Apartment renting is great when you are a twenty-something college student and all of the best trendy restaurants are within walking distance of your home. It doesn’t take long, however, until those things slowly fade away and the desire to own a home becomes more than a thought. This is usually the point where you realize you need to evaluate your finances if you are going to apply for a home loan. Fast forward to the point where you have made the decision to buy a home and you are getting an approval. The bank comes back to you saying that you did not get approved for the loan. It can be devastating but if you know the reasons why you can’t qualify for a loan, the easier it will be to work on fixing them so that your dream of owning a home can become a reality.
One of the easiest ways to obtain a mortgage loan is to work with your existing bank. If you already have a relationship with a bank in the US, the process of applying for a mortgage is relatively painless. However, you may find that your bank can't provide you with the best possible deal. It can pay off to speak with underwriters at different financial institutions. In addition to mortgage rates, you should also ask them about their origination fees and various closing costs and fees.
Hybrid Adjustable Rate Mortgages (ARMs): Mortgages that have fixed payments for a few years, and then turn into adjustable loans. Some are called 2/28 or 3/27 hybrid ARMs: the first number refers to the years the loan has a fixed rate and the second number refers to the years the loan has an adjustable rate. Others are 5/1 or 3/1 hybrid ARMs: the first number refers to the years the loan has a fixed rate, and the second number refers to how often the rate changes. In a 3/1 hybrid ARM, for example, the interest rate is fixed for three years, then adjusts every year thereafter.
If you are experiencing difficulties making your mortgage payments, you are encouraged to contact your lender or loan servicer directly to inquire about foreclosure prevention options that are available. If you are experiencing difficulty communicating with your mortgage lender or servicer about your need for mortgage relief, there are organizations that can help by contacting lenders and servicers on your behalf.
Deed in Lieu of Foreclosure: You voluntarily transfer your property title to the servicers (with the servicer’s agreement) in exchange for cancellation of the remainder of your debt. Though you lose the home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure. You will lose any equity in the property, although under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe. However, it still must be reported on your federal tax return. For more information, contact the IRS. A deed in lieu of foreclosure may not be an option for you if other loans or obligations are secured by your home.
The major downside of taking out a mortgage is that it does put your home at risk if you fail to make payments. You may want to look into other options if you want to consolidate your debt. Some people choose to refinance their original mortgage to cash out their equity and to avoid two mortgage payments. When they refinance, they cash out the equity or take out more than they still owe on the loan. Like a traditional mortgage, refinancing has set monthly payments and a term that shows when you will have the loan paid off.
*The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements. In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance. Information accurate as of 10/1/2017. Update underway to reflect latest changes to PLFs by HUD
Note that the Hope for Homeowners program indicated above has been expanded. Families can now receive aid on a second mortgage, and more lenders are participating and cooperating with the FHA. Banks and lenders have been provided further incentive to participate in the program. Find how the FHA Expanded Hope for Homeowners to assist more borrowers.
Fixed-rate mortgages offer stability in your mortgage payments. However, many ARMs start with a lower interest rate than fixed mortgages and lock the rate in for a few years. That can mean significantly lower payments in the early years of your loan, so some borrowers opt for an ARM with the intention of selling or refinancing their home before the rate can adjust.
A lender offers you a mortgage interest rate based upon a number of factors, but by far the most important is the secondary market for mortgages. Banks typically sell their mortgages to aggregators like Fannie Mae and Freddie Mac, which are government-sponsored enterprises that buy and repackage mortgages. Aggregators issue mortgage-backed bonds to investors in the secondary market. The daily fluctuations of supply and demand affect the interest rates investors require to buy these bonds. As the economy strengthens, investors require a higher interest rate on bonds because of growing competition for their investment dollars. Banks peg their mortgage interest rates to the daily interest rate on mortgage-backed bonds in the secondary market.
Typically offered by lenders, loan modification programs are designed to make your mortgage fit within your budget. If your income has decreased due to layoff, reduction in hours, reduction in hourly pay, or emergency expenses, you can go to your lender and explain why you can't pay the mortgage. If they offer loan modification programs, they can reduce their interest rates, keep your payment within a certain percentage of your income, increase or decrease the length of the loan, or negate certain penalty fees. Loan modifications are rarely sweeping, one-size-fits-all type deals. They take time to set up, and only provide indirect assistance by modifying your debt. They don't put cash directly into your pocket. For this reason, they're not useful as emergency mortgage assistance, but they can help if you're struggling just a little bit.
Once you find the perfect home, the next step is to apply for a mortgage. You will need to provide detailed information in order to receive your loan approval. Below is a list of standard documents that are required for just about everyone. Depending on your situation, you may be asked for more or less information. Use this checklist to help you prepare in advance, so the application process is quick and easy.
Military Homeowners Assistance Program (HAP) provides assistance to military service members, recent veterans and their families who are facing housing issues. Banks and national lenders such as Chase and Bank of America are also offering solutions to the nation’s veterans and service members. The military Homeowners Assistance helps veterans and service members.
A warm, friendly, and most importantly unbiased place to learn about mortgages, ideally before you make contact with a real estate agent or lender. The more you know, the better you’ll feel, and hopefully all that hard work will help you snag a lower mortgage rate too! So what are you waiting for? Let's go! View all mortgage help topics to get started or check out the latest mortgage tips and news below.
To qualify you for a conventional loan, your lender will consider whether you have stable and reliable income. It may require copies of paystubs, W-2s, income tax returns and other documentation to make an assessment. Frequently changing jobs will not necessarily disqualify you for a conventional mortgage, if you can show that you’ve earned a consistent and predictable income.
Know your credit score. As soon as you decide to start looking for a home, check your credit report and credit score with any of the 3 major credit reporting agencies: Experian, TransUnion and Equifax. If you find any mistakes that need to be corrected, addressing these issues early will put you in a better position when it’s time to buy a house. (Bank of America credit card clients can get a free FICO® score in Online and Mobile Banking.)
It is important to find a mortgage lender who offers a wide variety of mortgage programs. If your lender only offers a limited range of programs, they may lock you into a suboptimal mortgage when there would be better options available for your situation elsewhere. Check to see if your lender offers programs like FHA loans or VA mortgages before moving forward with their services.
A few years ago (see above), if you were breathing it seemed like you could find a mortgage. Things are a little bit tighter now. The biggest factor is your debt to income ratio. It’s your minimum monthly debt divided by your monthly income. But don’t worry. You don’t have to do the math! There’s a handy DTI calculator that will figure it out for you and estimate how much you’re likely to qualify for.
As you’re comparing quotes, ask whether any of the lenders would allow you to buy discount points, which means you’d prepay interest up front to secure a lower interest rate on your loan. How long you plan to stay in the home and whether you have money on-hand to purchase the points are two key factors in determining whether buying points makes sense. You can use this calculator to decide whether it makes sense to buy points.
Lenders can initiate the foreclosure process after a single missed payment. Foreclosure is devastating and affects the entire community. Charities and non-profit organizations throughout the country help homeowners avoid foreclosure by offering financial assistance. The eligibility criteria to receive help varies among charities and locations. There are several national charitable organizations that can help you receive the necessary assistance to get back on track and keep your home.
Once you find a home you want to put an offer on, you have to obtain the actual mortgage loan. Apply for a loan with your chosen mortgage lender. Within three days of your application you should receive a loan estimate that includes closing costs, the interest rate, and the monthly amount you’ll pay for the principal, interest, insurance, and taxes. After that, it’s off to the underwriter, who will review all of your financial information and make the final call to approve or deny your loan.
When you apply for a mortgage, you'll need to document your income, employment situation, identity, and more, so it can be a good idea to start gathering the necessary documentation before you walk into a lender's office. This isn't an exhaustive list, but you should locate your last couple of tax returns, bank and brokerage statements, pay stubs, W-2s, driver's license, Social Security card, marriage license (if applicable), and contact numbers for your employer's HR department. Here's a more comprehensive list that can help you determine what you'll need.
If you put less than 20% down on your mortgage, you'll probably have to pay private mortgage insurance, or PMI, so be sure to budget for this when shopping. Mortgage insurance rates can vary significantly, depending on your credit, the length of your mortgage, how much your down payment is, and other factors. However, it can add a significant amount to your payment, so be sure to take it into consideration.
If you remain in your home for 10 years, the loan will be forgiven, and you do not have to pay it back. After you have lived in your home for five years, the loan is reduced by 20 percent a year for years six through 10 until you owe nothing. You repay the total amount only if you sell or refinance the home in the first five years, and only if the sale proceeds are sufficient to repay it. Please note that if you refinance your property for better loan terms, we will subordinate our second mortgage; however, if you refinance to consolidate debt or take out cash, the second mortgage loan must be repaid.
Conforming loan. Fannie Mae and Freddie Mac are government-controlled corporations that purchase and sell mortgage-backed securities. Conforming loans meet their underwriting guidelines and fall within their maximum size limits. For a single-family home, the loan limit is currently $424,100 for homes in the contiguous states, the District of Columbia and Puerto Rico, or $636,150 for homes in Alaska, Guam, Hawaii and the U.S. Virgin Islands. However, in certain high-cost counties, loans limits can go as high as $954,225.
The Hardest Hit Fund was created to provide additional options to residents of those states that have the highest unemployment rates, most significant job losses, and that have been hit hardest by the nation’s housing crisis. This program is only available in certain parts of the country. Borrowers can qualify for zero interest rate loans that do not need to be repaid, so these can be thought of as grants. Click here to read more on Hardest Hit mortgage fund.
You don’t need a zero balance on your credit cards to qualify for a mortgage loan. However, the less you owe your creditors, the better. Your debts determine if you can get a mortgage, as well as how much you can acquire from a lender. Lenders evaluate your debt-to-income ratio before approving the mortgage. If you have a high debt ratio because you’re carrying a lot of credit card debt , the lender can turn down your request or offer a lower mortgage. This is because your entire monthly debt payments — including the mortgage – shouldn’t exceed 36% of your gross monthly income. However, paying down your consumer debt before completing an application lowers your debt-to-income ratio and can help you acquire a better mortgage rate.
I doubt it, people seem to live in countries and mostly not care how it is run. As a bonus, most don’t understand the clockwork behind. I have a mortgage and am doing very well since I got a college degree and am progressing more in my career. I like the article on how straight – forward it is on it’s description of what a mortgage really is. I hope people will read it, that way if they are not so lucky with money they will choose an apartment over the painful situation a mortgage can bring on low-income people.
That depends of you and your goals for this purchase. Is this the house you plan to stay in forever? Is it a starter home you plan on selling to trade up in five years? How long you think you’ll stay in a home will help you decide between fixed- and adjustable-rate mortgages. It will also help you decide whether to focus on interest rate or points.
Everyday Mortgage is meant to help you get real-life, homebuying advice that’s useful. That’s what we’re here for. The people answering these questions are real loan officers, in your hometowns, ready to serve you and get you into the home of your dreams. Click on their names to get in touch with them directly, or find a Movement Mortgage loan officer near you.
Note: If you pay half your house payment every two weeks instead of one monthly payment, you’ll end up saving money on your loan. You’ll wind up paying 26 payments per year, one more payment annually than if you just paid monthly. The re-amortized loan will eventually result in more of the payment paid on principal and less on interest. The extra payments go to pay down the principal on the loan.
DO THIS: GET IN CONTACT WITH YOUR LENDER TO DISCUSS THE REMAINING BALANCE ON YOUR MORTGAGE — AND WHEN YOUR PMI, IF YOU HAVE IT, CAN BE DROPPED. IF YOU’RE BUYING, CHAT WITH YOUR LOAN OFFICER ABOUT FINANCING YOUR UPFRONT MORTGAGE INSURANCE INTO A LOW-DOWN-PAYMENT LOAN, LIKE AN FHA, OR SEE IF YOU’RE ELIGIBLE FOR LOANS WITHOUT MORTGAGE INSURANCE, LIKE A VA LOAN.
Countrywide / Bank of America has announced a program to help 400,000 homeowners pay their mortgage and keep them in their homes. It will offer modifications, principal reductions, free counseling, and other aid. Some borrowers may receive financial assistance in relocating to a new more affordable home. Many beneficiaries of assistance from this program received questionable or sub-prime loans from Countrywide. Find how to get help from Countrywide with housing issues, and learn how BOA took over the lender.