An explanation of when to get qualified for a mortgage:

Should I get qualified for a mortgage before looking for a new house or find a house I like and then get qualified? You should absolutely get pre-qualified for a home loan before house hunting. By getting qualified first this will allow you to know how much house you can afford and how much of a mortgage you can qualify for. Also, most realtor’s will want to see a pre-approval before they start showing you houses, and the listing realtor will definitely want to see a pre-approval before accepting a bid on a house.

There is usually no commitment on your part to get -qualified. In most cases, you don’t even need to provide personal income documents. Of course, the more documents you furnish to your mortgage broker, the better and more accurate your pre-qualification will be. If you provide your mortgage broker with income and assets documentations, he/she can get you pre-approved from a bank, which is basically a loan approval, pending the information of the home and the appraisal.

Definitely begin the process as early as possible with your mortgage broker. This will give you a nice clear picture of what you can afford and what the process will be once you find your dream home. The sooner you begin with your mortgage broker, the sooner you can move through the loan process once you find your home!

Giving yourself time needed to save up for a down payment, improving your scores, and moving balances on accounts is imperative to a successful home loan transaction.

It’s actually not a bad idea to start looking into being qualified as much as three months before you plan on purchasing a home. That way, if there are any credit issues that you were not aware of, there is a good chance you will have time to address them before the purchase.

If you have an Adjustable Rate Mortgage(ARM) Loan, and the fixed period is will be expiring soon. You should look into becoming qualified for a new mortgage loan at about three months prior to the fixed period’s expiration.

It is a great idea to get pre-approved before you start to look for a new home so you know how much you have to finance. With today’s many 100% purchase programs a down payment is becoming a thing of the past for many people. But with no down payment the amount you can afford to finance will go down.

Random thoughts on when is the right time to refi:

This is a question that only you can answer. Many lenders will tell you that you ‘need’ to refinance if it is going to save you $50 or more per month. You have to ask yourself if the costs of doing the loan will outweigh the benefits that you will receive from the new loan. A good loan officer can help you determine this by finding out what the cost of the new loan will be, and what your new payment will be. From there, it is up to you to determine if it is really in your best interest.

There are some basic “no brainer” times to refinance. If your credit was less than perfect and your mortgage is an ARM with a short fixed period (2 or 3 years) you should plan to refinance just before you enter the adjustment period. Once you enter the adjustment period your rate could increase by as much as 2%. You should refinance to a fixed rate mortgage, you will most likely lower your payments or keep your payments and go to a shorter term such as 20 or 15 years

The right time to refinance really depends upon your current financial situation and what you need to do to get into a better financial situation. If you are looking to consolidate debt and bills into your mortgage, then you will need to wait until you have enough equity built up into your home to do this. If you simply want a lower rate and or term then you should consult your mortgage professional to see if the benefit of refinancing makes enough financial sense to you. Therefore, each unique situation requires it’s own personal analysis to see when the right time to refinance may be.

Many people refinance and use cash taken out to purchase investment properties. While this certainly isn’t for everyone, real estate investment can be very lucrative and can many times require very little cash out of pocket. If you are considering buying an investment property and would like to take cash out of your equity ask your mortgage professional how this can work for you.

Why lenders decline your loan application and what to do when it happens: 

Ask specifically why the loan is being turned down. Is the problem with you the borrower, or is it the property? If you’re weak on loan qualifying, would a larger down payment make a difference? How about if you reduced some of your debt? Would another loan program help you qualify? Asking specific questions can get you specific answers on what needs to be changed and why.

Improving the quality of your credit will help a great deal in getting approved for a home loan.

A good quality mortgage broker will be able to help you work through the issues and tell you exactly what needs to be done in order to qualify for a future loan.

Your mortgage broker may also try another lender if your loan is denied. There are many lenders with many different programs on the market today. Flexibility is where a mortgage broker’s strong point is over a bank. Your mortgage broker can search through many different sources to find a lender who will possibly fund your loan.

The most important thing is to Never Give Up! Work with your loan professional on steps to make homeownership a reality.

 Editors Note: Due to the mortgage and credit crunch, option arm mortgages are more difficult to apply for and get. If you’re in need of a Denver mortgage/home loan contact us to discuss your mortgage options.

Although there are multiple things to consider when comparing option ARMs here are few of the basics. Loan term initial interest rate - or start rate. Initial interest rate period - or commonly referred to as introductory period. For example with a 1 month option ARM the initial interest rate is for the first month only. Periodic adjustment – how often the interest rate will increase.

While in other mortgages borrowers are generally shopping for the base rate with the least points, option arms are a little more complicated. You should examine the index and margin. The index is the variable portion of the rate, do some research about the various indexes to determine which will be fit your lifestyle best. The margin is the fixed portion. As with anything make sure when shopping you compare apples to apples, compare margins on the same index, etc.

Different lenders will follow different indices. Some follow the MTA and some even have there own indices such as the COSI or CODI.

When comparing option arms make sure to compare the lender fees. Often times lenders have the same programs but the fees can be different.

The margin, index ampersand closing costs will all reflect into the APR but an Option ARM is more difficult because you must find everything that you are looking for. Such as how much will your payments increase each year and what is the payment rate (1%, 1.5%…). After a thorough interview we can then place you in the proper loan program.

While many borrowers are concerned with what they need to do in order to qualify for a mortgage, there are also a number of things that borrowers should not do once approved for a loan.

In addition it’s a good idea to give yourself a couple of extra days if possible to schedule movers, landscaping companies or and other repairs for the new house. This will give you extra time to get the closing completed and the transaction funded. If you schedule movers or other companies the same day as closing or even the day after you might be in for a stressful situation if for any reason the closing is delayed.

Always consult with your mortgage professional when there is a question regarding any of this because it can cost you your home loan.

After applying for a mortgage do not let anyone pull your credit or apply for any new credit at all. Try to keep everything the same as far as credit goes as when you where initially pre-approved unless told different by your loan officer.

Do not ignore to tell your mortgage broker about any material changes in the purchase agreement you and the seller come to agree upon after the mortgage process has begun. A slightly lower sale price can alter the loan-to-value ratio and requires re-submission of loan documents. Your mortgage broker and lender have to be made aware if any addendum is later attached to the purchase contract.

After applying for a mortgage be sure to advise your loan officer to any changes in your marital status or name changes. This will help you avoid problems with the final closing documents and/or title problems.

Be certain not to lease a car or allow a car dealer to “pre-qualify” you for a car lease or loan. It doesn’t matter whether or not the car is new or used, because either way this would fall under the category of taking on new debt, and is a very common reason for individuals, particularly those making purchases for the first time, run into complications with their mortgage application process after the fact. If you have any need to make any further applications for substantial credit, please give us a call.

Do not take on new debt. The temptation is strong. There are so many big purchases that people want to make in connection with a move: appliances, window treatments, furniture, etc. When you add to this the fact that, today, everyone offers easy terms and no money down—well, why not just do it? Answer: because you will change what the mortgage industry calls your “debt-to-income ratios” (the relationship of your income to your debt).

Do not change jobs. If at all possible, try not to make a career move during the time between your mortgage application and the closing on the home you are purchasing. But, you ask, “What if it’s a BETTER job, for MORE money, in a DIFFERENT field?” Still, try and wait until AFTER closing. One of the factors mortgage companies consider is length of present employment; they are partial to stability. At the very least, changing jobs initiates the need for more paperwork, and may delay your closing.

Do not pack too soon. Well, go ahead and pack your clothes and dishes. But do not pack your bank statements, tax returns, or other important paperwork. Most especially, do not pack your checkbook! More than one buyer has had closing delayed while a friend or relative hurried over with additional funds because the checkbook was in the moving van.

Do not lease a new car. This should go under the general heading of “no new debt.” It is highlighted here because, for some strange reason, many buyers do run right out and lease a new car during the time between mortgage application and closing! As with any debt, this will change your “debt-to-income ratios” and may cause you not to qualify for your mortgage.

Do not stop making your regular monthly payments after applying for a mortgage. Borrowers refinancing their home to payoff other debts sometimes stop making their regular monthly payments because they are going to payoff the debt. This can cause problems during the loan process because not making payments on time may hurt your credit rating. Lower credit scores may cause your interest rate to go up or result in you being denied credit.

Once you apply for a mortgage to refinance or for a home purchase your job is not done. Be involved, don’t just wait for the call to schedule the closing. Check with your mortgage broker, find out what is going on with your loan, talk to your realtor make sure everything you want done is getting done. Be proactive not reactive, don’t wait for a problem then rush to solve it, work to prevent any issues form happening in the first place.

Do not pay off any old collection accounts on your credit report unless you were specifically told to do so by your mortgage professional. Paying off old collection debt will often signal to the credit reporting agencies that there is new activity on an negative entry and actually lower your credit score.

What makes them rise? What makes them fall? Is it the Fed? The Economy? Inflation? Banks? The President? Fannie Mae? Freddie Mac? The answer is sometimes complex, but rates are moved by a number of related factors, and believe it or not you are one of those factors!

As interest rates (yields) decline, investment customers can become more or less interested, depending on the direction of economic growth, inflation, appetite for the product and several other factors. Typically, though, the lower those rates get, fewer investors are interested in putting them on their books.

Of course, it’s not always as easy or simple as that. Mortgage market makers serve not one client, but two. They serve the folks who want the highest possible return on their investments and the homeowner / homebuyer who wants the lowest possible interest rate. Simultaneously, rates need to be high enough to attract investors and low enough to attract borrowers. Confused? It can be a complex and confusing dance to understand.

In order to attract investors, sellers of bonds must compete with one another to get their money. They do this by offering a variety of instruments (also called products) with differing structures of risk and return over given periods of time. These offerings compete with other investments which are similar in performance, such as US Treasuries, corporate bonds, foreign bonds, and others.

Investor demand for a given kind of investment plays a considerable role in moving market yields, because investors literally have hundreds of places to put their money. It’s a crowded marketplace with many sellers of various products competing for those investor dollars. Investor demand for specific product rises and falls with changes in investment strategies. If demand falls enough a change must be made to attract investors again. How to attract them again you say? The answer usually comes as a raise in interest rates.

The Federal Reserve Board known as the FED in the industry actually controls interest rate movements to control the economy and inflation. Before 1913 when the FED was created the markets were actually very unstable. They play a crucial role in the economy. If rates are left low for too long then inflation can run out of control so the FED raises rates to counteract this from happening.

Mortgage money can come from many sources, including deposits at banks and brokerages, but most comes from investors through what is collectively known as the “Capital Markets”. This is where investors interested in purchasing certain kinds of debt instruments — bonds, in this case — come to buy those items.

Who are these investors, and why are they so fickle? Mostly, they are people like you and I. They want two opposing things; low payments on your debt, especially your mortgage, and high returns on your investments. You (the investor) will only buy so many low-yielding bonds (mortgage or otherwise) because you will take you money elsewhere if the returns are too low.

Bond prices and bond yields always move in opposite directions. When economic indicators, such as the gross domestic product and unemployment rate, forecast a strong economy, long term interest rates move up. When these indicators predict a slower economic growth, long term interest rates usually decrease. Mortgage rates and long term rates often move in tandem.

When considering the length (or term) for your mortgage will depend on many key factors. Considerations need to be made on your current financial situation and your goals for the future. You will need to consider how much you can afford to spend each month while still maintaining a acceptable amount of cash reserve in the event of an emergency is very important.

There are many options available for you to choose concerning the length of your mortgage. Options beside the typical 15 and 30 year terms are: 10, 20, 25 and 40 year fixed rate loans. Hybrid Arms offer your fixed and interest only terms in 3, 5, 7 and 10 year terms. A mortgage or loan consultant can help guide you through which loan term is right for you.

You should always consider your short and long term financial goals when considering the length of your mortgage note. You should weigh the benefits of the longer term mortgages in regards to monthly cost saving, compared to the shorter termed loans which will save you thousands of dollars in interest payments over the life of the loan. Always remember there are ways to pay your mortgage off earlier than the note term, which can also save you thousands as well.

Generally, you will use a longer-term mortgage to lower your monthly payments to a manageable level, and a shorter-term mortgage to save money over the long term and pay off your home quicker. Many people think that if you go from a 30 year fixed mortgage to a 15 year fixed, your payments will double. This is not the case. 15 year loans generally come with a smaller interest rate, which saves you some money. But it’s also important to know that most of your monthly payment is interest. A relatively small amount is paid toward your principle balance. For that reason, it doesn’t take a large increase in your principle payment to pay off the mortgage quicker.

If you can afford a higher payment get a shorter term mortgage, this will save you tens of thousands of dollars in interest charges!

If you just aren’t sure how long your mortgage should be, keep in mind that you can always pay more than the monthly payment, but you can never pay less. It may be wise to go with a longer-term mortgage to lower your monthly payment, and if you want you can pay extra to pay off the loan faster.

Its important to know that if you choose an adjustable rate mortgage, that it will still be amortized as if it were a 30 year fixed. Many consumers get this confused when they are shopping for a new loan. The 3,5,and 7 year ARMs offer lower interest rates and are a good way to keep your payments low.

Before lenders lend money, they need to be assured that the funds will be repaid. In other words, is the prospective borrower creditworthy? To find out, they ask for various types of information.

Sub-prime lenders understand you may have come upon some hard times in the past and will look at your more recent credit history.

Lenders look at the risk that you will default on the loan, based on several factors. Those include credit score, history of paying your mortgage or rent on time, debt-to-income ratio, occupancy type (primary residence, second home or investment property), property type (single-family, 2-unit, condo), percentage of the property’s value you want to borrow (60%, 70% 80% 100%), and work history, among others.

Lenders will look at an applicants past credit history, income and the value of collateral being used to secure the mortgage. The lenders will compare this information to their guidelines to determine if the applicant is a good credit risk.

With regards to repayment capability, most banks prefer that a borrower has total debt obligations of less than 45% of gross income. Total debt include any monthly obligations the borrower has, including the proposed mortgage payment, property tax, homeowner insurance, automobile financing, credit card installments, alimony, etc. Utility and food costs are not considered debts and are not included in the Debt-to-Income ratio. Some non-prime mortgage lenders allow a Debt-to-Income ratio of up to 55%.

Lenders will look for job stability, credit worthiness, disposable income, liquid assets, debt to income ratios and loan to value ratios among many other things. Sometimes a borrower can be deficient or weak in one of the above mentioned areas but make up for it in others to still be considered for the financing desired. Lenders don’t typically want to see a lot of job changing or career changing happening. Also, obviously the better the credit the better the chance the lender will be repaid on the debt. Disposable income is how much income is left over after you have paid all of your monthly obligations. Debt to income is a ratio that is calculated based off of how much you make divided by how much your obligations are and LTV (loan to value is simply how much of a mortgage you are borrowing compared to how much your home is valued at. These are all very important items that a lender looks at as a part of your whole package.

Reserves is another factor that lenders want to see. Reserves are simply how much liquid cash you have in the bank to make payments with. If you are a first time home buyer the reserves can be anywhere from 2 -6 months worth of PITI (Principle, Interest, Taxes and Insurance). Various lenders will have different guidelines so be sure to ask your Mortgage Professional how much cash you will need to have in reserves.

Your credit worthiness will affect the interest rate and the number of programs that are available to you.

Title and escrow are two services that will need to be performed for your loan to close. They are usually both offered through the same title company, though they don’t have to be. You will have to pay for both of these services when you buy or refinance your home.

The title company handles the process of ordering a title commitment and lien search on the specific property that is being financed and making sure it is free of all liens, defects and problems. A lien search is done on the property to insure the property is clear of all liens for the lender that will be lending the money on the property. Whether you are doing a refinance or a purchase a lien search will most likely be done. Consult your local mortgage broker to find a good title company to use.

FAQ: What is the maximum Loan-to-Value (LTV) mortgage rate.

Loan-to-Value, or LTV as it is commonly referred to, is the ratio of loan amount to the value of a property. The maximum LTV ratio may not exceed 100 percent of the “as-improved” value as determined by an appraisal. The loan-to-value ratio (or LTV) is one of the most important factors in your loan process. It is how the loan limits are determined and helps decide where your housing and debt ratios must fall for you to be approved. In addition it helps determine if you will have to pay Private Mortgage Insurance (PMI) and if you will be forced to escrow or not. It can also determine which fees and the amount(s) you will be charged for your loan.

One factor that determines your maximum LTV is your credit score. Lenders do not want to lend a high LTV if you have a low credit score. Generally, if your score is below 580, you will have a difficult time qualifying for 100% financing. Realize that your credit score is used to help determine your likelihood of defaulting on the loan. If a lender sees you as being more likely to default on the loan, then they don’t want to extend credit beyond what they will be able to recover if they are forced to foreclose.