All About Lock-Ins
In most cases, the terms you are quoted when you shop among lenders only represent the terms available to borrowers settling their loan agreement at the time of the quote. The quoted terms may not be the terms available to you at settlement weeks or even months later. Therefore, you should not rely on the terms quoted to you when shopping for a loan unless a lender is willing to offer a lock-in.
What Is a Lock-In?
A lock-in, also called a rate-lock or rate commitment, is a lender's promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan appli-cation is processed. (Points are additional charges imposed by the lender that are usually prepaid by the consumer at settlement but can sometimes be financed by adding them to the mortgage amount. One point equals one percent of the loan amount.) Depending upon the lender, you may be able to lock in the interest rate and number of points that you will be charged when you file your application, during processing of the loan, when the loan is approved, or later.
A lock-in that is given when you apply for a loan may be useful because it's likely to take your lender several weeks or longer to prepare, document, and evaluate your loan application. During that time, the cost of mortgages may change. But if your interest rate and points are locked in, you should be protected against increases while your application is processed. This protection could affect whether you can afford the mortgage. However, a locked-in rate could also prevent you from taking advantage of price decreases, unless your lender is willing to lock in a lower rate that becomes available during this period.
It is important to recognize that a lock-in is not the same as a loan commitment, although some loan commitments may contain a lock-in. A loan commitment is the lender's promise to make you a loan in a specific amount at some future time. Generally, you will receive the lender's commitment only after your loan application has been approved. This commitment usually will state the loan terms that have been approved (including loan amount), how long the commitment is valid, and the lender's conditions for making the loan such as receipt of a satisfactory title insurance policy protecting the lender.
Will Your Lock-In Be In Writing?
Some lenders have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application. Oral agreements can be very difficult to prove in the event of a dispute.
Some lenders' lock-in forms may contain crucial information that is difficult to under'stand or that is in fine print. For example, some lock-in agreements may become void through some unrelated action such as a change in the maximum rate for Veterans Administration guaranteed loans. Thus, it is wise to obtain a blank copy of a lender's lock-in form to read carefully before you apply for a loan. If possible, show the lock-in form to a lawyer or real estate professional.
It is wise to obtain written, rather than verbal, lock-in agreements to make sure that you fully understand how your lender's lock-ins and loan commitments work and to have a tangible record of your arrangements with the lender. This record may be useful in the event of a dispute.
Will You Be Charged for a Lock-In?
Lenders may charge you a fee for locking in the rate of interest and number of points for your mortgage. Some lenders may charge you a fee up-front, and may not refund it if you withdraw your application, if your credit is denied, or if you do not close the loan. Others might charge the fee at settlement. The fee might be a flat fee, a percentage of the mort
Briefly, as a word to the wise from consumer advocates, get your financing prior to looking at homes and do not purchase homes that are at the maximum of what your broker will finance. By securing your financing prior to looking at homes, your eyes don't get bigger than your stomach. In other words, you will save time by realistically looking at homes you can afford. In addition, you will not be house poor. House poor is when every dime you have is going to the mortgage. You will not be able to enjoy the other things in life such as vacations, road trips, movies, etc.
Now that the fair warning has been given, take a look at some of the questions you should ask your finance representative:
What are the various types of loans available to me?
If you are a first-time homebuyer or a member of a disadvantaged group, you may be eligible for down payment assistance.
What are the terms of the loan (for example, interest rate, APR, monthly payment, etc.)?
Ask the finance representative to run various scenarios for you based upon 15-year, 30-year, interest only, fixed rate, or adjustable rate loans. Ask for the different down payment and private mortgage insurance (PMI) scenarios. Generally, if the down payment is higher the monthly payment is lower.
Is there a prepayment penalty?
You do not want to be penalized for paying off the loan early. If there is a prepayment penalty ask the finance representative to remove this. If the representative is unable to remove it, reconsider using the rep and/or ask the rep to find companies that will not penalize you for paying off the loan early.
If you (the finance representative) are not available, who can I contact to get updates regarding my loan?
You need to be able to contact an alternate in case the finance representative is out-of-pocket for an extended period of time.
How long should the financing process take from submitting the loan application to notification that I am approved for the loan?
You need to know what to expect from your finance representative to hold him/her accountable for completing the loan process and keeping you informed.
What documentation do I need to supply?
The finance representative may need bank statements, W-2s, employment information, etc. in order to submit the loan request for processing. These are some of the questions that you should ask your finance representative when requesting a home loan. Do not be intimidated or insecure about the process. Ask questions over and over until you are comfortable that you understand the process. You are the customer and you have a team of individuals from the real estate agent to the closing attorneys who are ready to assist you in getting your own home. Good luck in securing your own home sweet home.
The first question your realtor will ask you when you begin your search is "Are you pre approved for a loan"? You may very well think that this is a strange question, as you have not even looked at a home yet, let alone found one you want to make an offer on. But this question is not as strange as it seems. Getting pre approved for a loan at the very beginning of the home buying process is a very important step.
Before proceeding, it is best to understand the difference between the two terms bandied about by realtors and lenders. These terms are pre qualified and pre approved. Pre qualified for a loan means absolutely nothing in the home buying process. It merely means that you have been qualified to submit a loan application to a lender. That is all.
Pre approved, on the other hand, means that you have already been approved for a home mortgage loan. The lender has already studied your qualifications and accepted your application for a loan up to a certain amount. At this point, you still have not borrowed the money, and you are not responsible for any payments. But if you find a home up to the loan amount, the bank will lend you the money. The pre approval will also tell you the price range of homes that you should be looking at.
Why is this important? When you start looking for a home you may find one that you like pretty quickly. If you are pre approved, you can immediately sit down with your realtor and make a purchase offer. When the offer is presented to the sellers, along with a copy of your home mortgage loan pre approval letter, you are in a very strong position with your purchase offer. Sellers have been known to accept lower bids from pre approved buyers over higher bids from buyers who have not been pre approved.
So if you have decided to take the big step of purchasing a home, do yourself a favor and call a lender before you call a realtor. Then when the realtor asks, "Have you been pre approved"? You can surprise them with your "yes" answer. Being well prepared will be a nice feeling.
100% Financing Mortgages have become a popular choice for financing a home.
Generally Lenders will do the following:
* Zero down payment or 100% financing - either a 1st mortgage exclusively or a combination of a 1st and 2nd mortgage* (sometimes referred to as a piggyback mortgage).
* Advantages to 100 percent financing:
o No Cash needed for down payment
o Don't need to liquidate stocks and other investments
o Borrower may want to finance as much as possible for tax deduction purposes
* Requirements for 100 percent financing:
o Property must be owner occupied
o Fico Score used to be 620. With recent changes in the mortgage industry the Fico Score requirement has increased.
o Normally requires the use of both a first mortgage and a second mortgage Debt ratios of 45 or less
One of the most important things to remember is that being a first time homebuyer does not mean you have to settle for just any home or any mortgage. Just as with someone who has owned many homes, you have rights. While you might look for the ideal home first, we recommend you work closely with a lender to become pre-approved, not prequalified. The difference is that by becoming pre-approved, you actually go through the financial aspect of securing funds whereby a loan is approved so all you have to do is find the home and make an offer. Being prequalified simply means at first glance, it appears you would have no trouble securing a loan.
A good lender would be able to provide you with some excellent options for a first time mortgage, guiding you through the process. A great example is that as a first time homebuyer, you may qualify for a number of governmental programs that offer extremely low interest rates, along with a low down payment. The benefit here is getting into your first home with less money than previous owners would.
For some reason, many first time buyers are fearful they will have trouble securing a loan but in fact, these loans are in abundance and easy to find. Again, a reputable lender or mortgage broker can provide you with numerous options. Typically, your credit score would be pulled from the three credit reporting agencies and your employment history verified. With this, the lender will have a much better idea of the specific first time mortgage that would suit your needs.
One of the most popular choices for a first time mortgage is the one with a low down payment requirement. Again, several different programs fall within this category, some allowing as little as 3% down. Additionally, if you have any type of retirement fund, you would be allowed to make a one-time withdrawal up to $10,000. The key in choosing the right first time mortgage is to trust your lender.
Another great option for a first time mortgage is a loan that offers flexibility. For example, you want a program that fit your monthly income so you are not overstretched. Many of these mortgages are also designed to boost your credit, even if you have good credit, these programs can make it better. Finally, consider loans long-term. In this case, the type of mortgage you ultimately choose might be different if you plan staying in the home five years versus 15 years.
The #1 Mistake First Time Home Buyers Make
The number one mistake first time home buyers make is that they have no idea how much house they can afford. Before ever deciding to buy a house, all monthly expenses (excluding rent) should be tracked for 3-4 months. Expenses tracked should include coffee purchased on the way to work, lunches and dinners out, movies and other entertainment, and even pizza delivered.
After all expenses are averaged for the period, subtract that amount from net salary. Whatever is left gives a ballpark figure of the monthly house payment (including mortgage, homeowner's insurance and real estate taxes) you can comfortably make. Now you're ready to be pre-qualified by a lender.
The #2 Mistake First Time Home Buyers Make
The number two mistake first time home buyers make is that they don't interview multiple lenders. All too often first time home buyers end up using a realtor-selected lender. While there is nothing inherently wrong with that, borrowers are usually better served by shopping around for the lender who offers the most options, and can look after their interest, rather than "making it work" so they can buy the home the Realtor wants to sell them.
The #3 Mistake First Time Home Buyers Make
The number three mistake first time home buyers make is that they call a realtor to show them homes before they ever do any research on their own. First time home buyers can do a lot of research on their own by visiting open houses and touring new home communities as well as reading the newspaper and real estate magazines to find out housing prices in the areas they are interested in.
By the time they are ready to call a Realtor, they already have a general idea of the neighborhoods they want to buy in, the features they desire and the home price range they can comfortably afford.
The #4 Mistake First Time Home Buyers Make
The number four mistake first time home buyers make is that when they buy a new construction home, they agree to upgrades and added features that the builder will furnish. This is a very expensive way to buy a dining room chandelier or upgraded light fixtures, landscaping or more expensive carpeting. These items not only increase the monthly payment the home buyer will make, there is 30 years of interest added to the cost of house fixtures and features! Much of the work and additional features can be purchased at local home improvement stores and done by the homeowner. For that matter, the home buyer would be far better served to have an independent contractor do the work for them after they move in.
The #5 Mistake First Time Home Buyers Make
The number five mistake first time home buyers make is that they purchase the most expensive home they can possibly afford. First time home buyers so often look for the biggest, most expensive home they can afford a mortgage for. The problem with this home buying method is that little or no disposable income is left to purchase furniture and accessories for the house. A great big house is nice, but it will look pretty silly with no furniture or curtains.
The number six mistake first time home buyers make is that after they have maxed themselves out on a house payment, they charge up credit cards to buy furniture and other items for their home.