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Category: Mortgage Lender

Understanding mortgage.

 Many people would like to own a home but they’re not able to because of financial limitations. The only cause of action they have is to look for mortgage from banks and other institutions. When you apply for a mortgage you’ll basically be dealing with an underwriter or a broker. Brokers don’t give loans but they utilize their relationships with lenders to get to the financing.

 The broker will do a background check on you, including your credit ratings, verify your employment and income status, your residency over the past two years, and check how you handle your finances. Some mortgage providers do not require all the above but such loans are more expensive even though they are easy to obtain. Getting a pre-authorization from a lender can also speed up the process of getting the financing you need.

To get financing, you will need to put down a down payment. Most of them require up to 20% although it is possible to get 100% financing as long as you qualify for it.

The mortgage market is extremely competitive and that is why it is important that you shop around before you settle on one lender. You can work directly with your bank, but if they do not give you a good rate then you are free to shop around. The advantage of working with your bank is that they already have their records and it’ll make it easier for the loan-application process to go through.

 It is important to remember that the underwriter or the broker will charge you a fee for their services and so you’ll need to factor this in when you’re planning your finances. The underwriter will traditionally work with his bank but brokers work with many lenders so they can give you better deals.

Most mortgages are fixed-rate mortgages while others are variable-rate loans. Fixed rate mortgages are not adjustable and are usually more costly in terms of the interest rates. Once you have the loan amount, a portion of the payment will go towards the principal amount thus decreasing the debt you owe. If the value of your home increases you’ll be building equity.  Home equity loans give you the chance to apply for other loans because you can use the house as collateral allowing you to take a second mortgage. If you use the home to secure a loan, you will be able to get a lump sum which you can put towards the payment of the loan.

 You can also use the home to apply for an equity line of credit which gives you access to a revolving account, allowing you to withdraw and repay the money over a specific time period.

Owning a home does not need to be a farfetched dream anymore, you can get a mortgage loan from a number of lenders, however, make sure you use the services or broker or an underwriter to negotiate best rates for you. Make sure that before you sign anything you fully understand the requirements and choose payment rates that you can comfortably afford to make so that you do not affect your credit ratings.

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Pros and cons of mortgages

Owning a home is a dream very many people have, but it is not a process that should be without due consideration to all the implications. The process of buying a home is expensive and the cost of maintaining the house once you have bought it is also expensive because you might find that you need to do things like renovations, repairs or pay maintenance fees.

The type of mortgage you take will depend on how you tolerate risk, how your personal situation is and the economic conditions of the market.  There are two major kinds of mortgage you can take an adjustable rate mortgage and fixed rate mortgage. 

 Adjustable rate mortgage (ARM).

These typically have low initial rates.  

  • Standard ARMs allow for payments to fall when market rates fall and they have a low initial rate. However, the reverse is also true because when the market rates rise, you have to adjust your payments accordingly thus no stability in terms of payment.
  • Convertible ARMs have the advantages and disadvantages of the standard ARMs but you have the benefit of being able to ‘lock’ in the low rates when they fall.  The initial rate is a bit higher than the standard ones and to take advantage of the lock aspect you have to pay a fee.
  • Two-step mortgage has a low initial rate which is fixed for a period of time. Payments will fluctuate depending on how the market is.
  • Balloon ARM is much like the standard ARM but you may need to refinance to pay off the balloon and the terms can, therefore, be very unattractive.
  • Interest-only ARM –   like the other ARMs, they depend on the market fluctuations but there is no reduction on the loan principal.
  •  Graduated payment loan – these have a lower initial monthly payment which increases over time; you need to be careful about the amortization schedule because it can be negative in the beginning and lenders may charge premiums.

Fixed-rate mortgage.

These do not depend on market fluctuations, therefore, providing a more stable payment option.

  • Conventional fixed rate loans– have stable payments but the initial interest is high
  •  Fixed rate balloon – it has a lower interest rate than conventional fixed-rate but you may need to refinance to pay it off, and the terms can be very unattractive.
  • Interest only loans – they have loan monthly payments and you need to refinance, renew or pay early and they offer no loan reduction through amortization.
  • Bi-weekly loans – these allow for smaller payments and you can pay them off quicker.

The decision to take a mortgage and the type of mortgage depends on the individual’s capability to handle their mortgage payments. It is not advisable to go through the process yourself, talk to a mortgage broker or financial experts to help you better understand what the mortgage rates mean in terms of payments of the interest and any penalties if you are unable to pay.

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Mortgage pitfalls to avoid.

Buying a house is a great move for any person, but making a decision at the whim of a moment can lead to major pitfalls that can have a terrible impact on the person.

 Buying a house is not easy, but it does not have to become a huge problem because you did not make the right choice on your mortgage, location, or type of house. Mortgage, however, is one of the biggest challenges that most homebuyers have and some have horror stories of seeing their dream turned into a nightmare.

 So what are these pitfalls and how can you avoid them?

Know your credit status.

It is important that you know what your credit status is, you can get a report from the credit reporting agencies which can give you one annual report for free. Keep a close eye on the reports and make sure that if you see any problem, you resolve them as soon as possible.

Understanding your credit score is important because it is the deciding factor on whether or not to lenders will give you money. If you have low credit scores, you may need to give yourself some time to bring it back up before you apply for loans. While there are bad credit loans for people with poor credit scores, the interest rates on them are very high and they can end up being a pain.

 Getting pre-approval.

Do not look for a house and decide that that is the house you’re going to get if the bank has not given you a pre-approval on your loan application. If there is a bidding process you’ll definitely lose out because only those who have ready cash will be given the first option.  The bank will be able to tell you how much you can afford by looking at different factors including your income, and your financial health. You may think you deserve so much more, but the bank may have a contrary opinion and of course, at the end of the day the bank will win.

Taking the first offer.

 When buying a home and are looking for mortgage financing, you should shop around. You can use your bank, but if they do not have attractive benefits then you have the option of going to another lender. Look for as many mortgage providers as you can, and compare the benefits including the interest rates, cash-back offers, and payment terms among others before making a final decision.

 Not taking note of additional fees.

A mortgage comes with so many other fees and you should pay close attention to them. Ask your mortgage broker for a full breakdown of the fees you need to pay.  Some of these fees include the loan origination fee, broker fees, application fees, underwriting fees amongst others. Clearly, this can have a big impact on the amount you are going to spend and you need to know where the money will come from to pay them.

You also need to consider that you will need to make a down payment because most lenders will not deal with someone who is not able to do this. Making a down payment is a sure sign that you will be able to pay back the loan. Factor in up to 20% of the loan amount as a down payment.

Not paying attention to the mortgage terms.

Sit down with your mortgage broker or a financial expert and let them walk you through the details of the mortgage terms. If there are certain clauses you do not understand, do not be shy to ask for a proper explanation. This will save your lot of grief in the long run.

Yes, buying a home can be very exciting and you may feel the need to rush the process, however, take time and understand everything about the process before you take the final step.

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Mortgage FAQs

When it comes to taking a mortgage, there is some information you need to have a basic understanding of, so that you’re able to make the right decision. We will explore some of this below.

What is the process of getting a mortgage?

The first thing you need to do is shop around for a good bank or mortgage lender.  There is a lot of information online and the top lenders will be easily accessible on the internet. You can also talk to people who have bought homes and ask them for recommendations on different lenders. Realtors and real estate agents also have very good information about this and you can also take advantage of their networks to get the right lender.

 Find out what kind of mortgages they offer, what costs are come with the mortgage, how long approvals take amongst other factors.

Are there particular documents you need when applying for a mortgage?

This varies from lender to lender, however, some of the more common ones include your social security card, proof of income, drivers license, and bank statements, among others. Talk to the mortgage lender and he’ll be able to give you a full list of the documentation you need to have when you’re making the application. This should be done during the shopping around process because you will talk to many lenders as you try to find out more about the mortgage terms.

What is pre-qualification and how is it different from pre-approval?

 Pre-qualification basically shows how much you can borrow. It considers factors such as low income, your debt portfolio and what assets you have. A pre-approval, on the other hand, is the commitment by the lender to give you a certain amount of money. This is the stage at which you should aggressively get into the market and look for the house you want because now you know how much you can spend.

How will I know the right mortgage for me?

 There are so many types of mortgage available in the market and you need to have a good understanding of what each entails.  The choice of the mortgage will depend on how comfortable you feel making the mortgage payments. Some have very high-interest rates, while others depend on the market fluctuations to determine how much interest you pay.  Talk to your mortgage broker and let him take you through all the options available before you commit yourself.

 Can a first-time homebuyer access mortgage?

Yes, you can, the whole process of getting a mortgage really depends on your credit standing. If the lender sees that you have healthy finances as per your credit score, they will be willing to give you a mortgage.

 What type of interest rates are there?

 There are two major types of interest rates available.  Fixed rate interest does not depend on market fluctuations and you pay what you agree upon at the beginning of the contract. Adjustable interest rates depend on market fluctuations and will vary according to how the market is doing. Each of them has their benefits and you need to be fully aware of what they are before you decide which one to go with.

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Bad credit mortgage

People with bad credit will not get loans from most lenders. This means that they cannot access the financing they require to buy a home. Some lenders offer bad credit mortgage which allows people to get funding from lenders even with bad credit.  Bad credit scores are because of certain factors like not being able to pay back loans, overdrawing on your credit cards, not making credit payments amongst others. Credit agencies get the information from service and product suppliers.

People with bad credit are likely to default on payments and therefore not a good risk for most financial lenders. The more traditional banks will not give you bad credit mortgage but there are lenders who specialize in this. Look for a mortgage broker who can negotiate for you good rates because bad credit loans are expensive as they charge high interest rates on them.

Bad mortgage loans can give you a chance to improve your credit rating as long as you keep up with the payments. Make sure you deal with a reputable mortgage broker who has licensing so that you do not lose your money to scam artists.  Make the loans short term so that you don’t have to deal with the high interest rates for a long period of time. Try and keep it under 2 years which will allow you to build up your credit rating and thus improve your chances of getting a loan from a normal lender, or be able to refinance the loan so that you can pay it off comfortably.

Not all brokers are bad credit mortgage brokers. This is a specialty area and you need to find one who has a background in it. Try and avoid prepayment penalties because it means that if you want to pay off the loan a bit early, you will incur penalties.

 By having good financial practices, you will be able to repair your credit score, keep a close eye on the reports so that if there is any discrepancy you can correct them as soon as possible.  A good mortgage broker should be able to help you repair your credit or connect you with people who can help you.

Do not take bad credit mortgage just because you can get the financing,  you need to be clear that you are ready to buy a house and that you will be able to keep up with the payments so as not to damage your credit score further. Insist that the mortgage broker show you the amortization schedule because if you do not have enough money to cover the interest payments, this amount will add onto your unpaid balance making it more difficult for you to clear the loan.

Owning a home even if you have bad credit is now a reality. By accessing bad credit mortgage, you are able to get financing. Remember, due to high-interest rates bad credit mortgage is something that should be a last resort. If you can avoid it, you may better off trying to get your credit scores back up instead of applying for a bad mortgage loan. However, if you must, get a broker who understands bad credit mortgage credit so that he can help you navigate through the process.

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