Ultimate Guide to Mortgages [2019]

Ultimate Guide to Mortgages [2019]

mortgage loan or simply, mortgage, is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. Wikipedia

Process of Mortgage Loan

Please note: Slight discrepancies in this process may occur as lenders may designate responsibilities differently among loan processors and underwriters.

explaining the loan process

In Part Four, your mortgage application will pass from the hands of the loan processor to the desk of the underwriter. In the mortgage underwriting process, an underwriter will make sure your financial profile matches your lender’s guidelines and loan criteria. Then, your underwriter will make the final decision — to approve or deny your loan request.

The Job of an Underwriter — Assessing Risk

An underwriter’s main task is to assess a borrower’s risk. Have you ever declared bankruptcy or gone into foreclosure? Or, do you always pay your bills on time or have a fantastic credit score? These questions will reveal how you manage debt. They will also predict your ability to make the proposed mortgage payments.

The 3 C’s of Underwriting: Capacity, Credit, and Collateral

To more easily assess a borrower’s risk, mortgage underwriters follow a set of guidelines — the 3 C’s of underwriting.

Underwriters typically begin by looking at:

1) Capacity — Do you have the resources and means to pay off your debts?

The first question a mortgage underwriter asks is: can the borrower repay the mortgage? Underwriters determine the answer by analyzing and reviewing the borrower’s employment, income, debt, and asset statements.

In particular, underwriters will take a close look at your debt-to-income ratio. They want to see that you have enough money to fulfill your current obligations as well as your new mortgage. Underwriters will also verify the state of your savings, checking, 401(k), and IRA accounts. They want to make sure that if you lose your job or become ill, you will still be able to pay your mortgage.

2) Credit — Do you have a solid re-payment and credit history?

As we previously mentioned in Part 3, your credit is perhaps one of the most important factors in the loan approval process. Your credit report will reflect how you have handled and managed to repay past bills (car loans, student loans, and home equity lines of credit). It will also predict your ability to make the proposed mortgage payments on time and in full.

3) Collateral — What is the value and type of property being financed?

An underwriter wants to make sure a loan amount does not exceed a property’s value. Otherwise, a lender may not be able to recover a loan’s unpaid balance, in the case of a default. This is why an underwriter orders a home appraisal. This report will assess a home’s current worth and safeguard a lender from lending too much money.

In addition, underwriters will also review the type of property you wish to purchase. Why is this? Well, not all homes have carried the same risks for lenders in the past. For example, many lenders consider an investment property a more risky investment than an owner-occupied home. Lenders assume that in a difficult financial situation, borrowers would more quickly walk away from an investment property than from their primary residence.

The Automated Underwriter

Most loans today are sold to Fannie Mae, Freddie Mac, the VA, or the FHA. Lenders must abide by the underwriting rules set by those organizations if they wish to sell the loans to them. To assist the lenders, some of the agencies have developed automated underwriting software.

A Positive Thought

Some home loans can be very easy to underwrite; many of us, however, have more complicated financial lives that make underwriting more challenging. Don’t stress if your financial picture doesn’t seem perfect to you. Your mortgage loan officer, processor, and underwriter are working as a team to find a home loan program for which you qualify. For example, a strong income, a large down payment, and significant savings could offset some of your possible credit issues. Similarly, good credit and a sizable income could overcome a lower down payment.

Common Mortgage Complaints

The Consumer Financial Protection Bureau released its monthly complaints report Tuesday, which focuses on consumer grievances about various financial products. This month’s spotlight was on mortgages, and the CFPB says more than a quarter of borrowers (27%) complain about them, which makes home loans the financial products that are complained about the most.

“Despite strong protections that have been put in place to protect homeowners, this month’s complaint report shows consumers are still having problems when dealing with their mortgages.”
Richard Cordray, CFPB’s director

Payment problems abound

Slightly more than half of the mortgage complaints submitted were about problems homeowners face when they struggle with affording their payments and apply for a loan modification to make their mortgage less costly. Some consumers reported delays and ambiguity in the application process and others said they weren’t considered for every option available to them in order to keep their home.

Another common complaint was related to making payments in general. Borrowers reported difficulty understanding where to send payments, that they weren’t properly notified about their mortgage switching servicers and that payments unexpectedly increase. There were also complaints about servicers not accepting payments less than the amount owed and not applying payments the way the borrower requested.

Rounding out the top 3 mortgage complaints are:

  • Applying for a mortgage.
  • Signing the agreement.
  • Receiving a credit offer.

As of Sept. 1, the CFPB has handled 702, 900 complaints. The federal watchdog sends those complaints to their respective company and publishes them on ConsumerFinance.gov after 15 days or once the company responds, whichever occurs first.

Best Fixed Mortgage Rate Deals

If you’re a member of the 9-to-5 rat race who cherishes your weekends, you’re likely familiar with the disturbing feeling that develops in your soul when Monday interrupts your leisurely bliss.

But the day after Sunday isn’t always awful, especially when it comes to buying a house.

The real estate data firm crunched the numbers on more than 32 million single-family and condo home sales since 2000 to find out the best month, weekday and day of the year to buy a home. It turns out the widely held belief about getting a good deal on a home purchase during the colder months has some truth to it – RealtyTrac says the best month for homebuying is October. The best date? Oct. 8.

Pumpkin time and purchase time?

There have been nearly 3 million homes sold in October since 2000 and the average sales price was 2.6% lower than the average estimated full market value at the time of sale.

The analysis landed on Oct. 8 as the best day of the year to buy, due to the noteworthy deals closed that day. Homebuyers paid an average 10.8% below estimated market value at the time of sale. Rounding out the top 5 best days of the year are: Nov. 26, Dec. 31, Oct. 22 and Oct. 15.

“Sellers are motivated in October because many do not want their homes on the market for the Holiday Season, ” Craig King, chief operating officer at real estate brokerage Chase International in Lake Tahoe, Nevada, says in a statement.

Hotter deals in winter

RealtyTrac also discovered that in 37 metro areas, the best day to buy falls somewhere within September, October and November; and in another 44 markets, the best day is found in December, January and February.

Top 5 Year Fixed Rate Mortgage

In determining what type of mortgage may be best for you, it is important to know that, with an adjustable-rate mortgage (ARM), you will receive a lower interest rate upfront, with a variable rate after that. This may enable you to afford more house initially, but could be problematic if the rate rises beyond a level you are comfortable paying. With a 5/1 ARM, your rate is fixed for five years. Afterward, if the market interest rate goes up, so does your payment. If you cannot afford the uncertainty of a rate that may fluctuate upward, you may want to go for a fixed-rate mortgage.

Do an ARM if you will be in your property for a limited time

As a rule, there is usually 0.5%-1.0% difference in rate for an ARM, which can be quite substantial in a monthly mortgage payment. The first 5 years of any loan, you are paying about 95% interest vs. principal, so it makes sense to utilize the lower rate and payment. Conversely, if you are concerned about paying down the principle of the loan sooner or being able to pay a potentially higher payment once the initial period of the loan passes, go with a fixed-rate loan, as the short-term savings may not be worth it to you.

Do an ARM to get the benefit of a lower payment

An adjustable rate mortgage is great to lower your payment for a temporarily fix period of time, normally 3, 5, or 7 years. A 5/1 ARM refers to your interest rate being fixed at one level for five years. But if you need to know what your payment will be beyond the initial period of an ARM or if you cannot risk not being able to afford a potentially higher payment later, then an ARM may not be right for you. A fixed-rate loan may be a better choice for you.

Do an ARM for a low start rate if you can invest your funds

If your start rate is 2.25% and you know you can make double that or more by investing it and getting a higher yield in the market, it makes sense to do an ARM. Still, if you will not actively seek to invest the difference (between what you are paying and what you could earn on the funds left in play) or you are not sure you can make up or “best” that difference, you may not want to pursue an ARM.

Do an ARM and get a lower rate if you have an early payoff plan

So, for instance, if you have a 5/1 ARM, meaning your rate will change – likely going up – after the initial five-year term, you don’t have to worry about that potential jump in the rate if you plan to pay off the loan prior to the five-year mark. The source of your anticipated payoff could be from any number of sources, such as the sale of another property or asset, bonus income, inheritance or such another influx of money necessary to cover the payoff of the loan. If you are not sure when or how you can pay off the loan and are not comfortable with the adjustment that can come after the first five years of the loan, choose a fixed-rate mortgage.

Do an ARM in a falling interest-rate environment

With interest rates being low, it is highly unlikely that they would fall enough after the initial period of your ARM to make it worthwhile, that is, if it’s not already worthwhile for you for other reasons. A lower interest rate also allows you to have a lower mortgage payment without having to refinance further down the road. Rates are pretty low right now, so your rate is not likely to go down after the initial term of your loan. So, if you are starting with a relatively low rate anyway, even on a fixed-term loan, you may want to go that route, rather than an ARM.

Do not do an ARM if you are going to be in the property long term

Most ARMs come with a 5% life cap, so even if your start rate is low (i.e. 2.25%), you could end up with a 7% rate over a 30-year term. If you are going to be in the property long term and you can start out with a good rate on a fixed-term mortgage, that may be the best route for you.

10 Year Fixed Mortgage Rates

Several key refinance rates climbed recently.

Nationwide averages on 30-year fixed and 15-year fixed refinances both trended upward. The average rate on 10-year fixed refis, meanwhile, also advanced.

Evgeny Atamanenko/Shutterstock.com

Rates for refinancing are in a constant state of flux, but they remain much lower overall than they were before the Great Recession. If you’re in the market to refinance, it could make sense to lock if you see a rate you like.

30-year fixed refinance

The average 30-year fixed refinance rate is 3.65 percent, up 14 basis points compared to a week ago. A month ago, the average rate on a 30-year fixed refinance was lower, at 3.39 percent.

At the current average rate, you’ll pay $457.46 per month in principal and interest for every $100, 000 you borrow. That’s $0.14 higher compared to last week.

Bankrate‘s mortgage calculator can be used to see what your monthly payments will be. This will also show how much you’ll pay in total.

15-year fixed refinance

The average for a 15-year refi is currently running at 2.86 percent, up 8 basis points since the same time last week.

Monthly payments on a 15-year fixed refinance at that rate will cost around $682 per $100, 000 borrowed. Although the higher payments will be a little tough to find room for in your monthly budget than a 30-year mortgage payment, they do come with some advantages: You’ll come out thousands of dollars ahead over the life of the loan in total interest paid and build equity much more quickly.

10-year fixed refinance

The average rate for a 10-year fixed refinance rate is 2.84 percent, up 6 basis points since the same time last week.

Monthly payments on a 10-year fixed-rate refi at 2.84 percent would cost $958.24 per month for every $100, 000 you borrow. That’s a lot more than the monthly payment on even a 15-year refinance, but in return you’ll pay even less in interest than you would with a 15-year term.

30 Year Conforming Mortgage Rates

Your eyes haven’t deceived you, as they sometimes do when you’re trying to discern whether the situation atop Donald Trump’s head is a toupee. The job market has actually redeemed itself.

“Consumers are clearly kicking up their feet and going out, ” Diane Swonk, chief economist at Mesirow Financial in Chicago, writes in a blog post. “Increases in the minimum wage and a surge in hiring of low-wage workers was a primary reason for improvements in consumer sentiment in October.”

The unemployment rate ticked down from 5.1% to 5%, which is the lowest level since April 2008. The number of unemployed people was virtually unchanged at 7.9 million. The labor force participation rate also kept its place at 62.4%.

Workers collect more coins

Average hourly earnings rose by 9 pennies from September to October, coming in at $25.20. Over the year, hourly earnings increased by 2.5%.

“The tightening labor market may finally be having an impact on wages, though the jury is still out on that, ” says Joel Naroff, president and chief economist for Naroff Economic Advisors in Holland, Pennsylvania. “

Get ready for higher mortgage rates

Mortgage rates have already increased on news that the Federal Reserve may raise rates at its December policy-setting meeting, and the better-than-expected employment data may push them even higher, says Jonathan Smoke, chief economist for Realtor.com.

“Today’s job report will influence the long-term bond market, so mortgage rates will increase in response. The average 30-year conforming rate was 3.99% yesterday, having increased 9 basis points in one week due to the consensus view of a strong, but not this strong, employment report, ” he says. “The 30-year conforming rate will likely top 4% as a result of this news.”

Cheapest Refinance Mortgages

It’s the cheapest ever fixed-rate mortgage – but is it marketing spin or could you save?

Mortgage rates have been dropping fast, but the news you can now get a two-year fixed-rate mortgage charging just 0.99% interest is still remarkable.

But while the headline rate is stunning – and the deal is open to both people buying a home and those re-mortgaging – it’s not without catches.

Details of HSBC’s new 2-year fixed-rate mortgage

Maximum loan size of £500, 000, overpayments of 10% of the mortgage balance a year allowed

“While this headline-grabbing mortgage rate will be attractive to many home buyers, only those with a hefty 35% deposit will be able to take advantage of this record low rate – shutting the door on most borrowers, ” said Tashema Jackson, money expert at uSwitch.com .

And on top of the high level of deposit you’ll need to take out the mortgage, it also comes with a £1, 499 fee – meaning the fee is actually larger than the annual interest cost for mortgages smaller than £150, 000 – and a maximum loan size of £500, 000.

The small print that costs you

AlamyCareful of the Ts&Cs!

“It’s not until you read the small print that you realise there’s also a fee of £1, 499 to pay for this mortgage – on a product that only lasts two years – so in effect that’s an extra £62.46 per month on top of your mortgage payment, ” said Andrew Hagger of Moneycomms.

“Whether this deal is as good as it looks will depend on the size of your mortgage – if you’re borrowing £220, 000 or more then it makes financial sense but for smaller sums there are cheaper alternatives.”

Hagger points out that for a £150, 000 mortgage, you’d pay less overall with Norwich and Peterborough Building Society’s 1.49% rate two-year fix than the HSBC 0.99% deal, thanks to its far lower fee of £195.

“It just emphasizes the need to take the headline deals with a pinch of salt and to ensure that any comparison is based on the total cost and not the interest rate in isolation, ” he added.

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