IC asked:


When you want to buy a home you will generally need to look into home loans to see what your financing options are. You may have assumed, before you started looking into it, that there was just one sort of loan that people could get when they wanted to buy a home but when you start looking into it you will find that buying a home with a loan is much more complicated than that. There are a lot of different loan products out there for you to choose from and chances are you will not be able to navigate the world of loans all on your own. Instead, you may need to seek the assistance of a mortgage broker to help you understand what is what and also help you determine what sort of loan may be best for you and your specific situation.

Home Loan Basics

There are many different types of home loans for you to consider. You should try to learn about all of the different types of loans out there before you decide that one is or is not for you. The most common types of loans that you will find are the fixed rate loans. These loans are a great option for those that plan to stay in their home for more than three to five years. The reason for this is that the rate stays the same for the entire term of the loan. So, if you start off your mortgage with a 6% interest rate, it will continue to be 6% for the whole 10, 15, or 30 year loan term. This is a good idea if you plan to stay in the home for a long time because you will always be able to determine what your monthly payment will be.

Another very common type of loan that you will find is adjustable rate home loans. These loans are ideal for those that are planning on living in their home for less than five years. The reason why these loans are a great option for these people is because the interest rate starts off very low and then the longer you are in the home the higher it gets because it adjusts from time to time to meet the current market interest rates. Many people like these loans at first because they are very affordable but then if you stick with it, you can end up in trouble if you are unable to make your mortgage payment. The adjustable nature of the interest rate is what ends up getting a lot of people in trouble.

In addition, there are loans that are meant to refinance a home. Many people refinance a home to lower their mortgage payment, trade in an adjustable rate mortgage for a fixed rate, or get money out of their home to pay bills, update the home, or pay off debt. These home loans are for those that already have a home and would like a new one.

These are the basic types of loans but you should not confuse the type of loan for different loan programs. There are different loan programs that apply to different people based on where they live, how much money they make, how much they can afford, and what their credit score is. There are a lot of different programs out there for you to take advantage of, so shop around, learn all that you can, and then choose the right one for you.



EDDY

Kristin Abouelata – Home Loans asked:


Did you ever wonder what a great credit score really gets you in the mortgage market? Many people think it means they get better pricing. Unfortunately, that’s not really the case. It mostly just means your lender won’t have to hassle you for as much documentation to do your loan. In fact, no documentation may be required from you at all if it’s a purchase and you put enough money down. I’ve heard many clients say, “I’ve got great credit, so quote me your best rate.” Good credit can’t directly influence the rate. But it can influence your mortgage loan officer to give you better pricing. If your lender can be assured your loan process is streamlined and smooth, and that they won’t have excessive hours to devote to the process, they may be able to quote you a more competitive rate. Much about a quoted rate depends upon the man hours it will take to make your loan, the loan amount itself and how quickly you can close.

Lenders usually have a minimum percentage of income they are supposed to make on a loan. That percentage is flexible, but only to a certain extent. For instance, the loan amount size is a huge contributing factor. If you’ve got a really large loan amount, your lender doesn’t need to have a feeding frenzy on your loan. The percentages lower because the payback is higher.

However, if you’ve got a really, difficult loan and a modest loan amount, you can expect higher rates or discount points. Or fees. Some lenders may raise your fees to make you think you’re NOT paying as much. But you are. You have to in order for the lender to cover the cost of doing business.

Here’s the secret. Closing a loan is actually a very involved process. Lenders can’t do the loans for free or break even profit because it’s a business and their in it for profit. Plus, there are many people involved in the loan process that you aren’t even aware exist. Processors, closers, post closers, insurers… a staff of thousands! Ok, so maybe not thousands, but your file is probably touched by 5+ different divisions (at minimum) within a mortgage company. Since it is a business, the lenders must make enough money on the loan to cover their costs and actually make money, too. The lender also pays outside parties for services too, like the appraisal, flood cert and automated underwriting system. Paying your originator is just the beginning of the mouths (and families) being fed by your business. It ain’t cheap to close and sell a mortgage.

When you examine all the fees and charges on a good faith estimate, your lender should be able to tell you exactly where that money is going and how it is to be spent. Your lender should have no qualms in telling you what costs are associated with your loan, or which funds cover third party expenses that your lender incurs by doing your loan. And some of that money will be profit. Much of it may be. But remember, you’re not just paying the salary of only one person. However, you shouldn’t pay too much for your loan. After all, the lender will make additional profit on the loan when it is sold on the secondary market.

A good lender will validate any fees and charges for you and should make you feel ok with the fees. If they don’t seem reasonable or fair, always ask questions. If you don’t like the answer, say so. And if you still don’t like the answer, than look for a new lender. Buying a home is such an important purchase and you should feel good about it.



MARCEL