July 17th, 2017 5:06 AM by Jackie A. Graves, President
Looking for a home loan? Make sure you've got the facts, then
proceed with confidence.
a mortgage can be a breeze or a slog, depending on what you know about the
process. To get organized and set your expectations properly, let’s
debunk some common mortgage myths.
Your best credit scores are used in your loan approval
you’re applying for a mortgage jointly with a co-borrower, logic suggests that
your lender would use the highest credit score between both of you.
lenders take the middle of three credit scores (from Equifax, TransUnion, and
Experian) for each borrower, then use the lowest score between both borrowers’
“middle scores.” So if you had a middle score of 780 and your co-borrower had a
middle score of 660, most lenders would qualify and approve you using the 660
are tied to credit scores, so in this example, your rate would be based on the
660 credit score, which would push your rate up significantly — or
potentially even make you ineligible for the loan.
are exceptions to this lowest-case-credit-score rule. Most notably, if you have
the higher credit score and are also the higher earner, some lenders will allow
your higher credit score on the file — but this is mostly for jumbo loans above
your lender about exceptions if you have credit score disparity between
co-borrowers, but know that these exceptions are rare.
The rate you’re quoted is the rate you’ll get
you’re locking in a rate at the moment it’s quoted, that rate quote can change.
Rates are tied to daily trading of mortgage bonds, so most lenders’ rates
change throughout each day.
can often lock a rate when it’s quoted — as long as you’ve given your lender
enough information and documentation to determine if you qualify for the quoted
will often be quoted a rate when you’re beginning your pre-approval process,
but a rate lock runs with a borrower and a property. So until you’ve found a
home to buy, you can’t lock your rate. And while you’re home shopping, rates
will be changing daily, so you’ll need updated quotes from your lender throughout
your home shopping process.
quotes also come with an annual percentage rate (APR), which is a federally
required disclosure that shows what your rate would be if all loan fees are
incorporated into the rate.
can make you think that APR is the rate you’ll get, but your loan payment will
always be based on your locked rate, and the APR is just a disclosure to help
you understand fees.
Fixed rate mortgages are always better than adjustable rate
borrowers became conservative in the recessionary years that followed the 2008
financial crisis, and strongly prefer 30-year fixed loans.
good reason, too: The rate and payment on a 30-year fixed loan can never
change. But the longer the rate is fixed for, the higher the rate. So before settling
on a 30-year fixed, ask yourself this question: How long am I going to own this
home (or keep the loan) for?
the answer is five years. If you got a 5-year adjustable rate mortgage (ARM)
instead of a 30-year fixed, your rate would be about .875 percent lower. On a
$200,000 loan, you’d save $146 per month in interest by taking the 5-year ARM.
On a $600,000 loan, the monthly interest cost savings is $438.
optimize your home financing, you want to peg the loan term as closely as you
can to your expected time horizon in the home.
Real estate agents don’t care which lender you use
federal law enacted in 1974 called the Real Estate Settlement Procedures Act
(RESPA) prohibits lenders and real estate agents from paying each other fees to
refer customers to each other. So as a mortgage shopper, you’re always free to
use any lender you choose.
real estate agents who would represent you as a buyer do care which lender you
use. They’ll often suggest that you use a local lender who’s experienced with
nuances of your area, such as local taxation rules, settlement procedures, and
appraisal methodologies. Each of these areas are part of the loan process, and
can delay or kill deals if a non-local lender isn’t experienced enough to
real estate agents representing sellers on homes you’re interested in will
often prioritize purchase offers based on the quality of loan approvals. Local
lenders who are known and respected by listing agents give your purchase offers
Mortgage insurance is always required if you buy with less
than 20 percent down
Mortgage insurance is a lender risk
premium placed on many home loans when you’re putting less than 20 percent
down. In short, it means your total monthly housing cost is higher. But you can
buy a home with less than 20 percent down and avoid mortgage insurance.
most common way to do this is with a combination first and second mortgage —
often called a piggyback — where the first mortgage is capped at 80 percent of
the home’s value, and the second mortgage is for the balance of what you want
Julian Hebron - To view the original article click here