Mortgage Rates Retreat Below 7%: A Glimmer of Hope for Homebuyers?
A breath of fresh air blew through the housing market recently as 30-year fixed mortgage rates dipped to 6.94%, the lowest level since April...
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Frequently Asked Questions.
In general, the best interest rates go to those with good credit. You may qualify for a Federal Housing Administration loan (FHA) with a minimum credit score of 580. Conventional loans typically require a score of at least 620.
If you happen to qualify for a USDA or VA loan, no down payment is required. If you’re getting an FHA loan, the minimum down payment is 3.5%. If you qualify for a conventional loan through Fannie Mae or Freddy Mac, down payments start at 3%.
Fannie Mae and Freddie Mac will insure loans for borrowers with a DTI ratio as high as 50%, but in general, lenders prefer to see lower levels, which indicate the ease with which you can repay the house loan. FHA will insure up to 56% DTI ratio.
The approval process can be a bit long and tedious. After filling out an application with the lender, you will have to provide a lot of information, including:
– Pay stubs (last 30 days)
– Two years of w-2s
– Two years of tax returns
– Bank statements from the last two months
– Investment statements
– Proof of where you got the money for the down payment, such as bank statements or a statement from someone providing a gift
– Proof of identity
– Social security number
One of the biggest mistakes you can make while in the process of purchasing a home is opening a new line of credit, revolving credit or installment loans. You get excited about the new home and look to purchase new furniture or a new car, that has to be factored into the DTI. If it puts you over the limit, you will lose out on the home.
Once you have submitted your paperwork for the preapproval, STOP spending money on any of your credit cards. Do not make any large purchases until after you have the keys to the home. Even if the expense doesn’t push you over the debt range, it could impact your credit score, which could cost you your dream home.
Preapproval or prequalification might be some of the first terms you hear in any house hunt – many real estate agents will be reluctant to show you any properties without a preapproval letter. A preapproval letter is typically good for 60 to 90 days. You’ll want to apply for a preapproval once you are serious about your home search.
Once you have submitted your paperwork for the preapproval, STOP spending money on any of your credit cards. Do not make any large purchases until after you have the keys to the home. Even if the expense doesn’t push you over the debt range, it could impact your credit score, which could cost you your dream home.
A prequalification requires less paperwork and verbal confirmation of credit scores. A prequalification does not mean you will be preapproved, it just means you are likely to qualify.
A preapproval requires more documentation, including tax returns and bank statements. The lender pulls your credit report and offers a conditional loan approval. This will help narrow your search to homes you can afford. If you are preapproved for a loan, you still have to wait for the lender to offer a commitment. This step entails a home appraisal as well as additional documentation.
Once you have submitted your paperwork for the preapproval, STOP spending money on any of your credit cards. Do not make any large purchases until after you have the keys to the home. Even if the expense doesn’t push you over the debt range, it could impact your credit score, which could cost you your dream home.
The mortgage application process generally spans 30-60 days, although variations may occur. Efficiently preparing all of your necessary documentation and collaborating closely with a mortgage lender can expedite the process.
Mortgage discount points offer a tradeoff between upfront costs and monthly payments. Opting to pay points involves an initial investment for a lower interest rate, resulting in reduced overall payments over time. This can be advantageous for long-term loan commitments. Notably, one point equates to one percent of the loan amount.
A common misconception is that individuals who are self-employed cannot get a home loan or that it’s more difficult. But that isn’t true. It does not create a problem; it just changes the documentation needed. One of the common issues is when self-employed buyers write off expenses to reduce their taxes. If you write it off, it’s not income and it can affect your ability to qualify.
Tip: Plan ahead. Consider cutting back on your write-offs or saving more money for the down payment to offset lower income number.
There is no one right answer for this. The type of mortgage loan that works for you may not work for your neighbor. There are several loan types available, in speaking with our professional team, they will listen to your needs and wants, review your overall finances and help determine which type of mortgage loan best fits your situation.
Mortgage Insurance is provided by a private company on conventional loans or by HUD on FHA loans to protect the mortgage lender against losses that might be incurred if a loan defaults. It can make a big difference in how quickly your mortgage loan is approved and how much money you spend on a down payment. It is required if the loan amount is more than 80% of the home’s value.
This insurance benefits lenders and investors, but it also helps homebuyers too. The loan is protected by mortgage insurance and therefore the lender can offer loans with a lower down payment.
The lender will set up an escrow account to collect funds for the payment of your real estate taxes, homeowner’s insurance, flood insurance and private mortgage insurance, based on each borrower’s specific situation. Each month a portion of your payment will be held in your escrow account to make sure the funds are available when these payments are due. At that time, funds are withdrawn from the escrow account by the lender to pay what is due. You may pay your own real estate taxes and insurance if you meet the lender’s escrow waiver requirements.
Both a home inspection and an appraisal are designed to protect you against potential issues with your new home. Although they have totally different purposes, it makes the most sense to rely on each to help confirm that you’ve found the perfect home.
The appraiser will make note of the obvious construction problems such as termite damage, dry rot or leaking roofs or basements. Other obvious interior or exterior damage that could affect the salability of the property will also be reported.
Keep in mind, appraisers are not construction experts and won’t find or report items that are not obvious. They won’t turn on every light switch, run ever faucet or inspect the attic or mechanicals. That’s were the home inspector comes in. They generally perform a detailed inspection and can educate you about possible concerns or defects with the home.
Accompany the inspector during the home inspection. This is your opportunity to gain knowledge of major systems, appliances and fixtures, learn maintenance schedules and tips, and to ask questions about the condition of the home.
Even if you have a fixed rate mortgage the monthly payment amount may fluctuate during the life of the loan. A fixed rate loan offers a fixed term (for example, 15 or 30 years) as well as a fixed interest rate, so the monthly payment of principal and interest will not change during the term of the mortgage. However, your monthly mortgage payment may also include taxes and insurance. While your principal and interest amounts will not change, the amount needed for taxes and insurance may.
Once a year, on the anniversary date of your mortgage, the lender will perform an escrow analysis to determine if the current monthly deposit balances will provide sufficient funds to pay property taxes, hazard insurance and other bills when they come due. If the lender recieved information that the taxes or insurance premium has increased, this will cause the escrow account to be adjusted and an increase in the upcoming mortgage payments.
Please be aware that property taxes may go up considerably on a purchase transaction from what the previous owner paid. The municipality where the property is located reassesses the taxable value of the property when it transfers ownership. As the property’s taxable value is no longer governed by the rate caps used when the property remains under the same owner, the required property taxes may increase considerably. If your payment amounts have fluctuated, the lender will have to adjust the amount needed in your escrow accounts to compensate for these changes.
No. There are a number of things that can derail your home purchase (even after your approval), so do not open any new lines of credit, revolving credit or installment loans and do not spend a ton of money until after your loan closing. The lender will obtain an updated credit report the day before closing, any new liabilities could impact the qualifications of the purchase of the new home.
Interest rates are subject to daily fluctuations, and pinpointing the optimal time to secure the lowest rate is challenging. If you feel satisfied with a particular monthly payment at a given rate, it is advisable to proceed with locking that rate.
Your mortgage adviser will provide further insights and guidance on the rate-locking process when you reach that stage.
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