mortgage lender credits

Mortgage Lender Credits for Closing Costs: Pros and Cons

When closing on a new home, you might consider mortgage lender credits to offset costs and save money upfront. Before deciding, however, it helps to know how these credits can affect your original loan estimate and what they’ll really cost you in the future. 

At Altitude Home Loans, we make home purchasing in Tucson, AZ, more manageable by considering the best options for new homebuyers. Read our guide on the pros and cons of using mortgage lender credits, and call us at 520-500-1010 for help deciding whether or not they make the right type of loan to close on your new home.

Pro #1: You Pay Less Upfront 

The typical closing cost on a new home averages between 3%-6% of the total value of your loan. A loan of $300,000, for example, adds up to $9,000-$18,000 in total closing costs even after making your down payment. 

When faced with paying these costs upfront, many new homebuyers find themselves daunted. Mortgage lender credits offer a way out of paying some closing costs in exchange for a higher interest rate on your loan. By absorbing the closing costs, lenders allow you to pay less upfront, which can make all the difference in moving into your new home sooner. 

Pro #2: You Can Put More Money Down

Homeowners short on cash may consider lender credits if they want to reduce expenses for their monthly mortgage payment by making a larger down payment. If you can’t afford a 20% down payment, lenders require you to pay a PMI, or private mortgage insurance. 

By using mortgage lender credits to your advantage, you can make a larger down payment for your home instead of sinking money into closing costs. This can potentially eliminate the requirement of a PMI altogether, as well as reduce interest rates on your loan balance. 

Con #1: You’ll Pay Higher Interest Rates

While mortgage lender credits seem tempting, they can cost you thousands in interest later. Consider the following example of a $200,000 loan for a 30-year mortgage:

  • You decide to accept lender credits at a 4.25% interest rate to avoid paying a closing cost of $6,000. 
  • That locks your monthly payment at $983.88: just $30 more than if you paid your own closing costs at a lower interest rate.
  • But by the end of your loan term, the total cost of your interest adds up to $154,196.73: $4,500 more than if you’d paid your original closing cost fees of $6,000 at a lower interest rate.   

Con #2: You’ll Face Higher Refinancing Prices Later

Homeowners can expect to pay between 2%-6% of their total loan when looking to refinance their home. Refinancing costs also reflect the price of your future closing costs. Since mortgage lender credits raise the value of your total loan, your closing costs increase as well, causing the price of refinancing to go up altogether. 

Learn More About Mortgage Lender Credits

Find out more about mortgage brokers vs. lenders and how the team at Altitude Home Loans can help with your new home purchase in Tuscon, AZ. Call us today at 520-500-1010

mortgage brokers vs lenders

Mortgage Brokers vs. Lenders: What Are The Differences?

Buying a home is a big step in anyone’s life, and when it comes time for you, you need proper financing. Many people seek a mortgage loan for financial assistance but still need to figure out mortgage brokers vs. lenders. This short guide can help you determine whether a lender or broker could help you best in home buying.

Altitude Home Loans can pair you with an experienced mortgage broker in Tucson, AZ, and will discuss all available options. Read more about the differences between essential mortgage parties, and then contact Altitude Home Loans at 520-500-1010.

Mortgage Brokers

Mortgage brokers help you find the best lender but do not provide financial assistance to fund the purchase of your house. They know about many lenders and can find one that will help your specific needs. Brokers are the “matchmakers” between you and the lender.

Brokers can help you compare all loan options and show you programs that may be ideal for you. Mortgage brokers work based on their client’s financial information and credit scores, and you may find more affordable lending options with their assistance.

Pros of Working with Brokers

Mortgage brokers can provide you with multiple lending options and allow you to shop around. You will compare all potential choices and work with someone who can find a match, no matter your financial circumstances. Brokers have connections and access to information that can benefit you.

Cons of Working with Brokers

Working with a broker might not be what you’re looking for as an experienced buyer. Some lenders pay brokers to recommend them to clients, and your broker could charge a fee on top of your loan cost. Be wary if your broker is directing you toward a more expensive loan option.

Mortgage Lenders

Your other option when comparing mortgage brokers vs. lenders is a lender. A mortgage lender is often a credit union or bank that determines if your financial background makes you a reliable choice for a loan. Some lenders are private companies that operate online to provide fast approvals and more support to buyers.

You will repay your lender’s loan over time and use the money to purchase a home. Lenders offer funding, while a broker merely connects lenders and buyers.

Pros of Working with Direct Lenders

Working with mortgage lenders may be quicker because they are selective about who will borrow their money. Many lenders operate throughout the country and can loan you money in any state, giving you more options.

Cons of Working with Direct Lenders

Direct lenders may only accept your loan application if you meet their specific criteria. You are responsible for obtaining your financial documents and information for the lender to review. For every lender, you must complete a new application.

Receive Mortgage Loan Assistance with Altitude Home Loans

The Altitude Home Loans team can help if you need a mortgage broker and are purchasing or refinancing a home. Call us today at 520-500-1010 to discuss mortgage loans and lending options in Tucson. We understand whether mortgage brokers vs. lenders suit your needs and are ready to help.

proof of income

Proof of Income for Mortgages: Income and Asset Verification

Proof of Income for Home Mortgage LoanProof of Income

According to statistics by the National Association of Realtors® (NAR), 88% of homebuyers finance their home purchase through a mortgage or a home loan. Qualifying for a mortgage can be a tedious process and requires a lot of documentation.

Due to the substantial money borrowed, most money lenders have strict requirements to guarantee that you have sufficient funds to ensure monthly mortgage payments. While this process seems taxing, it is worth all the pain since you do not end up with an unattainable payment at the end of each month.

This article will guide you through the following main topics:

Proof of Income for Home Loans

The proof of income isn’t as simple as handing over your recent pay stubs. It’s much more complicated than that. The mortgage lender needs to ascertain your ability to repay the loan. Therefore, they will require several documents to confirm that your income is as stated. For someone with traditional employment with a W-2 form, the process is straightforward. But, first, you’ll have to provide the following documents to prove that you have enough income:

  • Pay stubs of at least two years
  • Tax returns for two years
  • W-2 forms – most recent

Lenders do not require you to be in the same job for two years; however, they’d prefer that you remain in the field. If you recently changed jobs, they may also ask for proof of income from your employer.

The lender will obtain the federal tax returns directly from the IRS, for which you’ll have to provide a signed form 4056-T. It authorizes the IRS to release them to your lender. Keep in mind that your application may be rejected if you have made a significant job change recently within two years. For someone relying on bonuses and commissions for their income, lenders generally require at least two years of bonus and commission income. For calculation purposes, they take an average of both years. However, if the income in the current year is lower, the lenders tend to use the lower number.

Proof of Income for Self-Employed People

The process is more complicated for people in self-employment. Tax returns are the primary means of verification of income for the self-employed. Mortgage lenders expect at least two years of income from your business and also tax returns. In addition to that, you may also be asked to provide profit-loss statements or bank statements for the past two years to ensure that the stated income hasn’t changed. It’s important to note that, for self-employed, the lenders are looking for the adjusted gross income (AGI) on your Schedule C. AGI is the business income minus any expenses and deductions.

Do I Have to Own a Business to Be Self-Employed?

Self-Employed Red StampYou do not have to own a business to be self-employed. A mortgage lender considers the following people also to be self-employed:

  • You do not receive W-2 tax forms rather 1099 tax forms.
  • Contractor or freelancer
  • You own 25% or more of a business
  • 25% of your income is from self-employment
  • A good portion of your income is from dividends and interests.

Eligibility Income Criteria Required for a Mortgage

Most mortgage lenders have a different definition of what’s affordable than borrowers. That’s because they want to make sure that you can repay the loan. And as such, they do not prefer you spending more than 36% of your pre-tax income on debt payments. If you have excellent credit, the number can go higher than 41%.

To calculate the minimum income needed to qualify for a loan, the lender adds the monthly mortgage payment, minimum monthly payment for credit cards, any other loans (i.e. car loan), child alimony, child support, etc. They then compare it with your monthly income. The resulting total debt payments should be less than 36% of your pre-tax income.

How Much Income Do You Need to Buy a Home?

Proof of income is one of the most important factors when it comes to a mortgage loan. However, there’s no minimum income you’ll need to buy a home. Instead of minimum income, lenders look at the Debt-to-Income (DTI) ratio. It shows the percentage of the gross monthly income that goes towards debt obligations. The DTI may vary depending on the different loans, conventional, FHA, VA, and USDA.

Generally speaking, your monthly payments should not be more than 30% of your gross income.

An adequate DTI for a home purchase depends on other factors, including the credit score. Most lenders require a DTI of at least 45%, while others allow as high as 50%, provided you have good credit and supplementary cash reserves.

What Are the Requirements of a Home Loan?

In addition to proving their income and employment history, borrowers also need to meet the standard loan requirements. Along with your finances, the type of property and the intended use also play an essential part in the home loans you qualify for. While the guidelines may vary depending on the different types of loan options, you can expect most lenders to follow the following criteria.

Credit Score

The credit score is a numerical rating that tells the lenders how responsible you are with your money. A conventional mortgage has a different credit requirement than other government-backed loans. Generally, the lenders expect a credit score of 620 or higher for better mortgage rates.

A high score can get you a low interest rate, while a low score can result in higher rates.

In the latter case, it’s also possible you’ll have trouble qualifying for a loan. Here are the minimum credit score requirements for various government-backed loans.

  • Conventional Loans – 620
  • FHA Loans – 580
  • VA Loans – 580
  • USDA Loans – 640

If you have a low credit score, you probably miss payments and regularly overdraft on your accounts. If your credit score isn’t where it is supposed to be, here are a few things you can do to increase it over time.

  • Pay off debt – Determine any outstanding debt payments, pay them until it paid in full. With the reducing debts, the lender may even approve your mortgage.
  • Make all payments on time – Making your monthly payments on time can help increase your score since 35% of the credit score comes from your credit history.
  • Avoid closing credit lines – Neither close an existing credit line nor open new credit when buying a home.

Credit History

For an accurate report, lenders may pull the credit report (with your permission, of course). According to Bruce Ailion, a real estate agent in Atlanta, you may need to explain any shortcomings on your credit report, including a short sale or a foreclosure. In addition, you may have to write a statement explaining the lapses in your report. It helps the lender to evaluate the risk. They may even let it go if it’s a one-time unavoidable circumstance.

Assets

Your lender may also ask to see your assets while assessing the risk factors. Generally, they look for assets and bank accounts that can pay your mortgage payments when you run into any financial trouble. Assets are things you own that hold a significant value.

  • Checking and savings account
  • Stocks, bonds, and mutual funds
  • Certificates of deposit (CDs)
  • IRAs, 401(k)s or other retirement accounts

Lenders typically request the documents for verification to confirm the sources.

What Should Be an Optimum Size of Down Payment?

A down payment is the amount of mortgage the borrower lays down at the time of closing. Generally, it is 20% of the loan amount. Any amount less than that, you’ll have to buy private mortgage insurance (PMI). However, it is not the minimum you need to qualify for a loan. How much money you put down depends on you. Nevertheless, lenders have a minimum limit for the down payment, which you’ll have to meet.

  • Conventional Loan – 3%
  • FHA Loan – 3.5%
  • VA/USDA Loan – 0%

Proof of Income Requirements for Mortgage Loans

Your income is not as much as a point of consideration when obtaining a loan. The most crucial part is your ability to make monthly mortgage payments. Other factors they’ll consider are the credit score, DTI ratio, and down payment. Each lender determines its qualifying criteria. Here’s a look into what lenders expect from borrowers:

Monthly Income

If you are on a payroll, the mortgage process is pretty straightforward. You’ll have to submit your recent pay stubs and W-2’s. If self-employed, you’ll have to submit your tax returns and other documents that the mortgage lender requests. The longer you stay in a position, the more the lender will be ready to loan you. In case you moved roles, you may want to wait a year or two before applying for a mortgage. Some of the other sources of income include:

  • Overtime
  • Commissions
  • Alimony payments
  • Military benefits and allowances
  • Social security income
  • Child support payments
  • Investment income

Debt-to-Income (DTI) Ratio

Mortgage lenders use the Debt-to-Income (DTI) ratio to decide how much you qualify for.

DTI = Monthly Debt Payments ÷ Monthly Household Income

With the DTI ratio, the lenders determine if you can comfortably afford another debt. A low DTI is ideal, with lenders preferring 50% or lesser. Any more than that, chances are that your mortgage application will be rejected. If you have a high DTI, look for ways to cut back on your monthly budget or increase your income.

Asset Statements

Asset statements are proof of your net worth, including investments, bank statements, and assets, providing a detailed look at your finances. The comprehensive portfolio of assets ensures that you can comfortably afford the mortgage. Furthermore, it also helps the lender determine that the approved mortgage is the right one for your financial needs. When you apply for a mortgage, your lender requires records verifying the assets and the source of your wealth. In order to confirm the assets, you’ll submit asset statements detailing your portfolio to the lender. Here are some of the types of assets that need to be submitted in the verification:

Liquid Assets

Proof of Income - Liquid Assets - CashAssets that have a cash value or can be converted to cash are called liquid assets. Lenders would want to verify that you have the means to pay the payments, insurance, taxes, and interest on your mortgage. The capability to pay for these is determined by the liquid assets, including bank account, savings account, checking account, stock option, etc. Experts suggest having six months of current income in liquid assets or cash to tide you over in times of financial emergency. This ensures that you can continue paying the mortgage payments even if you have no source of income.

Non-Liquid Assets

In addition to the liquid assets, lenders also expect proof of non-liquid assets in the asset statement. Non-liquid assets refer to difficult assets that take longer to convert to cash, including cars, jewelry, self-owned businesses, real estate, artwork, antique furniture, real estate property, etc. They may also change in value from the time it was initially purchased. While non-liquid assets may be difficult to convert in times of emergency, they are still valuable to lenders.

Gift Funds

If you receive money from friends and family to be put toward down payment or closing costs, it is also an asset in the eyes of the lender. Hence you need to verify the source during verification. To use the money safely without it affecting the mortgage approval process, ensure that you have the bank statement showing the deposit and also the bank statement from the giftee as a legitimate source of funds.

Process of Getting Mortgage Approval

The mortgage approval process is one of the most daunting yet vital steps before a home purchase. The process is long and can take anywhere from several weeks to several months.

Preapproval

Most borrowers prefer to get preapproved before starting the house hunt. Preapproval gives an idea of how much money you can expect from your lender and enables them to place a competitive bid. Even real estate agents and sellers prefer preapproved buyers.

Application

Once you have found your dream home, placed a bid, and your offer has been accepted, you can apply for a mortgage. At this juncture, the mortgage lender will check your credit report, income, assets, bank statement, debts, and other financial aspects.

Income Verification

The lender then does the income verification, where he confirms your income and ability to make monthly payments. Having all your documents ready and organized increases your chances of getting approved. The documents vary depending on your employment situation and may include pay stubs, W-2 forms, tax returns, profit/loss statements, and bank statements.

Do not make any cash deposits in your account before and during the mortgage process. You should deposit any cash intended for a down payment way before demonstrating your ability to save money. This is also counted as a part of your assets and should be verifiable.

Appraisal

Another factor that determines the loan amount is the appraisal. The lender conducts an independent appraisal of the property before approving the mortgage. The loan amount usually depends on this appraisal.

Home Title InsuranceTitle Search and Insurance

Before the mortgage is approved, the lender does a property title search and title insurance through a title company. This is to ensure that no other company or individual has rights or legal claims on the house.

Decision

With all the information in hand, the lender will approve or deny your loan. If they are unable to verify the financial information at hand, they may also suspend your application.

No-Income Verification Mortgage

No-income verification mortgages, otherwise called stated-income mortgages, use non-standard means of income documentation. They do not require borrowers to prove a source of income. The mortgage is ideal for self-employed people and seasonal employees. You can use available assets, home equity, and cash flow. There are four types of no-income verification mortgage:

  • SISA – Stated Income, Stated Assets
  • SIVA – Stated Income, Verified Assets
  • NIVA – No-Income Verification, Verified Assets
  • NINA – No-Income Verification, No-Asset Verification

Each of the loans mentioned above has different requirements. However, keep in mind that these should not be used to hide an insufficient financial standing. Apply for a no-income mortgage only if you can make the payments.

Conclusion

Verifying your income is the most critical part of the mortgage approval process. Having a verified proof of income ensures that you have the finances and assets needed in order to qualify for your home mortgage application. When you apply for a mortgage, lenders want to make sure that you have the capacity to make on-time payments every month without fail. Therefore, they have strict requirements for a borrower, including employment history and proof of income. The best advice experts have for you is to seek a professional like a mortgage broker who can guide you through the process. In addition, they can help you find a trustworthy real estate agent and a mortgage lender.

Altitude Home Loans LogoThe 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.

question mark bank vault

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.

TAKING HOME BUYING TO NEW HEIGHTS

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