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All of these factors will determine your interest rate.
Your credit score reflects how much (or how little) of a financial risk you are to a lender. Stronger scores = better rates. See the below FAQ on Credit Scores for more information.
The Loan Amount compared to the Total Value of the Property, also known as the Loan-to-Value ratio (LTV) is also a factor. This is because lenders like to see that you have a nice cushion of equity in ownership of your property. The more equity you have, the less of a risk is for them, which in turn, gets you a better interest rate! In summary:
The two major factors, however, are the lender & the market. This is because each lender is different, and the market is always fluctuating. This is where the importance of having a good, experienced broker comes into play.
Not only can they get you pre-approved, but they can shop around to see which lender has the best pricing, & they can monitor the market so you don't have to!
You want a broker that knows the market well, and does their research. JR McDonald has been in the industry for over 30 years & receive real time updates throughout the day on how the market is doing.
There are generally two types of mortgage loan approvals: “conditional approval” & “final approval.”
After your application is received, either your loan officer or the loan processor will contact you with any additional “conditions” that are required to get your loan fully approved. Once those conditions have been met, you’ll receive final approval.
Obviously, the better your credit score, the better the pricing & the smoother the loan process. Here are some ranges to help you think about where you want your credit to be:
Some we know that some will look at this be satisfied with where their credit score falls. Others might be discouraged. We get it, & we have seen it all. Just because you have a low credit score, doesn't mean it's impossible to get a loan.
If that's you, know that you have the power to make immediate changes that will slowly improve your credit:
Contact us & we would love to hear you out, & walk with you through this journey. Who knows--you might be able to qualify faster than you may think!
For most lenders, the mortgage loan process takes approximately 30 days. But it can vary quite a bit from one lender to the next. Banks and credit unions tend to take a bit longer than mortgage companies. Other factors that can affect turn times can be:
Any one, or combination of these factors can increase the loan process to about 45 to 60 days to close a mortgage.
Your loan officer will carefully examines your credit report. They will look at credit scores. But more importantly, they will also look at payment history, credit inquiries, credit utilization, and disputed accounts. They want to see a strong borrowing history where you’ve consistently paid back loans on time.
The loan officer will also look very closely at your income and asset documentation, to make sure you have enough cash flow/income to make monthly mortgage payments and total obligations.
A larger down payment opens up more mortgage opportunities for borrowers, but not all new home loans require a large down payment. For example:
The main drawback of a low-down-payment loan is that they typically require private mortgage insurance (PMI), which increases your monthly payment.
A conventional loan with 20% down will prevent the borrower from paying PMI because the new homeowner already has enough home equity to absorb the lender’s losses in case of a foreclosure.
Mortgage insurance premiums help protect your lender in case you default on the loan. A foreclosure typically costs the lender as well as the borrower.
Conventional loans do not require mortgage insurance if you put down at least 20 percent, because this builds enough immediate equity in the home that the lender is already financially protected if the loan defaults.
The reason why everyone talks about getting pre-approved is because it shows not just the seriousness of you as a buyer, but a pre-approval is hard evidence that a lender is willing to loan money out to you. This is not the case for pre-qualification.
Pre-qualification is more of an educated guess like saying,"It's likely a lender will loan you money." Pre-approval, however, is a definitive, official word given by a lender. Because of this, the pre-approval process has many more steps than a pre-qualification such as:
If any of the following sound like you, refinancing should absolutely be on the table. Here are a few questions to ask yourself:
These questions are good to think about. However, everyone's situation is different. The best way to know is to talk to us about it! We can look at actual numbers that will help you get a better idea if refinancing is right for you.
This question is very dependent on your circumstances. We highly encourage you to connect with us to see what would be the best choice for you. In the meantime, here are some factors to consider:
Are you just touching up some paint or changing the carpet in a bedroom? Or are you gutting rooms, tearing down walls, making additions or landscaping?
This will dictate how much cash you plan on investing in these improvements. From there, budget appropriately. You may find you're able to pull it off without refinancing. Or, you may need to pull extra cash-out in order to finance the home improvements.
However, if you don't have much equity, doing a cash-out refinance may be more difficult to pull off since there isn't as much cash to pull.
Again, while this is a frequent question, it is one very much based on individual circumstances. Give us a call, or email & we would love to hear you & support you!
Principal, Interest, Taxes and Insurance, also known as P.I.T.I., are the primary expenses in your mortgage payment.
Principal is the actual repaying of the borrowed amount (the loan amount).
Interest is the cost of borrowing money. At the beginning of your loan term, a majority of your payment is in interest. This is based on your interest rate, the loan amount, and the loan term (how long it takes for you to pay the money back, such as a 15-year, or 30-year loan term).
For Taxes and Insurance, you have the option to impound these accounts, or pay them separately. Regardless of which option you choose, you will always have these payments--even after your payoff your mortgage.
Other additional costs can include Private Mortgage Insurance (PMI), and/or Home Owners Association (HOA) dues (if applicable.)
Closing costs include a variety of charges, like loan origination fees, appraisal fees, title fees, and other legal fees.
You can expect closing costs to be around 2% to 5% of your loan amount.
While you may not know your closing costs yet, there are no "hidden" fees. Every fee, down to the dollar, is fully disclosed to you! With the right Broker team behind you, you should never feel left in the dark!
A fixed-rate mortgage locks in an interest rate and payment for the life of the loan. With today’s fixed rates hovering around historic lows, a fixed-rate loan makes a lot of sense.
An adjustable-rate loan features a fixed rate for a while, but then the interest rate fluctuates with the market each year. Some borrowers choose an adjustable-rate mortgage (ARM) if they plan to sell or refinance the home within the first few years. Otherwise, ARMs can have their advantages short term, but can be quite risky long term.
The loan term or "repayment period" on your mortgage determines your interest rate, how large your monthly payments will be, & how much total interest will be paid by the end of your loan.
Therefore, the best loan term should be one that fits in your monthly budget & aligns with your long term goals.
Longer term loans, like a 30-year, will present higher interest rate over a longer period of time, which creates lower monthly payments. But because of the higher interest rate over a long period of time, you will pay more in interest over the term of your loan.
Shorter term loans, like a 15-year, will get you a lower interest rate but higher monthly payments. However, you will pay significantly less total interest over time because your rate is lower and your term is shorter.
Ultimately, this means the "right" term for you comes down to what your goals are.
If your goal is to save on those monthly payments, then go for the 30-year.
If you goal is to save money long term & you can afford higher monthly payments, then a 15-year loan might be best suited for you.
An impound, or escrow account, is an account used to pay your property taxes & homeowners insurance through your lender. The Lender collects those payments through your mortgage statement, then redistributes those funds to the appropriate institution such as the state (for taxes), or your insurance provider.
One benefit of using an impound/escrow account, is that because these payments are built into your mortgage payment, you don't have to worry about paying your provider, or taxes separately. The lender handles it for you.
The downside, is that sometimes those numbers are rounded. You might end up paying a little more on a monthly basis than needed. Unless you seek out the bank to give you the additional/remaining money back, you mostly likely won't see that money again.
Our advice: If you trust yourself to stay on top of paying your insurance premium & taxes every year, then do that. However, if you know you might forget or don't want to have that additional burden, then utilize the escrow account.
You can't go too wrong with either one, so long as you're making payments!
Appraisal = The process of determining the value of your home
Inspection = The process of determining the condition of your home
Both are critical in the Loan Process. You want the inspection to take place, because you want to make sure your home (or the home you are purchasing) is in good condition. This reduces risk & protects you when purchasing property from sellers.
Appraisals are necessary because the lender needs to confirm that the money they are loaning you is based off an accurate estimate of your home! While an inspection protects you, the appraisal protects the lender.
Both the inspection & appraisal are done by a neutral 3rd party to keep everyone fair & honest.
“Mortgage processing” is when your personal financial information is collected and verified.
It is the Loan Processor’s job to organize your loan documents for the underwriter. They’ll ensure all needed documentation is in place before the loan file is sent to underwriting.