What are some common mistakes in buying a house?
What are some common mistakes in refinancing?
What is the difference between an equity loan and an equity line?
Should I refinance?
What does the term "Buying Down" mean? Should I pay points?
What is a FICO score?
What is the difference between pre-qualifying and pre-approval?
What is a rate lock?
Can my loan be sold?
What is PMI? Can I get rid of the PMI on my loan?
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If you're like most people, purchasing a home is the biggest investment you'll ever make. There are numerous factors to consider and it's important to be prepared. It's important to research, ask questions and educate yourself on the process.
Looking for a home without being pre-approved. When you are pre-approved for a loan you can then provide the seller with a pre-approval letter. As a potential buyer, being pre-approved will give you the best chance of getting your offer accepted.
Making verbal agreements. Always have all agreements with your seller included in your contract. The written agreement will always override any verbal agreement made. Do not expect oral agreements to be enforceable.
Choosing a lender just because they have the lowest rate. The rate is important, but always consider the entire cost of your loan such as, origination and discount points, loan fees, and APR.
Make sure you feel confident that lender you select is reputable and will deliver the loan with the terms and costs they promised. Always ask friends and family for referrals.
Not receiving a Good Faith Estimate. After your lender or broker receives your loan application, you should receive a Good Faith Estimate of fees associated with your transaction. Have your Good Faith Estimate on hand when signing your loan documents, you shouldn't be charged any substantially different fees from those contained on your Good Faith Estimate.
Not getting a rate lock in writing. Always obtain a written statement of your locked rate, including the interest rate, the length of the rate lock, and program details.
Buying a home without professional inspections. Unless you're buying a new home with warranties on most equipment, it's highly recommended that you get property, roof and termite inspections. This way you'll know what you are buying. Inspection reports are great negotiating tools when asking the seller to make needed repairs. If the seller agrees to make repairs, have your inspector verify that they are done prior to close of escrow. Do not assume that everything was done as promised.
Not shopping for home insurance until you are ready to close. Don't make the mistake of waiting until the last minute to get insurance. Give yourself time to shop around for the best insurance and begin shopping around as soon as you have an acceptance letter.
Signing documents without reading them. Whenever possible, review in advance the documents you'll be signing. It's unlikely that you'll have sufficient time to read all the documents during the closing appointment.
Not allowing for delays in the transaction. We would all love it if every transaction closed on time. But there are times where they can be delayed as much as a week. Prepare yourself for any delays by terminating your lease a week after your closing.
Not doing a break-even analysis.
An equity loan is closed - you will get all of your money up front and make fixed payments until the loan is paid in full. You can only be charged interest on the outstanding principal balance. Equity loans are best used for: home improvements, debt consolidation, etc.
Determine the total cost of the transaction and calculate how much you will save every month. Divide the total cost by the monthly savings to find the number of months you will have to stay in the property to break even. Example: if your transaction costs $2000 and you save $50/month, you break even in 2000/50 = 40 months. In this case you'd refinance if you planned to stay in your home for at least 40 months.
Note: This is a simplified break-even analysis. If you are refinancing considering switching from an adjustable to a fixed loan, or from a 30-year loan to a 15-year loan, the analysis becomes much more complex.
Not getting a written good-faith estimate of closing costs. Within 72 hours of submitting an application, the lender is required by law to disclose completed Good Faith Estimate and Truth In Lending Disclosure forms.
Signing your loan documents without reviewing them. Whenever possible, review in advance the documents you'll be signing. It's unlikely that you'll have sufficient time to read all the documents during the closing appointment.
Getting a second mortgage before you refinance your first mortgage. Many mortgage companies look at the combined loan amounts (i.e., the first loan plus the second) when refinancing the first mortgage. If you plan on refinancing your first loan, check with your mortgage company to find out if getting a second will cause your refinance transaction to be turned down.
Getting too large a line of credit. Getting too large a line of credit can result in you being turned down for other loans. Some lenders calculate payments based on your available credit, not the credit used. They see you as having a large potential payment.
An equity line is open - you can get numerous advanced amounts as needed. They are usually accessed through a credit card or checkbook. You can only be charged interest on the outstanding balance. Equity lines are best used when you have periodic needs for money.
Always check the lifecap of your equity line and be prepared to make payments at the highest potential rate.
In some instances, your home-equity loan is not tax deductible. Always check with your accountant for this information.
If you are thinking of getting a home equity line of credit and you plan to refinance your first mortgage, always check with your lender to find out if getting a second loan will result in having your first loan refinanced turned down. A lot of lenders consider the combined loan amounts when refinancing the first mortgage.
The most common reason people refinance is to save money. They are saving money by obtaining a lower interest rate, causing their monthly mortgage payment to be reduced or by reducing the term of the loan, thus saving money over the life of the loan.
People also refinance to consolidate debts and replace high-interest loans with a low-rate mortgage. The debts being consolidated may include credit lines, credit cards, second mortgages, student loans, etc. In many cases, a debt consolidation results in tax savings, because consumer loans are not tax deductible, and a mortgage loan is tax deductible.
Another reason people refinance is to convert their adjustable loan to a fixed loan. The main reason behind this type of refinance is to obtain the stability and the security of a fixed loan. Fixed loans are very popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher. When rates are low, homeowners refinance to lock in low rates. When rates are high, homeowners prefer adjustable loans to obtain lower payments.
If you are considering refinance, always consult with a Gateway Funding mortgage specialist to give you the best available options.
The term "Buying Down" the rate refers to the paying of discount points to obtain a lower interest rate. A discount point is one percent of the loan. For example, if you were charged one discount point on a $100,000 loan you would pay $1000.
Should I pay discount points?
A simple way of figuring out whether or not you should pay discount points requires an easy mathematical calculation. Divide the difference of the cost of discount points on two loans by the difference in the payment. If you'll be keeping the loan longer than the number of months indicated, the payment of the discount points is mathematically warranted.
Use this rule of thumb: If you plan to stay in the house for less than 3 years, do not pay points. If you plan to stay in the house for more than 5 years, pay 1 to 2 points. If you plan to stay in the house for between 3 and 5 years, it does not make a significant difference whether you pay points or not!
A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. A credit score attempts to condense a borrowers credit history into a single number. Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Credit-bureau models are developed from information in consumer credit-bureau reports.
A borrower's credit score is calculated using numerous factors of their credit history
- Late payments
- The amount of time credit has been established
- The amount of credit used versus the amount of credit available
- Length of time at present residence
- Employment history
- Negative credit information such as bankruptcies, charge-offs, collections, etc.
The three credit bureaus used are
Some lenders use one of these three scores, while other lenders obtain scores from all three bureaus and use the middle score.
If you see an error on your report, report it to the credit bureau. They each have procedures for correcting information promptly.
A pre-qualification is normally conducted by your mortgage specialist after he has interviewed you and determined, based on the information you've verbally provided him, the dollar amount you can be approved for. Your mortgage specialist will then issue you a pre-qualification letter. Mortgage specialists, however, do not make the final approval, so a pre-qualification is not a commitment to lend.
A pre-qualification letter is used when you are making an offer on a property. The pre-qualification letter indicates to the seller that you are qualified to purchase the house you are making an offer on.
Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is then submitted to an underwriter and a decision is made regarding your loan. If your loan is pre-approved, you are then issued a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a house. A pre-approval can help you negotiate a better price with the seller.
You cannot close a mortgage loan without locking in an interest rate. The longer the length of the lock, the points or the interest rate will become higher. This is because the longer the lock, the greater the risk for the lender offering that lock. After a lock expires, most lenders will let you re-lock at the higher of the original price and the originally locked price. In most cases you will not get a lower rate if rates drop. Lenders can lose money if your lock expires. This is because they are taking a risk by letting you lock in advance. If rates move higher, they are forced to give you the original rate at which you locked.
Yes. Your loan can be sold at any time. They are sold in a secondary mortgage market in which lenders frequently buy and sell pools of mortgages. When a lender buys your loan they assume all of the terms and conditions of the original loan. The only thing that changes when a loan is sold is to whom you will mail your payment. When your loan is sold, your original lender will notify you that your loan has been sold, who your new lender is, along with their contact information.
PMI stands for Private Mortgage Insurance. PMI is usually required when you buy a house with less than 20% down. Mortgage insurance protects lenders against the costs of foreclosure and is provided by private mortgage insurance companies. It also enables lenders to accept lower down payments than they would normally accept. Without mortgage insurance, you might not be able to buy a home without a 20% down payment. The lower your down payment, the higher your PMI. Your PMI premium is usually added to your monthly mortgage payment.
Can I get rid of the PMI on my loan?Some lenders may require you pay PMI for one to two years before allowing you to apply to remove it. You can also cancel your PMI by refinancing and obtaining a new loan without PMI. If you are interested in canceling the PMI on your loan, contact your lender.