taking a mortgage loan
be sure you familiarize yourself with all the terms and conditions
associated with the loan. To help you get started, we’ve compiled
some of the most frequently asked questions about mortgage loans
How Does the Mortgage Loan Process Work?
Whether you are buying a home or refinancing one, the mortgage
process is basically similar to one another. Here is an introductory
look at what happens when you’re mortgaging/refinancing a home:
- Turn In Mortgage Application – The majority of
home lenders provide an online application process. Fill it out,
submit the form along with pertinent documentation.
- Wait To Receive Loan Estimate – A lender is
required to give you an estimate within three business days of a
submitted application. The document needs to entail three things –
monthly mortgage rate, estimated interest rate and closing costs.
- Set Up A Home Inspection – Be sure to communicate
with the seller about dates and times for a home inspection. An
inspection will help uncover potential problems.
- Get A Home Appraisal – Ask your lender to provide
you with an appraiser to determine the home’s value. You will need
to pay for this appraisal.
- Buy Homeowners Insurance – This is a necessity
before a bank approves a loan.
- Wait Until Underwriting Is Completed – You’ll
need to wait for the bank to prepare the loan documents, and it
can take some time.
- Begin Underwriting Process – Underwriters, using
manual or automated systems, can take days or weeks to approve or
- Review Closing Disclosure Documents – Within
three business days, the loan documents will arrive. Be sure to
review the mortgage documents before signing. You want to compare
the disclosure to the lender’s recent loan estimate to ensure no
Close On The Loan – At this point, all parties involved in the
mortgage transaction will need to sign the pertinent documents.
Afterward, you pay the closing costs and down payment.
Understanding The Mortgage Interest and How It’s Calculated
The mortgage interest rate is the yearly cost of financing your
home, noted in a percentage of the loan amount. For example, a 2.75%
interest rate on your mortgage means an additional 2.75% on the
remaining balance is added.
There are two types of interest rates: fixed and adjustable.
With a fixed-rate mortgage, the interest rate stays the same
throughout the life of the loan. This means
the monthly mortgage payment
also remains the same. You don’t have to worry about increasing
costs, but you don’t benefit unless you choose to refinance if the
Fixed-rate mortgages tend to have a higher initial monthly payment
because the lender is unable to raise the interest rate when the
market dictates it.
If you have an adjustable-rate mortgage, the interest rate is tied
to the market rates. It’s subjected to the market’s movements, using
a benchmark rate (i.e., prime rate). When the benchmark rate
increases, your monthly mortgage payment will increase. When it
falls, your mortgage payment will also decline.
This kind of rate is only ideal when you’re going to sell or
refinance your home before an increase in rates or if you believe
there were be a decline in the market.
How do you know which one is best for you? It will depend on three
- Market conditions
- Your individual finances
- How long you intend to maintain the mortgage
When it comes to determining your mortgage interest rate, there are
several factors that lenders will consider of you, the home, the
loan, and current economic conditions. Such factors are:
- Property type and use
- Your credit history
- Home price
- Down payment
- Loan term
- Market rates
- Interest rate type
When looking at the different offers, it’s important to consider the
annual percentage rate (APR) and interest rate percentage. The
interest rate calculates how much you’re borrowing every year. The
APR denotes the interest rate as well as the origination fees,
discount points and closing costs
8 Steps To Applying For A Home Mortgage
Be sure to begin the mortgage pre-approval process before you look
at homes. This is important for three reasons:
You’ll know how much you are approved for and can look for homes
in that price range.
- Many sellers required buyers to be pre-approved.
Pre-approval means you can submit an offer as soon you find the
home you want to buy.
From that point, here is what you’ll need to do:
- Analyze Your Credit History – Look at your credit
report and its history before
applying for a mortgage. If there are any mistakes (that affect the score), address them
immediately with all three credit bureaus – TransUnion, Experian
and Equifax. If your score is low, make sure to improve them
- Prepare Documents – The bank will request pay
stubs, bank account statements, and tax returns to be submitted
with the loan application.
- Compare Shop With Different Lenders – If you
comparison shop in a 45-day window, your credit score will suffer
- Review Offers – Any lender you applied with will
give you a loan estimate that includes monthly payment, interest
rate, closing costs and other important information.
- Pick Your Lender – Once you’ve reviewed each loan
pick the lender best for you.
- Ensure Quick Responses To Any Requests Made –
When your loan goes through the processing and underwriting, the
lender may request something. Be sure to respond as quickly as you
can to move this process along faster.
- Review Closing Disclosure – The lender is
required to give you a closing disclosure, showing you the final
mortgage costs, the interest rate, fees, etc., within three
business days of the closing date scheduled. Look at the closing
disclosure and the loan estimate they initially provided to
determine if and why fees changed.
- Close On The Home – At the closing, you’ll sign a
plethora of documents to ensure the home reverts to your
possessions. You will also be required to pay the down payment and
up to 5% closing costs.
How To Find The Best Possible Mortgage Lender
When looking at each mortgage company, there are four factors to
- Interest Rate – Interest will vary by product and
lender; make sure you’re comparison shopping to find the best
- Closing Costs – Closing costs will include the
application, loan origination and appraisal fees, so even though a
lender offers a low rate compared to others, the mortgage costs
may not make it the best. Use the APR to compare the lenders’
- Product Offerings – Look for a state-licensed
lender that offers great options for you – be it
a VA loan, 30-year-fixed rate loan, etc.
- Customer Service Reviews – Read reviews and
feedback to learn more about the lender. You want lenders who
treat their customers with respect as well as offer a good loan
What Kind Of Mortgage Will Suit You?
Your individual situation – plans, preferences and finances – will
dictate what the best mortgage is. The most common kind of mortgages
Monthly payments and interest rates are affected by the market,
which means you could pay more or less during the life of the loan.
Early adjustable-rate mortgages are low, but rates can spike
unexpectedly (leaving some borrowers unable to pay).
These are loans with short-term interest payments of five to 10
years, which then require the homeowner to make a lump sum payment.
This may be ideal for individuals who are going to sell or refinance
the home before the impending balloon payment is due.
The loans are subjected to the limits and guidelines as laid out by
and Freddie Mac.
These mortgages originate from private lenders and are not federally
backed by the government. To qualify, private lenders want a minimum
620 credit score, a low debt-to-income ratio and a minimum 3% down
payment. Any down payment less than 20% must include private
Loans with a fixed rate mean payments and interest rate remain the
same (great for budgeters). However, if the rate falls, you will
need to refinance if you want to benefit financially.
These are loans from the Department of Agriculture, Department of
Veterans Affairs and Federal Housing Administration. If you are
unable to get a convention loan, you could attain a
– The majority of FHA-backed lenders want a minimum of 580 in
credit score and a 3.5% down payment. However, you could be
approved if you agree to pay a 10% down payment even if your
credit score is 500 to 579.
– The VA has no requirements about down payments or credit score
minimums, but a lender will do an in-depth analysis of your
financial profile. A lender will need to see the Certificate of
Eligibility (COE) that shows you are eligible for a VA loan.
- USDA – The majority of lenders who do USDA loans
do not require money down but a minimum of 640 credit score. A
home must be located in a permissible rural area, and you have to
meet specific income requirements.
These are jumbo or government-backed loans that don’t meet the
criteria set forth by Fannie Mae or Freddie Mac. Jumbo loans surpass
the limits of a conforming loan and have stringent qualifications
for eligibility due to lenders’ risk.