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New Home Mortgage? Preparing for the Mortgage Loan Process
Two common mishaps that are associated with deciding on a mortgage lender are:
1) Not Being Prepared
2) Not Shopping Around - If you have decided to take the mortgage plunge, it is in your best interest to be as prepared and knowledgeable as possible. Do research on different types of lenders, such as banks, mortgage companies and brokers, and savings and loan associations. Know what items you will need to have available for the lender and shop around for the best deal. It may take a bit more time in the beginning, but in the end, it can save you immeasurable time and money.
Once you have a few lenders in mind for your loan, do research on the companies to obtain references, make sure they have a happy clientele base and a great reputation, and dont forget to find out what their success rate is. You may want to look elsewhere if more than ten percent of their loans are denied.
Mortgage Loan Paperwork
Your prospective lenders will look at many facets of your life to decide your loan terms, such as job history, income, as well as home and credit history. Be prepared to prove your financial stability and responsible nature by having the appropriate documents ready in advance.
A few items you will need are: W-2s and income tax papers, past landlord information including addresses and phone numbers, current pay stubs, and your bank account information. You will also want to prove your identity, so have your drivers license, social security number, and just in case, your birth certificate ready for inspection.
Common Mistakes to Avoid During the Mortgage Loan Process
There are many mistakes to avoid when securing a mortgage loan. Many are common sense such as: making large credit purchases prior to applying, borrowing too much money, and not planning for closing costs. Others are simply a lack in planning and research, such as: not educating yourself about the process, getting caught paying junk fees, not fixing your credit report in advance, dealing with a second rate mortgage company, and not taking the time to shop around for the best possible deal.
With a little time, research and effort in advance, the process of obtaining a mortgage loan should be a walk in the park.
Mortgage Loans - LTV (Lending Risk Ratio)
When buying your home, it is imperative to have as much money as possible for your down payment. Not only should you save for your down payment, but also tap your personal savings, any stocks, bonds and real estate, and gather your family gifts. Customarily, lenders require a down payment of at least 20% of the homes purchase price, as well as require a ratio of at least 75% for your loan to be approved.
What is the LTV Ratio?
The LTV, or lending risk ratio, is determined by dividing the mortgage loan amount (after subtracting your down payment) by the value of the property. The higher your down payment, the lower this ratio will be. The lower the LTV the cheaper your mortgage costs in the end, and the better chances you have at securing your loan.
High LTV Disadvantages
If your LTV is high, it can affect your ability to secure the loan in a myriad of ways. A high LTV is a risky situation in the lenders perspective, because high LTV loans are more at risk to default. If you are competing with other buyers, the lender will most always go with the lower LTV and a larger cash down payment. It can affect your chances of buying.
If you have a high LTV, you are also most likely going to be dealing with higher interest rates and additional insurance costs to protect the lender. These extra costs will increase the cost of your mortgage in the long run and make your payments higher. If you dont have the 20 percent cash down payment, some lenders will require you to have a larger monthly income to qualify for a 95 percent LTV mortgage. The loan amount is the same, but if your down payment is low, they will need more security.
Prepare When Obtaining a Mortgage Loan
With a little preparation, and possibly some patience, you can save 20 percent or more of the homes purchase price and steer clear of the hassle and extra costs. If you find this is not possible, it may be time to look at a home with a lower price. Its better to be able to afford your home, than to tie yourself in a situation with a chance of default.
Deciding if the Time Is Right to Refinance
Choosing to refinance a loan can be a major decision, especially if that loan is a major loan such as a mortgage or automotive financing. If you refinance your loan too soon, you might end up doing more harm than good and not be able to do much to correct it? but if you wait you might end up missing out on a good deal that isnt likely to return.
Before you make the decision to refinance, you should take the time to make sure that you understand exactly what refinancing entails and should look at the various signs to determine whether or not the time is actually right for you to refinance your loan.
Below youll find some basic information on what refinancing is as well as information that might help you to make the decision as to whether or not its the right time to take that step.
What Refinancing Is
Though the name may suggest that refinancing a loan is simply a negotiation of the loans terms, it is actually a separate loan that is used to pay off the remainder of the original loan at the new loans interest rate and payment cycle.
Refinancing can be done at the bank or lender from which you received the original loan or at some other lenders; this can be beneficial if youre wishing to change banks or lenders but are worried about the outstanding loan that you currently have.
The refinance loan usually uses the same collateral as the original loan, though in some cases you can change the collateral and use the new collateral to attempt to get a lower interest rate.
Whatever collateral was used for the original loan will be free of lien should you use new collateral; the original loan has been completely paid off by the refinance loan, so any collateral or other factors that applied specifically to the original will not apply to the new loan.
There may be certain factors, such as the requirement by many lenders that you have homeowners insurance for mortgage loans, that may carry over to the refinance loan as well.
How to Tell if the Time Is Right
If youre thinking of refinancing, you should begin by looking at current interest rates for loans and trends in refinance lending. Many finance journals, newspapers, and tabloids will have information on whether national interest rates are likely to change soon and whether they will increase or decrease, so that is a good place to start.
You should also look at your current loan and how much of it has been repaid? unless you get a really good deal, its generally not worth the trouble to refinance a loan unless youve been making payments for a year or more since the difference in the original amount and the refinance amount wont be significant.
Consider your current monthly payment and interest rate and determine whether youll be likely to get a better rate and lower payment from a new loan, and then shop around at various lenders so as to find the best rates available.
Signs that the Time Isnt Right
Should you find that interest rates are at a higher level than what youre currently paying or that you havent paid off a significant portion of the original loan, you might want to wait before refinancing.
Its possible to end up paying more in interest or monthly payments than your original loan when you refinance, so you should always take care to do a bit of research before deciding to commit to a refinance loan.
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