Mortgage - What You Need to Know

What You Need to Know About a Mortgage

Once you have taken the big step of buying a home comes the next big step of finding the right mortgage for you. You have to keep in mind that for the next 15 or 30 years you will be spending a good chunk of your monthly earnings on mortgage installments. It is imperative that you find the right mortgage deal for you. Following are some questions that you should ask your mortgage lender before putting down your signature on that agreement.

Ask About the Mortgage Interest Rate

One of the most important questions to ask while opting for a mortgage is about the interest rate. Ask the lender about the direct interest rate and the APR (annual percentage rate). The APR include the fees and all other charges related to the mortgage. The lender will quote you a rate based on the mortgage and your credit score. It is always a good idea to shop around to find a mortgage with a lower interest rate and a lower balance. Now, if you do not find a mortgage with a lower interest rate, what you can realistically do is try to improve your credit score. If you have a good credit score, the interest rate will come down. Also, ask about the points, points help to reduce the interest rate. One point is equal to one percentage of the total loan amount.

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Fixed Rate Mortgage or Adjustable Rate Mortgage?

As the name suggests, a fixed rate mortgage is a mortgage whose rate will remain fixed throughout the life of the mortgage. For an adjustable rate mortgage or ARM, the interest rate will change after the initial period.

Ask About the Down Payment

Ask the lender about the minimum down payment for the mortgage. The down payment will also affect variables such as monthly payments, terms, and the interest rate. If you can put down 20% of the mortgage amount as down payment, you will be able to avoid PMI (private mortgage insurance).

Ask How Long Will it Take to Close the Mortgage, and About Closings Costs

A number of factors come into play as to when you can realistically close your mortgage, however, your lender will be able to provide you with a ballpark estimate. Closing costs include appraisal fees, loan origination fees, and so on. Having an idea about the closing costs will help you to plan your budget accordingly.

Ask About any Prepayment Penalties

Some lenders may charge you a penalty for closing the mortgage early. So, be sure to ask the lender regarding this.

A mortgage is a long-term commitment, unlike short term loans. It would be a good idea to take help from people who already has a mortgage and from people who has completely paid off their mortgages successfully. The idea is to get as much information as possible. A professional lender will provide you with all the information you need regarding the mortgage you are about to take. It is always better to make an informed decision, it will save you money, time, and all unnecessary complications.

All That You Need to Secure a Mortgage

Most of us don’t have the money to afford a home right away. So, what’s the next best solution? Well, a mortgage of course. However, getting a mortgage isn’t too easy, especially if your finances are not in order. SO, if you’re planning on applying for one, here’s everything you need to know and need to do.

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Credit History/Credit Scores

Your credit scores are extremely important when determining your chances of qualifying for a mortgage. Sadly, this is something many people aren’t even aware of. Lenders go through an applicant’s credit history in order to determine an applicant’s chance of affording the mortgage.
To put it simply, your lender needs to know if you can pay back on time and your credit scores provide the lender with a clear picture. Your credit scores are assessed via your credit history.

Your credit history will point out important details such as how long you’ve taken to pay back old loans or whether you’ve maxed out your credit card often.

The credit scores for a mortgage eligibility range from 350, being the lowest, to 850, being the highest. Anything above 740 is considered great and anything below 600 is considered poor. A high credit score can bring down interest rates significantly, even though the general qualifying score is 620.

To put it simply, a qualifying score might get you the mortgage, but, you’ll likely have to pay a very high interest rate. So, hopefully, you have a score that’s over 740.

Other important details in your credit history that are likely to be looked at include duration of open accounts, pending judgments or collections, and delayed payments etc. If there are delayed payments or pending collections/judgments, you’re chances of landing a mortgage drop down significantly.

Loan Documentation

Your lenders will require a range of documents, which will be used to vet you for the mortgage. These documents will also be used for evidential purposes. So, make sure you have all your tax returns and bank statements ready. You might have to provide several years of information.
Lenders might also require information on large deposit sources. For example, if you plan to use some ancestral wealth as down payment on the mortgage, make sure you have the documentation to prove the money is legally yours.

If someone’s given you a gift for the down payment, make sure they provide a written and attested letter stating that.
You will also need paycheck stubs; at least from a month ago, which is the standard requirement to verify income. For those who are paid electronically, paycheck stubs can be printed from the employer’s website. If that’s not available, talk to Human Resources.

In Conclusion, spend a lot of time with your mortgage broker and ask lots of questions before getting started on the loan process.