The advantages of homeownership are both financially and personally fulfilling. The financial benefits include building home equity to deducting tax payments and interest expenses when filing taxes. As your home appreciates it becomes more marketable and its value increases. These financial benefits go hand-and-hand with the peace of mind that comes with the personal pride of security, stability and control:
- Financial: Home Equity, Low-risk Asset.
- Personal: Stop answering to a Landlord, Nest in a traditional foundation.
- Financial: Consistent payments, Flexibility of refinancing.
- Personal: Root yourself in a community, No more wagering rent increases that may force you to move and cause anxiety.
- Financial: Customize a mortgage, Manage the marketability of your home.
- Personal: You create your environment in color and design, Grasp a sense of belonging in your neighborhood.
Lending guidelines require that prospective borrowers successfully answer the following questions:
Funds - Do you have sufficient funds for your down payment and closing costs? Funds required to purchase a home will be verified by requesting confirmation from your bank or credit union or by requesting copies of your most recent statements. Another acceptable source of funds for down payment and closing costs is a gift from a relative. In addition to sufficient funds to close on the mortgage most mortgage lenders will require that you have a cash reserve to cover at least two mortgage payments.
Income - Can you repay the debt? We will ask for employment information such as your occupation, length of time at your current position, and how much you earn. Income is verified by your employer or by having your most recent two years w-2 statements and one month's pay stubs. Your income should be sufficient to meet the appropriate qualifying ratios.
Credit History - Will you repay the debt? We will research your credit history which includes how much you owe and how timely your payments have been made on your other obligations.
Appraisal - What is the house worth? We will have the home appraised to insure that its value is sufficient to secure your mortgage.
Pre-qualification gives you an idea of how much home you can afford, based on your income and the assets and debts you have.
Pre-Approval is a commitment to lend subject to a satisfactory appraisal on the property you buy. Pre-approval requires a review of your credit report and the past three months of bank statements and pay-stubs. In addition, your employment and financial information is verified.
Once approved, you have the buying power of a cash buyer (subject to a satisfactory appraisal on the property you select.) This allows you to confidently negotiate the best price on the home you desire. When you are competing with other potential buyers, you carry clout with pre-approval, especially when your competitor does not have a mortgage commitment from a lender.
If you just want to know roughly how much you can afford, pre-qualification is for you. If you’re a serious buyer, ready to shop for a new home, and prepared to commit you should consider becoming pre-approved.
As you begin planning the purchase of your home, you'll want to make sure that you understand the options available for financing your purchase. Whether you're a first-time home buyer or a repeat buyer, how you choose to finance your home can make a difference in the home you are able to purchase and in the cash you have available for other expenses.
Making a 20% down payment was once considered standard practice when applying for a mortgage. Today a variety of financing options are available; options that allow a buyer to qualify with a smaller down payment, some with as little as 3.5% down.
Your credit score, sometimes referred to as your FICO score, is a numeric expression or your credit worthiness developed by Fair Isaac Corporation. The most important factor in determining a FICO Score is past payment punctuality. The percentage of your credit limit that has been used is another factor used in the FICO Score calculation, with a penalty for using too much available credit. Other credit score variables include the length of your credit history and types of credit you have used. Bankruptcy, foreclosure, court judgments and tax liens receive a strong FICO Score penalty.
Late payments will not necessarily prevent a mortgage application from being approved. People whose past credit problems have been resolved can also qualify.
One point equals one percent. (On a $100,000 loan 1 point is equal to $1,000.) "Points" can be paid by any party to the transaction and can be used to lower the interest rate or compensate the lender for providing the financing. Typically this charge is due at closing.
Private Mortgage Insurance (PMI) is an insurance policy provided by a nongovernment insurer that protects the lender against loss if the borrower defaults. Many lenders require a borrower to purchase private mortgage insurance if they are making less than a 20% down payment. In most cases, once the borrower has paid back enough of the loan so that they have more than a 20% equity the borrower is no longer required to purchase this insurance. Private mortgage insurance has benefits for both the borrower and lender; the lender is protected against default and the borrower is able to secure a loan with a smaller down payment.
When you take out a mortgage with a mortgage company or a bank, there is a possibility that the lender will “sell” or “transfer” the servicing of your loan to another institution. “Servicing” refers to the collection of payments and management of operational procedures related to a mortgage. When the servicing rights are sold, another lender will be taking your payments, handling your escrow accounts, paying your insurance and taxes and answering your questions. This may happen right after you close on the loan or several years later.
The practice of selling or “transferring” the servicing of your loan is legal and very common in the mortgage industry. Some mortgage companies only originate loans and sell or transfer the servicing immediately. It is more cost-effective for these companies to do this because servicing is not a part of their business. It is not uncommon to get your mortgage from a neighborhood lender and have it transferred to an institution in another state. It is also possible for your mortgage servicing to be transferred more than once during the life of your loan.
Whether or not your servicing is sold has nothing to do with the quality of your loan or your payment history.