Top 10 Mortgage Questions and Strategies
When homebuyers are interested in purchasing their first home, you may search for a mortgage quote or the top 10 mortgage questions and strategies for homebuyers. For instance, how to pick out your first home, how to obtain a mortgage and so on. However, with limited cumulative information or resources for homebuyers or even real estate agents, that is collective for one to really provide an educational guide.
There is a plethora of information out there and styles to buy your first home. We are just providing one of many opinions on steps to purchase or refinance a home. For instance, did you know that even though you own property, you may still qualify to be a ‘first-time home buyer”? Can the seller contribute to your closing costs via ‘seller concessions’? What if you just graduated from college and have a job offer, can you qualify? You may have a credit for title insurance if you purchased or refinanced the property within the past 3 years. So, keep reading, but please keep in mind this article is hypothetical and is just our opinion.
#1. Top 10 Mortgage Questions and Strategies
What is a Mortgage Quote?
How do you know if you are getting the best deal if you do not get a mortgage quote? A mortgage quote is the first step to getting pre-qualified and obtaining a pre-approval for a mortgage loan. Unlike some companies, we do not charge for an application. A mortgage quote can be provided with a pre-qualification, as this is based on without a credit check and unverified information from you. Once credit is checked, then there may be an option for a pre-approval. A pre-approval does not mean that that your loan is with the underwriter just yet.
When the time comes for one to look to purchase a new home, or refinance a current home, but do not know where to start, then it means you might be interested in a mortgage quote. If you are interested, then you can get a mortgage quote for free. We offer refinance mortgages quotes or a home purchase mortgage quote. We can provide online mortgage quotes.
Once you get a mortgage quote, it is suggested to look for a title company. As a borrower of a “federally related mortgage loan”, you can choose your title company.
Banks and Banking 12 USC section 2608 title companies; liabilities of a seller, Chapter 27 Real Estate Settlement Procedures (RESPA).
Section (a) “No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that the title insurance covering the property be purchased by the buyer from any particular title company.”
Section (b) “Any seller who violates the provision of subsection (a) of section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.”
(Pub. L. 93-533, Sec. 9, Dec. 22,1974, 88 Stat. 1728.)
- Our goal is to help educate and better prepare potential borrowers. Allowing for potential strategies regarding the mortgage programs we have access to.
- The purpose of a mortgage quote is to provide non-committal general information of loan programs and general education.
- A no credit check mortgage quote, or amortgage quote without personal information is possible. This may be a way you can get a general idea prior to looking at homes, or consider refinancing.
- Top 10 Mortgage Questions and Strategies may help generate some ideas, questions and methods.
- What may or may not be included in a mortgage quote is a non-committal general range of rate, loan amount, origination points and terms based on a generalization of certain criteria from a potential borrower.
- When one gets a quote, know that you will be given a range of rates and pricing to choose from, not just one rate. This allows you to choose to buy down, or accept a higher rate for less cost from the lender. You will always be given the option to choose this, see discount points.
Watch out for
A mortgage quote is not considered advice and is merely our expressed opinion(s). The mortgage process has many different moving parts and influences that can be uncontrollable, including third party providers and influences, such as new and current lenders, appraisers, surveyors, title companies, real estate agents, homeowners associations, homeowners insurance and others. We will however try to walk you through the process and try to answer your questions as best as possible.
A Mortgage Quote is the first step to getting serious about purchasing a new home or refinancing your current home. The next step is to obtain a pre-approval or a pre-qualification. This may be requested by your real estate agent prior to submitting any offer to the seller. This informs the real estate agent and seller(s) that you are serious about your intentions, and that you have started the process.
Did you know that there are two different types of Mortgage Loan Originators (MLO’s)? State vs Federal. State licensed MLO’s generally take an exam and hold a license, however Federal MLO’s do not. A mortgage broker can match you with mortgage providers.
Federal MLO’s generally work for institutions such as banks, credit unions and other institutions that take in deposits and are federally regulated. This can be seen as licensed MLO’s broker loans to lenders, or other people’s money, while Federal registered MLO’s don’t need to take an exam as they lend the banks house money, and don’t broker the loan out.
You may want to use a mortgage quote calculator when trying to work the numbers for yourself, or with your mortgage loan originator. It is always best to work out a mortgage quote comparison for the high, mid and low for any situation that you may come across. Such as how many days you need to close on a loan, mortgage payment, a purchase price. By having this mortgage quote template, you will be able to create set expectations and a better thought out plan.
#2 What Type of Mortgage Loans are There?
There are a variety of mortgage loans out there, each one may have specific benefits and features associated with it. Learn more about what exactly is a mortgage loan, such as Fannie Mae or Freddie Mac programs. There are a variety of mortgage loan programs to choose from. Government backed/funded loans include Fannie Mae and Freddie Mac, to VA USDA and FHA loan programs. Each program is unique, however they do have very similar characteristics. Each mortgage loan program may have a different maximum of total loan amount and or percentage of money down. Mortgage Insurance Premium is not the same as Mortgage Insurance, inquire further for more details.
- Mortgage programs are generally broken down into two different categories, conforming and nonconforming loans. Other words, loans that conform or meet requirements to be sold by government agencies, and ones that do conform or not meet government agency standards, which means the loans are provided via private institutions such as insurance companies and investors.
- Some mortgage programs require lower down-payments vs others. A down-payment is separate from the other costs associated with a mortgage.
- Various mortgage programs have a maximum loan amount that they will allow.
- Mortgage insurance and mortgage insurance premium may be an added cost to your loan, depending on certain programs and situations.
- If a mortgage is the primary loan on a property, it is generally considered a ‘primary mortgage’, or first lien position. Some lenders will allow for a second lien position in the format of another loan called a 2nd mortgage. This may be in the form of an installment loan or a HELOC (home equity line of credit).
Watch out for
Not everyone will qualify for all programs while others may qualify for multiple. Make sure to know which loan program you are getting. If you get a mortgage that is not a conforming loan, make sure to ask the specifics about this, such as if it is a balloon mortgage, if there is a prepayment penalty or if there are any additional fees associated with the program that continue after you close.
Ask your mortgage loan originator to walk you through which programs you qualify for, as well as the ones you do not, so this way you are at least in the know. You might be viewed as a first-time homebuyer if you have not owned a primary residence in the past 3 years.
#3 Decide How Much Can I Afford?
To decide how much I can afford is generally broken down into three topics, down payment, income and debts. Once we have gathered this information, we may be able to help estimate a loan amount, including a principal and interest mortgage payment that should meet the lenders criteria. Consider pulling credit to obtain a pre-approval/pre-qualification.
- Down Payment – how much money you might put down towards the principal. Purchasing a $300,000 home, getting an 80% loan-to-value, this would come from the lender. You would be responsible to make up the difference. This is separate from closing costs and any other fees associated with the loan. (see below)
- Income – when submitting a loan to a lender, income tends to set the tone for the rest of the loan. If the underwriter deems the income to be incomplete, the borrower needs to be able prove the ability to pay. (see below)
- Debts – are generally viewed as what is your overall mortgage payment plus anything that is on your credit report. (see below)
Watch out for
Avoid ‘trying to keep up with the neighbors or friends’. Buying a home that is out of your reach may not end up the way you expect and can prove to be an overwhelming move. Owning a home is a lot like having a business, you may have something you want to improve, maintain or deduct. The costs of the home now are your responsibility, so make sure you get value along with service.
A good rule of thumb of what one can afford is to buy something that won’t keep you up in the middle of the night worrying about. A payment that you feel that you can afford as a worst case scenario and not have to stress. Owning a home is supposed to be a wonderful experience, do not ruin it by buying something that you can not enjoy. Make sure to get an insurance quote for homeowners, flood etc sooner than later.
#4 What may be Used as a Down Payment?
When you are looking at a new house, you may be asking yourself, do you have enough money for the home to cover a down payment? What about closing costs, and any other associated fees/costs with the loan? Most people will assume that only the money in their checking or savings bank account is accessible for a loan. There may be other alternatives to assist you with your down payment.
- Retirement – 401k, etc., you may be able to withdraw up to $10,000 from your 401k or other retirement accounts as a first-time homebuyer. Thus avoiding the 10% early withdrawal penalty.
- Securities Accounts, may be considered liquid funds and be used as a source of funding including potentially income.
- 1031 Exchange, the IRS may allow an exchange of like assets, such as investment property. There is a process that must be followed.
- Proceeds of Another Home – not 1031 exchange, allows for homes that are not 1031 exchanged or that have failed to do a 1031, but should not be a primary residence.
- Gift Funds, which can come from family and/or friends depending on the mortgage program.
- Checking and Savings, are considered liquid funds and typically is the most common form of a down payment.
- Bonus from your Job, monthly, quarterly or yearly bonuses, the trick with this is you should have received this prior to closing on your home, and preferably prior to/or during the loan process.
- Down Payment Assistance and Grants, many states have some form of grants, and/or zero-interest loans with no repayment, and/or deferred second mortgages.. Florida has the SHIP program and the Florida Homeownership Loan Program Second Mortgage. The Community Redevelopment Act may be a source, as HUD generally awards grants to cities and communities to revitalize an area, amongst other reasons.
- Tax Return Refund, some may get a tax refund from the IRS, this money should not be considered borrowed funds and should be viewed as your money.
- Life Insurance or Other Insurance Claims, if you are a beneficiary of an insurance claim, then you may be able to use this.
- Wills and Probate, beneficiaries may be able to use.
- Other Sources, there may be a myriad of other sources for home buyers.
- Some lenders, may require a larger down payment if the subject property is a condo or townhome.
Watch out for
It is suggested not to use borrowed funds, such as loans and credit cards as a down payment. Make sure to have enough money for savings, closing costs and any additional costs.
Is to be honest and upfront with your mortgage loan originator. They will guide you through the process easier if you provide them with an overview of all the income that you have received over the past 2 years, and any income that you might receive that will last for at least 3 years.
#5 How is Income Viewed?
Are you self-employed or a W2 employee or retired? What if you have multiple jobs, or have a combination of being W2 and self-employed? This can all sound very confusing, as not everyone’s job situation is the same. However, in general most lenders will like to see 2 years of either being self-employed or being a W2 employee for those that work.
If you are retired, they would prefer to know that the income will last for at least 3 years into the future or more. Lenders may consider assets as income, to which will be amortized over the life of the loan. In the end, tax returns may even help as this provides the lender an overview of your situation.
- Basic income documentation is typically W2 or Self Employed. W2 income for the past 2 years is requested. Self employed would generally require tax returns. Remember there are 52 weeks in a year, so if you divide by 12 you will get 13 months. Make sure to use monthly income for 12 months.
- Securities asset or dividends and income, may possibly be used as a source of income. However, lenders will vary on allowing this. Using assets as income may be amortized. Income and dividends may be used, but should have at least a 2-3 year track record and should last for at least 3 more years.
- Any income that should last for 3 or more years into the future may be considered.
- Some lenders will allow for bank statements, this could be either for 12 or 24 months.
- Choose one bank account for deposits, not multiple.
- Large and out of place deposits will generally not be counted.
- If you graduated from college and have a new job offer, some lenders will allow the letter of intent to count as income even though you were in school the previous 2 years.
Watch out for
Not having a complete 2 year work history may affect your chances of obtaining a loan. Make sure to gather up income documents and write down work history sooner than later. Income may be automatically verified via the credit bureau agencies. If for some reason this is incorrect, then you may need to obtain your HR department contact information so they may receive a verification of employment form. A verification of employment may be done just prior to your potential loan closing just to ensure that you have not left your job prior to closing.
Gather your documents sooner than later, start to collect two years of your most recent W2’s, one full month of paycheck stubs and the most recent two months of bank statements. For self employed, tax returns with a year-to-date profit and loss.
A letter from your CPA may help support your claim of self employed income.
#6 How are Debts Viewed?
Conforming loans generally use a rule called 28/36 debt-to-income ratio. This means your mortgage payment should not be more than 28% of your monthly income, also known as front-end. Your mortgage includes principal, interest, taxes and insurance, also known as PITI. There may be additional items that may affect your 28% ratio, such as homeowners associations, and any other 3rd party items. Your total debts should not be more than 36% of your overall debts, also known as back-end. Different mortgage programs and lenders have different front and back-end ratios that they will allow.
- Debts on your credit bureau report should be considered and any new debt or obligation that deals with your new mortgage loan, such as principal, interest, homeowners insurance, home-owners association, flood insurance, taxes and etc., these items should count when calculating your Debt-to-Income ratio.
- What is a Debt-to-Income ratio? It is your gross income, divided by the debts from your credit bureau. If you have $2,000 of mortgage obligations per month and gross $10,000 per month, your front-end Debt-to-Income ratio is 20%. As a scenario, if you have $1,000 of other debt obligations that aren’t related to your new mortgage, then the $1,000 would be added to the $2,000 for the mortgage loan, for a total of $3,000 of all debt obligations. This would equal 30% which is your back-end Debt-to-Income ratio.
- You may be able to help lower your Debt to Income ratio, if you owe 10 payments or less on an installment loan. Credit cards do not count as they are revolving lines of credit.
- Student loans may be counted up to 1% of the total balance towards your monthly payment. You may be able to obtain a fully amortized letter from your loan servicer that says otherwise.
- Car leases or other leases may count even if you have less than 10 payments remaining. The rationale is if you return your vehicle, you more than likely will still need a vehicle.
Watch out for
If you have a student loan, some mortgage programs may use 1% of your overall student loans as your payment, regardless if it shows different on your credit report. The mortgage payment at this point
You may be able to help avoid the 1% student loan payment, but you will need to get a fully amortized schedule of your student debt from the servicer or possibly one of the agency will count less of the debt. Thus giving you an opportunity to get a lower student loan payment in the eyes of the lender, which could lower your back-end debt-to-income ratio.
Some lenders may allow for installment loans of 10 payments or less to not count in your ratio.
Some lenders will allow for an appraisal waiver and other waivers, thus saving you time and money. However, if the lender does not waive the appraisal, you will be responsible for this.
#7 Current Mortgage Rates
Much like the stock market changes on a daily basis, so do the current mortgage rates. Brokers tend to look at the government 10 year bond rate as a good indicator to see where the mortgage rates might follow. Mortgage rates vary depending on the program, government backed loans tend to have better rates and less origination costs, while investor lead mortgages tend to have worse pricing. However, government backed mortgages are more ‘plain vanilla’ style, while investor mortgages cater to more unique situations such as jumbo loans, bank statement loans or second mortgages. Also, if you are a first-time homebuyer, this means if you have not owned a primary residence in the past 3 years, then you may be considered one. Buying your rate down via discount points is a decision you should put on paper and make sure it benefits you.
- Borrowers will be provided a range of interest rates to choose from, also known as a mortgage quote sheet, from a floor, par (or close to it), to a ceiling rate.
- Each rate has a different value attached to it.
- The rate sheet will generally have increments up or down of ⅛ of 1% rate, or 0.125%.
- Choosing an interest rate is similar in style to how buying a bond works, bonds are traded as premium, discount and par bonds. If one would like a better rate, then you have to pay for it.
- As such, if a borrower wants the lowest rate, then you will have to pay a premium for it, meaning you will have to bring more money to closing.
- If a borrower is willing to accept a higher interest rate, then the lender will generally pay the borrower to accept that rate, thus providing a credit to the buyer towards closing costs.
- If the borrower is willing to accept exactly at par rate, then there is no exchange of money.
Watch out for
Borrowers may hear commercials or see advertising for rates as low as, or start from XYZ, without asking what the costs associated with that particular rate are. Mortgage programs generally have different rates that are associated with various factors such as, LTV, DTI, loan amount, proof of income, type of home, is it your primary home or not, and other factors.
Borrowers can strategize and determine what rate is associated with the mortgage payment that works best for them. Meaning, if your goal is to get a principal and interest payment to be a certain dollar figure, then you have the ability to scale the rate up or down from par to best suit your goals.
Some lenders may allow for installment loans of 10 payments or less to not count in your ratio.
Section A of the Loan Estimate is where a borrower should be able to compare mortgage quotes for loan costs.
#8 How to Calculate my Mortgage Payment
As previously discussed on #7 Top 10 Mortgage Questions and Strategies, rates will vary and ultimately the borrower will decide what rate they desire. Now aware that rates and costs associated with the loan typically go hand and hand as it is generally a teeter-totter effect. How to determine which interest rate is best for me?
One of the best ways is to find the difference in cost associated with the rates that you like. For instance, if a par rate has no additional cost to it, and a lower rate has costs, then take the difference and write that down. Find the differences between the mortgage payments and write that down. Take the cost of the buy down and divide it by the difference in mortgage payments per month. This will tell you a general rough idea of how many months it will take you to recoup your initial buy down costs. Do the same with the higher interest rate, and any other rate that you are considering.
Watch out for
However, there are other factors of risks, such as if you were to have saved the difference in costs and put that into a savings account, or other areas of opportunity, would you be better off? These are risks that you as the borrower will have to determine for yourself. In addition, these risks include but are not limited to items such as if you determine that you only plan to stay in the home for less months than it would take for you to recoup your money back, then maybe you should consider if this benefits you? Make sure to use a mortgage calculator when doing your due diligence.
With a mortgage quote, you can compare and contrast different rates and terms to see which benefits you the most, and determine what works best for you.
#9 How to Pay Off Your Mortgage Faster?
One of the most asked questions is how to pay off your mortgage faster now that you have one. Unless one has the means to make large principal payments then it can be a hurdle. However, there may be ways to cut costs, as you must think of your home as a business and an investment. You are responsible to keep the asset in good shape while maintaining costs in order.
- Depending on certain factors, such as interest rate, you may be able to pay off a 30 year loan in 22 years, thus saving 8 years of mortgage payments. Making biweekly mortgage payments, or 1 extra payment per year might help you achieve this goal. There are 52 weeks in a year, this equals 26 bi-weeks or 13 full payments per year. Making a full mortgage payment every 4 weeks, as 52 weeks divided by 4 equals 13 total payments.
- Make sure to check in with your service-provider to make sure they are willing to accept the way you want to pay, they may even have a program of their own that promotes this method.
- Refinance when it makes sense to you. A typical rule of thumb is if you can knock off ½% of your note rate, then it might be worth it to inquire further. However, make sure to account for any costs associated with refinancing your home. For instance, you might have to pay for an appraisal or perhaps you might not have to pay for an appraisal, depending on the situation. There are other associated closing costs, and potential credits that may apply, asking the MLO to go over your particular situation.
- Interest rates may vary on a daily basis, they also may be lower on a shorter term.
- Have you updated your insurance company about any improvements to your home? or ask how to lower your bill? This could lead to savings, which can be used to pay down your mortgage.
- Did you make sure to claim homestead exemption on your primary home? This may save you money that can really make a difference.
Watch out for
Make sure not to disburse so much money that you can not afford to maintain the house, so be prudent. Also, do not refinance, just to refinance, make sure there is a benefit for you and that the benefit(s) create value for you.
Seek a CPA to see what tax deductions you may qualify for regarding your home, such as a home office, if applicable.
You should have an opportunity to pay your mortgage payments in advance or off, inquire with your service provider to see what options you have.
#10 Additional Strategies and Thoughts
The closing disclosure has fees on it that your mortgage broker can not control, such as title, insurance, state and county fees. Keep in mind that homeowners insurance when you purchase your home is also considered a closing cost, as well as the appraisal even though you may have already paid for this. Closing costs may vary as choosing things is up to the borrower and you should discuss your closing costs with the mortgage broker to get a better understanding of the overall costs.
Have you ever looked at a Loan Estimate and compared it with another and they are completely far off from one another? Well, there might be a reason why you have to make sure that your Loan Estimate is prudent, such as if the estimate does not include insurance or title costs, then perhaps you need to ask them why?
Watch Out For
Not everything we mentioned will be accurate right after we write this article, as things change from time to time, so please don’t hold us to anything. The best thing to verify anything is always going to be a mortgage loan originator, so make sure to ultimately verify any questions or concerns with them.
When buying a home with a pool, make sure that the pool is not green and is crystal clear as this may prevent you from closing. When buying a home, especially one that is foreclosed upon, make sure the water runs in the house and the pool isn't green.
Mortgage loan originators employed by state-licensed companies are generally required to hold a state license to conduct business in that state. Mortgage loan originators employed by banks, credit unions, and other federally regulated depository institutions must be federally registered in order to conduct business, and that registration is not limited to a particular state.
What does the Federal Mortgage Loan Originator status mean?
Mortgage loan originators employed by federally insured or chartered institutions, such as banks, thrifts, credit unions, or Farm Credit System institutions, must meet all requirements of the federal registration process. An “active” status indicates that the mortgage loan originator currently meets all those requirements. An “inactive” status indicates that the mortgage loan originator does not currently meet all those requirements.“
This article, and any other articles on MortgageQuote.com is only that of our opinions, and are expressions of our opinions only and used for educational purposes only, as our opinions, conditions and policies may change, without notice or notification at any moment, especially from lender to lender, so contact us to discuss further as things do change and are not written in stone.
Depending on certain situations and criteria, we may (or may not) be able to provide you with a mortgage quote or a general range of programs and other associated information, as restrictions and market conditions may apply. We do not take responsibility for any choices or decisions you take by reading anything.
Market conditions and restrictions may apply, as well as certain information may be collected in order to better provide you a mortgage quote. We reserve the right to choose to provide a mortgage quote or not. We are also in the state of Florida.
Why is a mortgage quote non-committal in general? As market criteria, rates and conditions change on a daily basis, everything may or can change from one day to the next as the loan is not submitted so it does not have the opportunity to be “locked in”.
Please note, nothing on mortgagequote.com website is a loan estimate, nor is it advised in any way. MortgageQuote.com content is geared for educational purposes only, and due to compliance in nature, information on this website may be inaccurate and could change, therefore some of the material may be old and outdated. Be sure to get the most up to date information and check other sources. Before acting upon any information, please contact us. The consumer takes any and all risks associated without consulting us first.