said period, do they accept the additional expenses incurred?

Things to Look for in Choosing a Mortgage Lender

First and foremost, do not hesitate to shop around. Find a lender who not only gets you the best interest rate but also involves themselves in the process.

Here are a few tips to help you select the right lender:

  • Strengthen your credit score. Higher the score, the better bargaining power you have.
  • Get preapproved with a few lenders to increase your chances of having your offer accepted.
  • Compare the mortgage rates, down payment requirements, insurance, fees, etc., and select the one that works to your advantage.
  • Understand the major players in the field. You can choose between credit union companies, mortgage bankers, savings and loans, mutual savings banks, and correspondent lenders.
  • Ensure that your lender is registered in the state you reside.
  • Narrow down your choice by reading reviews and complaints online.
  • Always read the fine print on the loan documents. They reveal what the lenders do not say outright.

Things That Get Your Loan Application Denied

While it is essential, to be honest with your lender, the wrong information can get your mortgage application denied. Here are a few things you dare not reveal:

  • Lying on your loan application is a felony; It can reduce your chances of approval.
  • Not paying the bills on time; Inconsistency is a prime concern, and missed bill payments are red flags.
  • Maxed out cards; Lenders may run a final check, and any new debts can cause them to deny the application or change the terms.
  • Never apply for new cards or credit lines when you are about to finalize your loan.
  • Lenders would like you to have stable employment for at least two years. Repeated job changes are another red flag.
  • While a lateral move or a promotion may not make significant changes, going to a commissioned work can be the reason your application is denied.
  • You should have finalized the details of the down payment before seeking a home loan. If you haven’t so far, it could lead to your application getting denied.
  • Make sure your lender knows if the initial down payment is a gift. The donor should be an immediate family member, and you should be able to furnish paper trails.
  • Do not ask about foreclosure in the initial signing process.
  • Do not ask them for information about credit scores. Monitoring your credit score should be a part of your financial routine by now.

Types of Mortgage and Mortgage Loans

Types of Mortgage Loans - FHA LoanA mortgage is a loan that a borrower uses to buy real estate like a home or other property. The property itself acts as collateral for the loan. The loan is then repaid over a period of time in a series of monthly mortgage payments.

Mortgages can be:

Fixed-Rate Mortgage is a home loan paid over a fixed period with a fixed interest rate no matter the changes and trends.

Adjustable-Rate Mortgage is where the interest rate is fixed initially but later on increases over the life of the loan depending on the market.

Interest-only Mortgage involves complex repayment schedules and is only used by sophisticated and experienced borrowers.

FHA Loans are insured by the government through the Federal Housing Administration (FHA). They are a good choice for first-time buyers since they have incentives like low or no down payment, low credit score, etc.

VA Loans is issued for US veterans and spouses of deceased veterans. Most often, these loans do not require any down payment.

Mortgage Lender Questions for Home Buyers

Consumer Financial Protection Bureau reports that most homebuyers do not put as much thought into a mortgage as they do with homes. Only when you look around and ask your lender relevant questions is when you get a reasonable mortgage rate.

  • What are the different mortgages you offer?

There are quite a few different types of loans available for home buyers. Of these, the most common one is the conventional loan. Then, there are government-insured loans such as the VA loans and FHA loans. Talk with your mortgage lender and choose the right type of mortgage for your financial situation.

  • Are there any down payment assistance programs?

Down payment assistance programs are offered by local, federal, and government agencies to help cover the down payment and closing costs in some cases. Make sure that your mortgage lender works with the program of your choice.

  • Is there a prepayment penalty?

Lenders charge a prepayment penalty in case you pay the loans early to make up for the lost interest.

  • What is the minimum down payment?

The usual down payment is 20%, with most loans. Few lenders allow you to go as low as 3% if you are qualified, but you may have to pay for private mortgage insurance and increased closing costs. Moreover, with a 20% down payment, the lender may lower your interest rate.

  • Can I get a rate lock on the interest rate?

With fluctuating interest rates, it is better to have a rate lock if possible. Lenders usually charge 1 point. But, beforehand, enquire about the fees, lock-in period, etc. Also, ensure that you have it in writing.

  • What about the origination fees?

Origination fees are upfront fees charged by the lender for processing the mortgage loan application. It can be anywhere from .5%-1% of the loan amount.

  • How long do you need to process the loan?

A lot of factors affect the processing time but a rough idea of the time helps you plan. The average closing time is 43 days.

Reasons to Talk to a Mortgage Lender Before House Hunting

If you are keen on buying a home, it makes sense to start with your mortgage lender before contacting a realtor. This helps you understand your financial situation with all the available options in front of you.

Some of the reasons why you would want to talk to a lender first hand:

  • It helps to set realistic expectations when buying a new home. If nothing, get a preapproval letter in the least. It makes you attractive to sellers and real estate agents.
  • You can still shop around with a preapproval letter. But, the catch here is that your credit score gets dinged every time someone pulls your credit report. However, if all your inquiries are within a set period, say 2 weeks, it is considered one inquiry and doesn’t affect your score as much.
  • A pre-approved mortgage loan offer attracts sellers and real estate agents since it proves that you are serious about buying and not just looking around.
  • Starting the mortgage application process earlier makes it easier to complete it on time.

Questions to Ask Your Lender Before Closing Your First Home Mortgage

Being prepared comes in handy especially when it comes to the first home mortgage. Here are some questions you may want to ask your mortgage lender before closing:

  • How much is the monthly payment?

Make sure you can afford the monthly mortgage payment especially if you are paying rent at the same time.

  • When is my payment due?

Not down the due date for every month and also the grace period if any.

  • Will my payments change?

Your payments do not change unless you have an ARM or if your insurance or taxes change. But, it doesn’t hurt to ask.

  • Does the seller bear any of the fees?

Depending on the deal, some of the closing costs may be borne by the seller. Your lender should be able to guide you in this regard.

  • How much is the escrow?

Ensure that you are setting aside enough sum to cover the insurance and the property taxes every year.

  • What is the appraised value of my house?

Knowing this figure can help you if you are planning on selling your house in the coming years.

  • Do I require mortgage insurance?

In general, your mortgage insurance can be waived when you owe less than 80% of the mortgage. Consult with your lender about when and how to get it removed.

Questions to Ask When Getting a Home Loan

Questions to Ask Mortgage Lenders When Getting a Home LoanThere’s a lot more you need to consider than the mortgage rate when getting a home loan. The following questions can help you with the important questions you may want to ask your lender.

  • What home loans do I qualify for?

Not all lenders offer the loans you qualify for. So, it pays to do a little research on your own firsthand.

  • What’s the best rate you can offer me?

Though interest rates depend on the loan-to-value ratio, it doesn’t hurt to negotiate. The higher the down payment, the better your interest would be.

  • Give me a brief about the loan estimate document.

The loan estimate document covers the pertinent information including interest rate, monthly payments, closing costs, etc. Walkthrough the document so that you are clear on the terms and conditions.

  • Do you charge for rate lock?

While most lenders offer a rate lock for 30-60 days for free, not all do that while others charge for an extended lock period.

  • Do you have any loan programs where I can avoid paying mortgage insurance?

Many lenders offer non-private mortgage insurance loans even if the down payment is less than 20%.

  • What documents do I need to provide?

The quicker you had over the necessary documents, the faster the loan process time would be. So, it pays to enquire about the documents in the beginning and have them ready.

Mortgage Questions to ask During a Refinance

Refinancing your mortgage has many benefits such as lower interest rates, less monthly payment, reducing your terms, and many more. However, before refinancing you may want to ask your lender the following questions.

  • What interest rate do you offer for a no-cost refinance?

Be sure to ask your lender about the interest rates for no-cost refinancing loans. While lenders advertise their lowest rates, it might not be the one for you.

Make sure the rates they quote are based on your refinancing situation and financial needs.

  • Do I qualify for a refinance?

While every lender has their own qualifications, here are some common factors, that remain the same for everyone: Credit score, debt-to-income ratio, and home equity.

  • What refinancing options do you offer?

The most common refinancing options available are rate and term refinance and cash-out refinance. Ensure that you ask your lender about the various options as well as the benefits and drawbacks of every option.

  • How does this affect my monthly payment?

Depending on the type of refinance you choose, the payment can either increase or decrease. In the case of the latter, even though the payment is less, you’ll be paying more towards the interest than the loan itself. For the former, you’ll be paying more towards the loan and own your house quite soon.

  • Will you sell my loan?

Chances are that your lender will sell your loan to maintain a cash flow. Few other lenders on the other hand do the servicing in-house even if the mortgage is sold.

  • How much equity can I cash out?

You cannot cash out more than 80% of your equity with the exception being the VA loan where you can take 100% of the equity.

Questions to Expect from Mortgage Lenders

Here are a few questions your mortgage lender may ask you prior to your application.

  • Credit Report

They might go into detail about the history including how you pay your cards i.e, minimum balance, or full payments. You may also have to disclose co-signed loans, income taxes, property taxes, bankruptcies, support payments, etc.

  • Income

Ensure that you disclose all your sources of income. They may also inquire about your past and current jobs including the job stability in the recent past. In the case of self-employment, you may also have to explain your business setup.

  • Property purchase or refinancing

If you are refinancing, you may have to give details about your property including the type of property(rental or owner-occupied), improvements if any, known damages, potential hazards, etc.

  • Future plans

By disclosing your future plans, you let them know about your ability to make mortgage payments. So, you may want to reveal information about any apparent job changes.

  • Your expectations from mortgage loans

You may want to be upright about how much you would like to put down for a monthly payment and prepayment penalties if any. Finally, your lender would want to pay off the loan quickly or just make the lowest payment.

Questions Mortgage Lenders Can’t Ask

Questions Mortgage Lenders Can't AskEven though it looks like a lender can ask any question, they cannot ask anything that is discriminating based on race, religion, color, sex, age, marital status, etc.

Who’s Better: Mortgage Lender or Bank?

There aren’t as many differences between banks and mortgage lenders. They both fund the loans directly. But a lender, on the other hand, doesn’t offer financial services like cards, savings accounts, etc.

On the bright side, the lenders are not as conservative as the banks and are more flexible. Hence they accept low credits, down payments, and interest rates.

Factors That Disqualify You for Mortgage Loans

As of July 2012, the financial institutions tightened the procedure and hence the following factors can get you disqualified for a loan.

  • Too low credit scores; Be it a medical issue or an inability to pay, it’s all the same for a lender. Since this defines your ability to pay back loans, low scores are not appreciated.
  • Lack of proper employment or steady employment; You need to have 2 years of steady and continued employment before being considered for a home loan.
  • Inadequate monthly income; Even if you have a steady income, the lender may not approve owing to insufficient funds.
  • Too much debt; A debt ratio of 36%-38% will disqualify you for a loan.

Conclusion

Buying a home is a complex and stressful process. Asking your questions ahead of time can help make it easier to choose the appropriate lender.

Make sure you ask a lot of questions about income requirements, down payments, types of loans you qualify for, prepayment penalties, etc. There are no right or wrong questions. Walkthrough the finer details and make sure to get all your “t’s” crossed and “i’s” dotted. Whatever type of loan you apply for, ensure that you read the terms of the agreement carefully before signing up. Take your time to understand the risks and weigh the pros and cons before proceeding.

The people at Altitude Home Loans bring many decades of experience in doing loans the right way. If you are interested in purchasing a home, contact one of our Loan Officers today and we’ll guide you through the Home Loan application process. You’ll be glad you did.

Guarantor Loans

Guarantor Loan ApplicationThere has been a lack of knowledge about guarantor loans in the recent past and it was not as widespread. But in the past year or so after the onset of the COVID-19 pandemic, there has been an increase in the number of guarantor loans.

People who have little in the way of financial resources or credits go for these loans if they could produce a guarantor with good credit history. They are usually a trusted family member or friend who accepts the financial responsibilities of the borrower.

This article takes you through everything you need to know about Guarantor Loan, how it works, eligibility, liabilities, interest rates, etc.

Guarantor Loan

A Guarantor Loan is an unsecured loan that requires someone(a friend or a family member) to act as a guarantor. These loans are a great way to borrow money if you have poor credit or no credit at all. However, the catch is that the person who co-signs the loan becomes the guarantor and agrees to repay if the borrower cannot make the repayments. Having one gives confidence to the lenders about getting their money back since the loan doesn’t have collateral of any kind.

The interest rates are usually high, with a 50% APR. Larger loans are often paid over several years.

How Does a Guarantor Loan Work?

Guarantor loans work just like your unsecured loans in a way that both the loans don’t require security from the borrower. Instead, it requires a guarantor who co-signs the loan, thereby providing a guarantee for the repayments.

In most cases, the borrower will have a low income and would not have a home or a car for collateral. Sometimes, borrowers may have had one too many credit applications or poorly managed their credit, leading to your low credit score.

The lender credits the loan based on the paying ability of the guarantor. But first, they will be asked to prove their repayment capacity via their income, assets, or savings. They can also secure the loan against their property.

In order to prevent fraudulent activity, the loan is first transferred to the guarantor, who then passes it on to the borrower.

Guarantor Eligibility Criteria

Any person can become a guarantor, but they need to fulfill the eligibility criteria set by the lender:

The guarantor should:

  • Not have a direct financial link to the borrower
  • Be over 18 years of age
  • Not exceed 75 years
  • Have good credit history without any issues on the credit report
  • Maintain stable income to cover the loan repayments in case the borrower defaults
  • Have a home, property, or a car to act as collateral
  • Be a U.S. citizen

Guarantor Check

As a part of being a guarantor, the lender runs a series of checks to assess if they will be able to make the repayments on time (if needed).

  • Credit check
  • Post-application check to confirm the identity and address
  • Check their income, including assets, salary, etc.

Documents Required from a Guarantor

As a guarantor, you will have to provide documents:

  • Identity proof
  • Address proof
  • Occupation
  • Pay stubs
  • Bank statement
  • Assets and liabilities

Benefits of a Guarantor Loan

A guarantor loan benefits the borrower greatly:

  • It allows people with no credit score or lower income to secure loans and help get started in life.
  • With every repayment, the credit score increases.
  • Interest rates are lower than payday loans.
  • It is widely available and is a simple process once you have secured yourself a guarantor.
  • A better credit score makes applying for loans and credit cards easier.

Risks of a Guarantor Loan

Risks of Guarantor LoansThe guarantor loans are always risky for a guarantor:

  • They have to make monthly repayments if the borrower defaults.
  • They may also be liable to pay extra charges
  • There will be a negative impact on the credit history if the guarantor is unable to repay.
  • The APRs charged on the loans may vary depending on the market situation.

Interest Rates on Guarantor Loans

Interest rates for guarantor loans are considerably higher than conventional loans due to the risk to the lender and can be 40% to 50% APR. But considering the payday loans at 1500% to 2000% this is definitely lower.

Points to Look for in Guarantor Loans

Apart from the risk to the guarantor, there are some points you may want to know before applying for guarantor loans:

  • Consider other avenues of lending, such as bad credit scores or loans from credit unions.
  • Look for low-interest options on comparison websites and agencies which run a soft credit check that doesn’t leave a mark on your credit file.
  • Getting a loan on the guarantor’s name may be a better option since they might be able to get a better interest rate and APR.
  • While secured loans may give you a lower interest rate, you may lose your asset upon default.
  • For unsecured loans, the lender doesn’t have a claim to your property.
  • Consider the overall cost of the loan, which includes the arrangement fees (only applicable to loan providers)

What Is a Guarantor for a Loan?

A guarantor is someone maybe a family member or a trusted friend who knows the financial situation of the former. They should meet the lending criteria set by the creditor and provides a guarantee for the borrower by co-signing for them.

In the event that the borrower is unable to repay the loan, the guarantor takes over and does the monthly repayments. As such, the latter should be able to rely on the former to make the monthly repayments on time and be on top of his/her finance.

In some cases, your spouse or partner can be a guarantor provided you have no financial links such as a joint bank account. Most times Guarantors are often parents who help out their young adult children get a start in credit history.

Loan Guarantor Responsibilities and Liabilities

The guarantor is solely accountable for the payments on the loan. By signing the loan agreement, they agree to be responsible for the financial decisions made by the borrower.

In case the borrower defaults for some reason, he/she is liable to repay the loan amount. Otherwise, they may face legal action or lose the asset used as security.

Does Being a Guarantor Affect My Credit Rating?

No, simply being a guarantor doesn’t affect your credit rating; however, your actions as one might. If the borrower defaults, you are liable to make the repayment. In this case, the non-payment will negatively impact your credit record and lower your credit scores.

Things to Consider While Being a Guarantor

While there is no harm in being a guarantor, your credit history takes a hit if the borrower defaults on the loan. Here are some pointers you may want to consider:

  • Consider the financial situation of the borrower even if the person is your family.
  • Reconsider if you are planning on taking loans for yourself. Few lenders do not consider you eligible for a loan when you are a guarantor yourself.
  • Make sure you can repay if the borrower defaults. Agree only if the amount is within your capacity to repay.

Can I Stop Being a Loan Guarantor?

No! You cannot stop being a loan guarantor if you have signed the agreement. You have to continue as long as the loan term. However, you can try the following options:

  • Either the borrowers or the guarantors should pay the loan in full.
  • The lender goes bankrupt
  • Get another loan at a lower interest rate to pay the guarantor loan in full.
  • Talk with the lender about revisiting the terms.

Guarantors for Personal Loans

Personal loans are considered to be unsecured loans. So, if the creditworthiness of the borrower comes into question, the bank may ask for a guarantor to co-sign the loan for you. And if the borrower doesn’t repay, the guarantor will be expected to make the repayments.

Guarantors for Personal Loans - Person Applying for Personal Loan on PCIs a Guarantor Required for Personal Loan?

Banks generally do not ask for a guarantor unless they doubt the borrowers’ financial standing and the ability to repay loans. Having a guarantor ensures the safety of their money.

Here are a few reasons why a financial institution may ask for guarantors:

  • The credit history doesn’t meet the set requirements.
  • Bad financial decisions.
  • Unstable employment and income which make repayments difficult.
  • Job stability

No Guarantor Loans for Poor Credit History

Not everyone has a guarantor to co-sign the loan for them, especially in the case of immigrants. In this case, you may avail for a no-guarantor loan.

However, your desperate situation may attract one too many scammers. Here are a few points to watch out for:

  • The loan process happens via a phone call.
  • There are no physical addresses for the lenders.
  • Lenders don’t have permission to operate in the state.
  • The financial institution asks for money to be sent to them.

Guarantors vs. Co-Signers

Both the co-signers and the guarantors help get the loan approved and that is where the similarity ends. Simply put, co-signers are co-owners of an asset, while guarantors have no claim to the asset purchased by the borrower.

If the borrower doesn’t meet the income criteria set by the lenders, the co-signing arrangement happens. In this case, the asset is owned equally by both parties: the borrower and co-signer. However, a guarantor may be asked to step in when borrowers have sufficient income but don’t qualify for the loan because of poor credit histories.

Also, co-signers take on more financial responsibility than guarantors do as co-signers are equally responsible right from the start of the agreement, whereas guarantors are only responsible if the borrowers default and fail to meet their financial obligation.

What Happens if a Guarantor Loan is Not Repaid?

The guarantor loan has a significant impact on the family member or friend who co-signs if you do not make the repayments. If they secure the loan against property, they run the risk of losing it.

  • If the borrower cannot repay the loan, the lender reaches out to the guarantor, who is obliged to catch up with the repayments.
  • Lenders have the Continuous Payment Authority (CPA) with which he/she can make the payments directly from the bank accounts.
  • In case the account has insufficient funds, the usual debt collection process starts where the debt is passed on to the debt recollection agency.
  • In the worst case, the lender could take court action against both the guarantors and borrowers. The same will be recorded on the credit file too.

Can a Guarantor Sue a Borrower?

Yes, the guarantor to the loan can sue if he/she defaults and the guarantor had to repay the entire debt amount.

Conclusion

Getting a loan is a pretty cumbersome process, especially for people with poor or no credit. A guarantor loan on the other hand is an awesome way of helping others get the money that they need by having someone co-sign for them. On the downside, however, the interest rate is typically pretty high and so is the APR.

Altitude Home Loans LogoWhatever type of loan you apply for, ensure that you read the terms of the agreement carefully before signing up. Take your time to understand the risks and weigh the pros and cons before proceeding. Finally, ensure that you compare guarantor loans and cherry-pick the one that suits your needs the best.

The people at Altitude Home Loans bring many decades of experience in doing loans the right way. If you are interested in purchasing a home, contact one of our Loan Officers today and we’ll help you through the Home Loan application process.

Cash-Out Refinance Mortgage

Cash-Out Refinance

Cash-Out RefinanceExperts suggest that home prices are steadily climbing and could reach new heights in 2021, increasing by nearly 5.7%.

Buying a home is a costly affair and a big investment for the ordinary person, such that you’d want to make the space warm, cozy, and comfortable. However, with the rising costs, you are neither left with money to make the necessary changes nor be able to save up for it.

With cash-out refinancing, you can renovate, remodel and update your home without having to resort to high-interest loans such as personal loans and credit cards. Apart from that, you can also negotiate the payment terms, get a lower interest rate, etc.

This article takes you through everything you need to know about cash-out refinancing, including reasons, pros, cons, closing, how cash-out refinance works, and many more.

Cash-Out Refinancing

A cash-out refinance is where you take a new loan with a higher loan amount than the current mortgage. The new loan replaces your existing mortgage, and the remaining amount is handed over to you minus the closing costs. The lump-sum you get is yours to do as you please.

The cash-out refi depends on the home’s value. Most lenders let you borrow 80%, while you can take the entire home equity in the case of VA loans.

Also, the higher loan amount may result in higher interest rates.

Calculate Cash-Out Refinance

Cash-out refinance lets you take advantage of the equity you’ve built on your home. For example, if your home is worth $200,000 and you have paid off $60,000. You still owe $140,000 as a mortgage balance.

Let’s say that you want to make $20,000 worth of renovations to your home; You can take a cash-out refinancing to fund your renovations.

The cash-out refinance replaces the original mortgage. So, your new mortgage would be:

$140,000 + $20,000 = $160,000

You would receive the remaining $20,000 a couple of days after closing.

How Does Cash-Out Refinancing Work?

The cash-out refinance works similarly to any other loan process. You (the borrower) start with finding a lender with better interest rates and payment plans, submitting an application, and documentation.

Here are the detailed steps your lender may take you through:

Meet the Requirements Set By Your Lender

The lender first sets their terms and conditions, upon the qualification of which you are eligible for a cash-out refinancing:

  • You should have a credit score of at least 620.
  • Your debt-to-income ratio should be less than 50%
  • You should have at least 30% of the equity in your home.
  • No late payments on your mortgage within the last 12 months.
  • Refinance is available only for the primary residence.

Decide How Much Cash You Need

The next step is to determine how much capital you may need. If you are planning for renovations, it is a good idea to contact your contractor and get an estimate prior to the application.

For debt consolidation, sit with your bank statements, credit cards, etc., and work out how much cash you would need to cover your debts.

Complete the Application Process

To complete the application process, you may need to provide the following documentation:

  • Bank statements
  • W-2
  • Pay Stubs

After you get the approval, the closing process starts. You may have to wait for a couple of days after closing to receive your lump sum.

Reasons to Consider a Cash-Out Refinance

A cash-out refinance provides better financial benefits than a personal loan or a second mortgage. Here are some of the reasons why you may want to consider a cash-out refinance:

  • Funding renovations and home improvements

Constant upgrades and renovations are needed to maintain your home and also to increase the home’s value. From broken HVAC systems to kitchen remodeling, cash-out refinancing helps to use the home equity to fund your home improvements.

  • Consolidate and pay your debt

With a refinance, you can opt to consolidate your debts for a lower interest rate and pay them off.

  • Lower interest rate

Personal loans and credit card debt can have a higher interest rate, while mortgage and refinancing generally have a lower interest rate. Hence it makes sense to pay off your credit card debt and personal loan using a cash-out refinance.

  • Better investment opportunities

Refinancing may make sense to withdraw cash from refinancing for investment opportunities and retirement plans rather than having funds ties with your home. You can also use a cash-out refinancing towards financial needs such as college funds since the interest rate is lower.

Cash-Out Refinance: Pros and Cons

Cash-out refinancing provides you with a considerable amount of money when you require liquid cash and at a competitive interest rate. But the risk is real. Since you use your home equity to fund the refinancing, you run the risk of losing your home.

Hence it makes sense to evaluate the pros and cons:

Cash-Out Refinance Pros and ConsPros of a Cash-Out Refinance

  • The equity in your home is worth a significant amount, and tapping gives you access to a lump sum of cash. You can use the money to either further your/your child’s education or maybe invest in a business with assured success.
  • Mortgage rates are generally lower when compared to credit cards and personal loans since it is secured by your home.
  • Increase the monthly payments by replacing the original loan with a new one.
  • In case the cash is used to fund any substantial renovations that increase the home’s value.

Cons of a Cash-Out Refinance

  • Restarting the monthly payment terms increases the interest costs. Dragging out the payment does not yield the savings you expect from paying off a lower interest loan.
  • The loan is secured against your home. Failing to repay, you run the risk of losing your home. Do not withdraw more than you need.
  • Withdrawing up to 90% of your home equity increases the borrowing costs since you have to bring it back to the 80% threshold.
  • Mortgage loans have higher closing costs which run in hundreds to thousands of dollars. You can either pay them upfront or roll them into your loan amount.
  • You tend to use it as your personal piggy bank for lavish vacations or purchases with access to home equity. Consider seeking help for your spending habits through a non-profit counseling agency.

To Cash-Out Refinance or Not

Cash-out refinance is a good idea if you require access to your home equity for home renovations or something that gives you a better return for your investment. It also gives you a chance to lower your mortgage rate if you are in the higher mortgage interest bracket.

However, it may be a bad idea to avail yourself of cash-out refinancing if you plan on using the money for a new car or vacation since they do not have little to no investment.

Closing on Your Mortgage Refinancing

The final step in cash-out refinancing is the closing, where you sign documents, pay the fees, and then walk away with a new loan (hopefully a better interest rate). The process itself may take up to a few hours in the least.

Three days before the closing process, you get the Closing Disclosure which contains

  • Closing costs
  • New Terms
  • Monthly Payments
  • Miscellaneous costs and credits
  • Fees

The closing costs for a cash-out refinance would be 2% to 5% of the new mortgage, i.e., $4000-$10,000 for a $200,000 loan. You can either pay closing costs with a cashier’s check or roll them into your loan amount.

The closing costs may cover:

  • Early repayment fees
  • Discount points
  • Origination fees
  • Appraisal and inspection fees
  • Mortgage and title insurance fees

Once everything is signed, the “Right of Rescission,” the three-day grace period for the borrower, starts. It may take 3 -4 days to complete the transaction and get cash.

On a side note, you would be required to read and sign a lot of documents, affidavits, and declarations. Make sure that you read them meticulously before signing as they are legally binding.

Which Is Better? – Cash-Out Refinance vs. Home Equity Line of Credit

Cash-Out Refinance Versus Home Equity Line of CreditCash-out refinance and home equity line of credit both access your home’s equity and uses your home as collateral. But that is where the similarity ends.

Cash-out refinance settles the existing mortgage and kick starts a new mortgage with different terms and lower interest rates. It gives you a significant amount of liquid cash, which is yours to use as you wish. On the downside, they have high closing costs.

HELOC, on the other hand, is a new one in addition to your first mortgage loan. Considered to be a second mortgage, it has its payments and terms, which don’t influence the original loan in any way. Unlike refinancing, you get a line of credit from where you withdraw as you require. Home equity line of credit has very little to no closing costs.

Which Is Better? – Home Equity Loan vs. Cash-Out Refinance

Home equity loan and cash-out refinance lets you convert your home equity into cash. But both operate differently.

A home equity loan acts as a second mortgage and is secured against your home. The amount you get depends on the home’s equity. You will be responsible for the mortgage and also the new mortgage loan at the same time. With a home equity loan, the lender pays the closing costs.

With a cash-out refinance, you take out a new one to replace your mortgage loan with the home equity used to pay for the cash-out. It will have new terms, including a lower mortgage rate and more extended monthly payments.

The mortgage interest is lower for the cash-out, but the high closing costs more than makes up for it.

Conclusion

Cash-out refinance is the best option if you require a significant amount of liquid cash to pay off high-interest loans or home renovation. But the catch is that your home is used as collateral, and if you are unable to make payments, you may end up losing the home. And then there are the closing costs. But to your advantage, they also come with tax benefits. Your auditor should be able to guide you with these.

Tapping into your home equity is not a decision to be taken lightly. If you are not sure about cash-out refinancing, you may want to talk with your financial advisor or a home loan expert.

The people at Altitude Home Loans bring many decades of experience in doing loans the right way. If you are interested in purchasing a home, contact one of our Loan Officers today and we’ll help you through the Home Loan application process.

Other timely articles you may enjoy:

How Do Home Equity Loans Work?

How Do Home Equity Loans Work?

Home equity loans Tucson

Did you know that the usable home equity in the US totals 5.5 trillion dollars? And somewhat surprisingly, it has continuously grown throughout 2020 and beyond despite the advent of a worldwide pandemic. Here is a guide to home equity loans that let you know everything you want.

You know all about the first mortgage which you used to purchase your home. But are you aware that you can take an additional loan on your home?

This article takes you through everything you need to know about a home equity loan, how to calculate home equity, equity lines of credit, and much more.

What is a Home Equity Loan?

A home equity loan is a loan that is obtained by using your home as collateral. Just like your mortgage, you pay it back in fixed monthly payments for the life of the loan. If you don’t pay it back, the lender can foreclose your home as payment, and you could lose your home.

This kind of loan is dependent on the:

  • Current market value
  • Mortgage balance

How Does Home Equity Loan Work?

Sometimes called a second mortgage, a home equity loan allows a homeowner to borrow a lump sum amount against the equity. Equity is the difference between the current market value and the outstanding mortgage. The interest rate depends on the payment history and credit.

Once approved, the lender and the borrower agree on a set payment term. The borrower then makes monthly payments covering both the interest and the principal.

To start with, you might decide to contact a credit counselor to determine your creditworthiness and to find out how much your home is worth.

Is it a Good Idea to Do a Home Equity Loan?

A home equity loan is a good idea if:

  • You use the funds to make a home improvement that increases your home’s future value.
  • You cover your debt with a low fixed interest rate.
  • You have investment plans with guaranteed returns.

However, it’s usually a bad idea to secure a home equity loan to:

  • Shift your debt around
  • Purchase a new car
  • Pay for vacation

If you cannot pay for the above with your monthly budget, you cannot afford to borrow money on loans either.

Home-equity-loan-showing-dollar-on-white-background

How Much Can You Borrow on a Home Equity Loan?

The amount you can borrow really depends on how much difference there is between the value of your home and your current principal balance. Usually a loan of this type requires a minimum home equity of 20% or more to borrow. Additionally, most lenders allow you to borrow a lump sum of only up to 85% of the home equity.

To calculate the eligible loan amount, the lender divides the amount you owe on your mortgage by your home’s current value. It’s called the loan to value ratio, or LTV. The LTV should be 80% or less, which means that your equity would be 20% or more.

Shop around for a lender who gives you both a better fixed rate and higher LTV.

What Documents Do I Need for a Home Equity Loan?

With appropriate documentation, a home equity loan is a pretty easy and straightforward process. Here’s what most lenders will require to give you a loan.

  • W2 earnings statements or 1099 DIV income statements (for the previous two years)
  • Federal tax returns (for the previous two years)
  • Paycheck stubs for the past few months
  • Recent bank statements
  • Proof of investment income
  • Proof of additional income

Depending on your lender, you may need other documentation not listed here, but having these in hand can speed up the process.

Can You Get a Home Equity Loan at Any Time?

Generally, the answer is yes! You can get a home equity loan at any time, but only once. You can’t take out another mortgage before closing out the others.

When you take a loan, you get a lump sum amount of money upfront. You can then repay it over time as previously agreed upon.

It should have a fixed interest rate which would remain the same throughout the loan term.

Are Home Equity Loans Available to Rental Property?

Yes! If you are a rental property owner, you can get a loan provided you qualify. Though you can obtain up to 100% LTV, lenders restrict the loan to 65% – 80% on a rental property.

Everything else is basically the same as for a primary residence.

When Should You Refinance a Home Equity Loan?

Refinancing a loan is ideal if you are looking for different loan terms or to refinance your mortgage for a lower interest rate.

You can refinance a loan when you:

  • Secured your first and second mortgage when the interest rates were high
  • Have a good amount of equity
  • Can afford the monthly payments
  • Plan to sell your home within few years
  • Save overall costs

What Is the Downside of a Home Equity Loan?

Any loan that uses your primary residence as collateral should be considered very carefully, so it’s a good idea to weigh the pros and cons before you apply for a home equity loan.

The downsides of home equity loans should also be taken into consideration.

  • A home equity loan requires you to use your home as collateral.
  • If you default on the loan, the lender can repossess your property, and you may end up losing your home.
  • If you are still paying your first mortgage, a second loan can be a financial burden.
  • There will likely be closing costs.
  • You can’t get a loan with poor credit.

How Much Equity Do I Have on My House?

Equity is the difference between your mortgage balance and your home’s value. Your equity increases when:

  • you pay down your mortgage
  • the value of your house increases

Your equity can also fall if the house falls in value faster than the rate at which you pay your mortgage.

Here’s an example to explain the above:

Imagine you buy a house for $200,000 with a down payment of $20,000. Your mortgage loan would be for the $180,000 remaining, and your equity would be about $20,000.

In about two years, your principal would be reduced down to $170,000 thanks to your timely payments (minus interest), but the value of your home shrinks down to $160,000. In this case, the equity in your home would be -$10,000 since your home has actually decreased in value.

However, if you build or substantially improve your home, the equity should increase in value over the years.

How Do I Use the Equity in My Home?

You have three ways by which you can use the equity in your home:

  • a home equity loan
  • a line of credit
  • a cash-out refinance

A home equity loan is usually a smart way to secure a loan and receive a lump sum. These loans almost always have lower interest rates than a personal loan. Your choice, however, depends on your need and also the situation. Contact your credit counselor to check if you have enough equity in your home to apply for a loan.

How Soon Can You Access Equity?

As early as six months after the purchase of your home, you may request a revaluation. A few lenders may require you to wait up to one year for access. Regardless of the required time limit, you should try to wait until you determine how much equity you have before you use your home to back the loan.

What Can A Home Equity Loan Be Used for?

There are few rules regarding what this type of loan can be used for. You can use it for:

  • Home improvements like kitchen renovation, a new roof, a garage, or building a patio
  • Funding college education for your kids (due to the lower rate of interest than student loans)
  • Manage emergency expenses
  • Cover wedding expenses
  • Consolidate your debts to a low-interest rate
  • Investment opportunities like a second residence or share market
  • Funding your business (if the interest rates are lower than comparable small business loans)

But it is safer to use the money for home improvement since it that’s what will increase your home’s value.

Will a home equity loan work for you?

Can You Use Home Equity to Pay Off Debt?

Yes! You can take out a home equity loan to pay off debts, especially high-interest or unsecured debt. Some homeowners use it to pay off credit cards or car loans. The downside is that your debt is now secured by your home.

Can I Use a Home Equity Loan to Buy Another House?

Yes! You can use the money to finance another house. But ensure it is an investment property and that you can make the monthly payments.

Using a home equity loan to buy another house allows you to:

  • Retain your existing investments
  • Get a lower rate of interest
  • Access a part of your net worth that would otherwise be inaccessible

When you use it as a down payment, it enables you to increase the cash flow from your new house. However, you would also run greater risk if real estate values go down instead of up.

What is the Closing Cost for Home Equity Loans?

The closing costs can range anywhere from 2% to 5%.

A few lenders may waive closing costs occasionally, but you might have to pay certain offsetting fees, as well as being expected to close the loan in a specific time period, generally three years.

  • Appraisal fee – $300-$700
  • Notary fee – $50 – $200 for every signature
  • Credit report fee – $30 – $50
  • Title search – $75 – $100
  • Attorney fees – Varies

Can Home Equity Loans Be Paid Off Early?

Yes! You can pay back your loan early, provided that you are prepared to pay any prepayment penalties.

Some lenders may charge you a fee if you pay back the loan in less than five years. Make sure you read the loan agreement carefully before making a decision.

Do Home Equity Loans Hurt Your Credit Score?

It’s true that some home equity loans may lower your score or hurt your credit, depending on your:

  • Financial situation
  • Ability to repay

Also, if you have a high credit utilization rate, your score may decrease. On the other hand, if you open a line but don’t use a lot of it, your score will probably increase.

Requirements to get the loan you are looking for

The requirements to get a home equity loan are:

  • Your credit score should generally be upwards of 700. Some lenders may accept scores between 621-700 too.
  • You should have enough equity in your home (at least 15%-20%)
  • Your debt to income ratio should be 43% or lower.
  • You need to have a good payment history.
  • Your income is sufficient to be a good credit.

What Credit Score Is Needed for a Home Equity Loan?

A higher credit score correlates to a lower interest rate. Aim for a score of 740 or higher for an optimum interest rate. Still, some lenders accept scores as low as 660 or even 620, but your interest rate will definitely increase with lower scores.

Do You Need Homeowners Insurance to Get a Home Equity Loan?

Most loans require you to carry a homeowner’s insurance unless you either:

  • Own your home outright
  • Have an old mortgage

Banks demand insurance as a requirement for a loan, just in case the unthinkable happens. It’s a good idea to have a home insurance policy in place beforehand.

Why Would I Be Denied a Loan?

You can have a good credit score and still be rejected for a home equity loan. Banks are more concerned than ever about getting their money back.

If you were denied, it may be because:

  • You accumulated unexpected debt
  • You have unreliable income
  • You filed for bankruptcy

Is the Interest on a Home Equity Loan Tax Deductible?

Interest on a loan is tax deductible only if:

  • The loan is for your first or second home
  • You use the loan to substantially improve the home
  • It is a construction loan
  • Both the lender and borrower enter an agreement to repay the loan

Home equity loan and how to get one

How Do I Get a Loan on a House That Is Paid for?

Homeowners with a paid-off house can secure loans the same way you would do with a mortgaged home.

A property that is already paid off is an excellent candidate for a loan due to the lack of liens. That means in the case of a foreclosure, no liens mean the loan is paid off first, which means a lower interest rate. However, this doesn’t necessarily guarantee a loan. Your payment capacity also comes into the picture. You may be able to borrow money only up to the max LTV of your lender.

What is a Home Equity Line of Credit?

A home equity line of credit or a HELOC closely resembles a credit card. You have a source of funds that you have access to when and as you choose. You can withdraw as little or as much as you’d like.

Much like a home equity loan, the rate of interest is much lower than the other loans.

Depending on the bank, you can access it via:

  • a check
  • an online transfer
  • a credit card

In a way, they act as emergency funds that you can access any time you want.

How Does Equity Line of Credit Work?

With a HELOC, you borrow the equity in your home with it as collateral. As you use the lines of credit, you can repay by replenishing them like a credit card.

You can borrow as little as you want or as much as you’d like within your draw period. At the end of the draw period, you begin to repay it back.

A home equity line has a variable rate of interest, which differs from month to month. This is a marked difference from a fixed-rate second mortgage.

Home Equity Loan or Line of Credit

Both the loan and the equity lines of credit are taken against the home. While the loan gets you a lump sum, the home equity line acts more like a credit card. Like credit cards, you can access the money whenever the need arises.

The loan has fixed interest rates with payments in regular intervals. The credit lines have a variable interest and often do not have any fixed payment plan.

Apart from these, both function the same. Which you use, however, depends on your financial situation.

Home Equity Loans or Mortgage

The notable difference between a mortgage and a loan is the time of purchase. A home equity loan is taken on a home you already own, while a mortgage is a loan that allows you to purchase the home in the first place.

Both are lending tools that are taken against your house. Both have tax deductions of up to $750,000.

Lenders generally offer 80% of value as a loan. The rate of interest is sometimes lower on a home equity loan when compared to that of a mortgage.

Home Equity Loans vs. Personal Loans

Both the loans vary vastly, both in the interest rates and in the loan limits and eligibility. They have different pros and cons.

A home equity loan has a low rate of interest since it is secured using your home as collateral. It often offers a lower interest rate than a personal loan would.

Personal loans may take days to close and fund, but home equity loans can take over three weeks.

 

Conclusion

Home equity loans are loans based on the equity of the house as security. The loan amount is calculated based on what you owe on your mortgage and what your home is worth. This type of loan offers lower interest rates than personal loans. You’d have to make a monthly payment in addition to your mortgage.

While you can use the money for any purpose, it is generally safer to buy, build, or substantially improve your home, prioritizing spending that will increase the property’s value for years to come.

Home equity lines are loans that act similarly to credit cards. You can then use it as and when the need arises. The loan amount and interest depends on the lender.

Securing a loan (home equity or otherwise) can be a daunting task. But with the proper research and preparation, your efforts can meet with success.

Find out more on home equity loans 

How Hard Is it to Qualify for a Mortgage?

For many first time home buyers, the entire process involved with purchasing their first property is intimidating. Several factors determine your monthly mortgage payment and how much house you’re able to afford. 

It may seem obvious, but before you can own a home, you have to apply for a mortgage.

Unless you have the cash to buy your home outright, which most people don’t, a mortgage is a must. So understanding the difficulties involved with mortgage approval is vital. Applying for a mortgage is like applying for credit. But it’s a little more complicated. Mortgage lenders look at several factors when deciding whether to approve or deny your application. Having all of your records and financial information goes a long way. While all of this sounds intimidating, it doesn’t have to be. Reputable mortgage lenders like Altitude Home Loans are willing to work with applicants to ensure high approval odds. 

 

To learn more about the difficulty of getting mortgage approval, continue reading. 

Continue reading

Do You Lose Equity When You Refinance?

Do you lose equity when you refinanceRefinancing your mortgage loan gives you the opportunity to reduce your monthly payments. But, there are several steps and processes you need to go through before you can finalize a mortgage refinancing. First, you need to determine how much equity you currently have in your home. Doing so enables you to determine if going through the refinancing process is something worth your time.

What many people fail to realize is that even when your home loan remains the same after refinancing, your actual equity still has the odds of decreasing or increasing. In what direction your equity goes depends on various factors. First, you’ll need to get an appraisal of your home to begin the refinancing process.

The current value of your home is compared against similar properties in your area during this process.

Determining your home’s current market value gives lenders the ability to provide you with the best-refinancing terms. That’s just the beginning; there are several other steps involved in the refinancing process.

Suppose you’re interested in refinancing your home but don’t know where to start. Contacting a lender like Altitude Home Loans can give you some solid footing. To learn more about refinancing your home, continue reading.

Continue reading

Steps to Buying a House

Steps to buying a houseBuying a home is many American’s ideal goals, but the process involved in buying one is complex. Before purchasing a home, you need to make sure your credit and finances are in order. You’ll need to fill out different paperwork and submit various forms of verification before securing a home. Unless you plan on buying your home upfront, you’ll need to finance through a bank.

What type of home loan will you need?

The type of home loan you’re looking for impacts your approval odds. You should always hire the right real estate agent to help during the buying process. This alleviates much of the stress on you, so you can focus on getting your dreams home.

If you’re interested in purchasing a new home, continue reading to find out everything you need to know.

Continue reading

Does My Mortgage Have a Prepayment Penalty?

Does my mortgage have a payment penalty

Owning a home is the epitome of the American dream; however, dealing with monthly mortgage payment can be a hassle for everyone. If you’re interested in paying off your mortgage early and are tired of dealing with fixed monthly payments, you should consider paying more on your loan principal monthly to pay it off sooner.

Things to consider in regards to your mortgage

Before you pay off your mortgage, you should consider whether your mortgage contract has any prepayment penalties. Prepayment penalties are stipulations in mortgage contracts that restrict you from paying more than your principal loan amount within a calendar year.

Not all mortgages have prepayment penalties attached to them; however, it’s essential to verify your mortgage’s exact terms before making extra monthly payments to ensure you won’t face any harsh penalties. If you’re interested in paying off your mortgage early but want to make sure you won’t face stiff penalties, continue reading to find out more.

Continue reading

Is Variable or Fixed Mortgage Interest Rate Better?

Is variable or fixed rate better? Find out from Altitude Home Loans which one works best for you. If you’re looking for a loan of any sort, one of the most important things you need to consider is whether it has a fixed or variable rate. As you know, loans work by way of a financial institution giving you a specific amount of money that is to be paid back according to the details of the loan contract you signed. Financial institutions make their money from loans by charging interest on the money you borrow; this is what is known as your loan rate.

Depending on your intended purpose for taking the loan out and how you plan to pay it back, fixed-rate and variable-rate loans offer different advantages. To make the best decision about which loan type is right for you, you need to know the core differences between each of these loan types so that you can see which one matches your financial objectives the best.

Continue reading to find out all of the critical information you need to know as it relates to fixed-rate and variable rate loans.

Continue reading

TAKING HOME BUYING TO NEW HEIGHTS

Copyright © 2020
Tucson Web Design - CS Design Studios

  • Altitude Financial Corporation dba Altitude Home Loans
  • NMLS 1955555
  • Arizona BK 1007669
  • Colorado Mortgage Company Registration
  • Texas SML Mortgage Banker Registration