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How to shop for a home loan

Who to contact

Who to contact

It’s always best to work with a recommended lender. Do some research. Ask a trusted advisor or close friend. Financial institutions and mortgage banking companies are usually good sources for home loans. Your lender should be experienced, know the local market and have a solid reputation. Select the most knowledgeable, friendly and responsive lender – and a lender you believe you can trust.

Perform due diligence

Perform due diligence

After speaking to prospective lenders, perform due diligence. The NMLS may be a good place to start. NMLS stands for Nationwide Mortgage Licensing System. The NMLS regulates U.S. residential lenders. Each registered Mortgage Loan Originator (MLO) has a unique identifier number on their business card and website. Search the NMLS for their history. The Better Business Bureau also lists any complaints.

Keep all email communication

Keep all email communication

A common problem when obtaining a home loan is miscommunication. Make sure that you discuss the specifics of your loan request with your lender through email if possible and keep your email history. Your earnings, employment history, credit scores, verified assets for down payment, closing cost figures and information about the property – these are all critical details. You must be honest in all details, and so must your lender. If there are issues your email history could be vital and help resolve the problem.

Ask the right questions and get the facts in writing

Ask the right questions and get the facts in writing

Confirm your loan program, interest rate, rate lock-in period, closing costs and other details in writing. Underwriting standards have tightened in recent years and vary with each lender. More regulations and disclosures have impacted the process. Allow 45-60 days from loan application to loan closing. If someone quotes you 2 weeks to process and close your loan, they may be over-promising. Proceed with caution. Carefully review your Loan Estimate and Closing Disclosure – as these are key documents.

Loan terms and timelines should meet your contract provisions

Loan terms and timelines should meet your contract provisions (if buying)

Verify that your lender can meet your contract financing contingencies and closing date. If you need a 96.5% FHA loan (3.5% down) and you need to close in 40 days, but the lender does not offer FHA loans and requires 60 days to close, that’s a problem. If you’re buying a home from a builder and you need a 180-day rate lock-in (to protect current low rates during construction) then you’ll need a lender that offers extended rate lock programs. The lender must meet terms & timelines stated in your contract.

Loans with pre-payment penalties

Loans with pre-payment penalties

Avoid loans with pre-payment penalties. Make sure the initial Loan Estimate and final Closing Disclosure provided by your lender clearly state that there is no pre-payment penalty on your loan. You should have the option to pay a portion of the balance or pay the entire balance early without penalty.

Adjustable rate mortgages

Adjustable rate mortgages

Adjustable Rate Mortgages (ARM’s): Unless you are comfortable with potential rate increases in the future, consider a fixed rate mortgage. If you will own your home for a short period (i.e. 2-3 years due to a military assignment or a short-term corporate relocation), an ARM loan could be a favorable option to obtain a lower rate for the short-term stay. Even then, ARM loans are a higher risk financing option.

Risky loan terms – demand or balloon features

Risky loan terms – demand or balloon features

Avoid loans with a Demand Feature. This means the loan will come due or mature at some future date. These programs are often called "balloon mortgages". While balloon mortgages are taboo under the Dodd-Frank Financial Reform Bill and QM (Qualified Mortgage) guidelines for owner-occupied homes, some small banks offer these products as “Portfolio Loans”, not subject to all federal guides. Don’t accept a balloon mortgage unless you have the cash to pay off the loan.

Mortgage Insurance

Mortgage Insurance

Avoid loans with Mortgage Insurance (also called MI, PMI or MIP) if possible. Mortgage Insurance protects the lender in case you default. Don’t get this confused with Credit Life Insurance, which may pay off the loan in the event of death of a borrower. Mortgage Insurance is required on FHA loans, or Conventional loans with less than 20% down payment (equity). If you must pay Mortgage Insurance, select a Conventional Loan if possible (i.e. Fannie Mae), as the monthly MI premium may be removed in the future when your loan balance is paid down, and timely payments have been made.

Interim loans – proceed with caution

Interim loans – proceed with caution

Interim loans are typically offered to finance construction of a home. Don’t confuse an Interim Construction Loan with a Construction-Permanent Loan (C-P loan). C-P loans are usually structured to “roll” into a permanent loan automatically when the home is complete. An interim loan is usually for 12 months and may have a demand feature. If something changes (i.e. loss of job or a serious issue arises with your builder), the home may not be complete or you may not qualify for a permanent loan.

Escrow accounts for real estate taxes and home insurance

Escrow accounts for real estate taxes and home insurance

You may be required by your lender to pay into an escrow account for real estate taxes and homeowner’s insurance. The escrow is collected with your monthly principal & interest payment. Unless your loan plan requires this (as with FHA loans), you may want to pay these expenses on your own. If you have 20% down (or 20% equity in your property in the case of a refinance loan), you should have the option to pay taxes and insurance expenses separately. This is commonly called an “escrow waiver”.


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Mortgage Application: How to Apply For a Mortgage

If you feel you’re ready for home ownership and will need a loan, you’ll want to start looking into applying for a mortgage. A mortgage application requires several steps and there are different routes you can take, depending on which type of mortgage you wish to obtain. However, while many of the qualifications and requirements… The post Mortgage Application: How to Apply For a Mortgage appeared first on LendingTree.   Read More...


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Opportunities in Home Finance

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Renovation & Construction Loans, Among Options from
Finance of America Mortgage

by Michele Lerner

While the majority of mortgage loans today are standard 30-year fixed-rate loans, there are still plenty of financing choices that buyers and homeowners can make to custom-design a mortgage for their specific needs.

YourHome1Source recently talked with Steven Reich, senior vice president of production and branch support at Finance of America Mortgage, to find out what this fast-growing lender is seeing in the loan landscape, particularly for first-time buyers.

"One of the biggest misconceptions that consumers have is that they need to come up with a down payment of 20 percent before they can become homeowners," says Reich. "Some consumers just give up on applying for a loan without trying because even on an average $250,000 house, you would need a down payment of $50,000 if you are following that 20 percent rule."

Mortgage loans are available with zero percent down payment for veterans who qualify for VA loans, and for borrowers seeking homes in areas eligible for USDA Rural Development Loans. Loans insured by the Federal Housing Administration (FHA) are available with down payments as low as 3.5 percent and conventional loan programs are available with down payments of three, five and 10 percent. In addition, numerous programs are available through local and state government programs that offer down payment assistance.

Reich points out that FHA loans allow the entire down payment to come from a gift, a big benefit for first-time buyers.

Finance of America Mortgage, which is licensed in all 50 states, has 390 physical offices with more than 1,700 mortgage advisors available to consult with homebuyers, or people seeking to finance a new home renovation or construction project.

"Although we’re a national company we have local advisors in brick-and-mortar offices who are knowledgeable about local programs that provide down payment assistance," says Reich. "Many of those programs are not well-publicized, so having these local resources in place is a big benefit to borrowers."

Student loans and homebuying

Many lenders and financial experts are looking for ways to resolve the conundrum of how consumers with student loan debt can become homeowners.

"One way we work with consumers tackling student loan debt while saving for homeownership is to talk to them about approaching student loan servicers about consolidating their loans to reduce the size of their payments. We’ve been educating our mortgage advisors about this, too, as a potential benefit to discuss with their borrowers."

Renovation and construction financing

After the damage inflicted by recent hurricanes, Reich says it’s more important than ever for borrowers to realize they can finance home renovation projects and build a home with the help of several loan programs. Finance of America Mortgage offers construction loans in nearly every state, a loan product that not every lender provides to borrowers.

"The best loan program for people who have damaged homes or want to buy a home that needs repairs is the FHA 203(k) loan, which allows you to wrap renovation and remodeling costs into your 30-year fixed-rate mortgage," says Reich.

The FHA 203(k) program offers low down payment options for purchasers and can be used to refinance and renovate your existing home.

Investor financing

Whether you’re a fan of HGTV shows about home flipping or just want to tackle a fixer-upper for profit, the right mortgage loan can help realize your investment strategy. During the second quarter of 2017, nearly six percent of all home sales were flips – meaning they had been purchased and sold within a year, according to ATTOM Data Solutions.

"Despite rising home prices, home flipping remains a popular real estate investment strategy and our Commercial channel’s fix-and-flip product has been very popular among investors," says Reich. "We require the home flipper to have experience, having renovated at least one house and have some down payment money. They may qualify for a larger line of credit if they have more experience and a higher net worth."

Whether you’re a first-time buyer, a homeowner who needs to renovate a property, or someone with a strategy of real estate investing, consult a FAM mortgage advisor to discuss your options. You may be surprised at the number of financial solutions that match your needs.

©2017 Finance of America Mortgage LLC is licensed nationwide | Equal Housing Lender | NMLS ID # 1071 (www.nmlsconsumeraccess.org) | 300 Welsh Road, Building 5, Horsham, PA 19044 | (800) 355-5626 | AZ Mortgage Banker License #0910184 | Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act | Georgia Residential Mortgage Licensee #15499 | Illinois Residential Mortgage Licensee | Kansas Licensed Mortgage Company | Licensed by the N.J. Department of Banking and Insurance | Licensed Mortgage Banker -- NYS Banking Department | Rhode Island Licensed Lender. This is not a commitment to lend. Prices and guidelines are subject to change without notice. Some products may not be available in all states. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision.


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Expert Advice

Financing a New Home

by Michele Lerner

Expert Advice

Whether a new home appeals to you because you want a property built for today’s lifestyle and up to today’s standards or you just like the concept of being the first owner of a home, your financing options are similar to purchasing an existing home. You can use government-backed loan programs such as FHA and VA loans or conventional financing, but you also have the option of working with a lender designated by your builder.

Similarities to financing a resale

Before you start visiting model homes and deciding which features are the most important in your new kitchen, you need to take a step back and get ready to finance your home – just like you must do if you are buying an existing home.

Key steps along the way to buying a home include:

  • Deciding how much you can afford to spend.
    The most important first step before you buy a new home or an existing home is to determine how much you can comfortably afford. While a lender can tell you how much you qualify to borrow, it’s essential for you to take all your expenses and your overall financial plans into consideration to come up with your personal monthly housing budget. For instance, if you want to save more for retirement or college tuition or enjoy a weekly round of golf, those are expenses that your lender won’t know about when qualifying you for a loan.
    Don’t forget that your housing payment includes principal and interest, property taxes, homeowner’s insurance and possibly mortgage insurance and homeowner association dues. You can use a mortgage calculator to get an estimate of what you can afford at various interest rates.
  • Checking your credit profile and credit scores.
    Your next step for a new home or an existing home is to check your credit report and your credit scores. Visit www.annualcreditreport.com to request a credit report from each of the three bureaus (Equifax, Experian and TransUnion) and read it carefully. A recent study found that one in four credit reports had some type of error. Start the process to correct mistakes as soon as you can because it can take months depending on the issue. If your credit score is lower than 740, see if there are changes you can make to improve your score because scores above that limit garner the lowest interest rates on conventional loans.
  • Check out your resources for a down payment.
    Determine how much cash you have available for a down payment and other purchase costs. If you make a down payment of less than 20 percent, you’ll need to pay private mortgage insurance, which will increase your housing costs. Keep in mind that your buying power could be greater if your builder pays for closing costs on your behalf.
  • Gather your documentation and information.
    You’ll need two recent paystubs, bank statements from your checking and savings accounts as well as 401k and investment accounts, employer information and your recent addresses. If you’re self-employed, you’ll also need two years of tax returns. Have a general idea of your budget for household expenses that don’t appear on a credit report such as child care costs, insurance premiums and daily living expenses.
  • Meet with a lender to estimate your borrowing power.
    The first lender you consult doesn’t have to be the one you work with to finance your home. In fact, it’s best to shop around to compare lenders and loan programs. Regardless of whether you are buying a new home or resale, your loan approval will be based on your creditworthiness, your income and assets, your job history and your debt-to-income ratio. Your debt-to-income ratio, which compares the minimum payment on all your ongoing debts including your mortgage with your gross monthly income, generally must be 43 percent or lower to qualify for a loan.

Compare loan products

Part of your estimation of how much you can afford to spend on a home depends on the loan term and the type of loan you choose.

  • Loan terms: While the majority of first-time buyers opt for a 30-year fixed-rate loan in order to keep their monthly costs as low as possible, mortgages are also available for 20, 15 and 10-year terms. The shorter loan term has advantages such as a lower interest rate and the ability to build equity faster and pay off your house in full more quickly. However, the monthly payments will be higher since the loan repayment period is shorter. You can also look into adjustable rate mortgages (ARMs), which have a lower interest rate for a determined period such as 5, 7 or 10 years and then adjust periodically. Check out your options for each of these loan terms to determine which meets your current and future needs best.
  • Loan types:
    1. Conventional loans. If you have good credit and the cash for a down payment of five percent or more, a conventional loan often has the lowest interest rates. Some conventional loan programs are available with a down payment requirement as low as three percent. Keep in mind that mortgage insurance is required on these loans if you make a down payment of less than 20 percent.
    2. FHA loans. Loans insured by the Federal Housing Administration require a down payment of just 3.5 percent and have more lenient credit standards, so if you have some credit challenges this may be best for you. Keep in mind that you must pay mortgage insurance on these loans for the entire time you keep the mortgage.
    3. VA loans. If you are a veteran or active duty military person, a VA loan is an excellent option because it requires no down payment at all and no mortgage insurance. You will need to pay a funding fee that can be wrapped into the loan.
    4. USDA loans. If you meet income requirements and are buying a home in a designated rural area, this loan program could be ideal since it has looser credit standards and no down payment requirement.

Builder financing options

The main difference between buying a newly built home and an existing home is that your builder, particularly if the company is a regional or national builder, is likely to have an affiliated mortgage company or a list of preferred lenders. Many builders offer buyers incentives to work with their lender such as the payment of closing costs or free options such as a finished recreation room or a sunroom addition. Builders want buyers to work with their lenders so they can be certain that the loan will go to settlement at the right time and that the lender has experience with the construction process. Financing your home with the builder’s lender isn’t required, although often the incentives are valuable to buyers. However, the fees and interest rates offered by the builder’s lender may not be as low as those offered by other lenders. It’s best to shop around a little and compare loan programs, rates and fees before deciding how to finance your home. Chances are the builder’s incentives are enough to entice you to work with the preferred lender, but it’s best to make an educated decision.

Determining when to lock in your rate

Another major difference between financing a resale or a new home involves timing. Typically, a resale purchase will close within 30 to 60 days of going under contract and a lender will lock-in your interest rate for that time period. Building a home takes four to nine months or longer in some cases, so you’ll need to lock in your rate after the home is partially built. A lender with experience with new construction can advise you when to lock in your rate and for how long. Lenders will charge you a fee for a longer lock-in, but some will refund the fee at the closing.

Financing for custom home building

If you plan to build your own home as a general contractor or hire a custom builder, you’ll need specialized financing in the form of a construction loan. Typically, a construction loan has two parts: an initial loan of one year or less to pay for the actual construction process followed by a permanent loan that finances your home for a period of 15 or 30 years like a standard mortgage.

Construction loan tips:

  • You’ll generally need excellent credit to qualify for a construction loan. Lenders view these loans as riskier since the loan is being made on a property that has yet to be built.
  • A down payment of 20 to 25 percent is usually required on a construction loan, but in some cases lenders have special programs that allow you to make a smaller down payment.
  • Not all lenders offer construction financing, so you may need to search a little, particularly among local or regional banks and credit unions, to find a lender. Custom homebuilders can often recommend a lender with whom they have experience.
  • While some lenders offer the option of converting your construction loan into a permanent loan, others require two separate closings for the loans– each with closing costs to pay.
  • Keep in mind that you’ll need to pay for appraisals and inspections for your custom home. Construction loans usually have an installment schedule of draws from the loan balance to pay for various phases of the building process. Your lender will usually require inspections at each of those phases to make sure everything is completed and meets building codes before disbursing the funds.

Loans for move-up buyers

Negotiating the transition from one home to another can be tricky, particularly when you have some uncertainty about exactly when your newly built home will be complete. A bridge loan can be a useful financing tool for this period. If you lack the cash for a larger down payment on your new house, but have enough equity in your current home, a lender can offer you a bridge loan for the down payment on your new home. Bridge loans typically require excellent credit and are short-term loans that carry a higher interest rate than traditional loans. You’ll need to qualify for the payments on your current mortgage as well as the bridge loan payments and the payment on your new mortgage, although lenders understand that this is a short-term situation that only occurs until your current home sells. You’ll use the proceeds from that home sale to pay off your current mortgage and your bridge loan.

Local lenders are usually best for bridge loans since they understand the market dynamics and can evaluate how quickly your home will sell with the help of a local real estate agent.

Discuss your financing options with several lenders, preferably with experience financing new homes, so you can evaluate your many options and make an educated choice.

Michele Lerner

Michele Lerner is an award-winning freelance journalist and author based in Washington, D.C. who has been writing about real estate and personal finance for more than two decades. She writes for consumers, Realtors and investors. Her work appears regularly in The Washington Post, New Home Source, Bankrate, Fox Business, MSN, Yahoo, The Motley Fool, REIT magazine, Realtor.com, HSH.com and numerous Realtor association publications. She is the author of "New Home 101: Your Guide to Buying and Building a New Home" and "HOMEBUYING: Tough Times, First Time, Any Time."

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Expert Advice

Protect Against Fraud When Financing a Home

by Michele Lerner

Expert Advice

While signing paperwork is one of the least exciting things about buying, building or refinancing your home, the day you are set to close on a loan and move onto the next chapter in your life should be uplifting and satisfying. It wasn’t such a great day for Washington, D.C. homebuyers Sean Smith and Erin Wrons when they arrived to sign papers and pick up the keys for their $1.7 million home. When the couple arrived at the Federal Title & Escrow office, they were shocked to discover that the $1.57 million in funds they wired for closing was missing. The couple apparently were the victims of a phishing scam and had responded to an email requesting that they wire the funds a month prior to the closing. The title company says they were victims of a cyberattack on their information systems.

Whether you are financing a home improvement project with a home equity loan, refinancing your current home or arranging a purchase of an existing or newly built home, the loan process can be time-consuming and sometimes confusing.

"Scammers benefit here because the loan process is confusing and convoluted and consumers maybe do it a few times in a lifetime," says Robert Siciliano, an identity theft expert and CEO of IDTheftSecurity.com. "They are generally unaware of the various nuances that may be red flags for a scam."

According to the Federal Trade Commission (FTC) and the National Association of Realtors, earlier this summer a scam was circulating that specifically targeted real estate transactions. The hackers would break into a consumer’s or a real estate professional’s email account and find out information about the closing date and other details of a transaction. Then the hacker would send an email to the borrower as if the hacker was the title company or real estate professional, with instructions to wire closing funds to a different account.

Protecting yourself against a scam

The FTC says: If you’re buying a home and get an email with money-wiring instructions, STOP. Email is not a secure way to send financial information. Instead:

  • Contact the company through a number or email address you know is real. Don’t use phone numbers or links in the email.
  • Don’t open email attachments, even from someone you know, unless you’re expecting it. Opening attachments can put malware on your computer.

"The best measure of protecting oneself from a scam like this is simply to pick up the phone," says Siciliano. "Call the representative that you are working with to find out if the email communications are legitimate. Don't just trust email at face value."

Siciliano points out that most of the electronic mail processing for loans today is done via a secure server connection, where the lender and title agent require loan customers to create a login and password to open and view documents or instructions on their secure system.

"So, when the transactions are taken outside of those controlled environments consumers should always be suspect and pick up the phone," he says. "I’ve been involved in a half a dozen mortgages myself and not once has wiring money ever been a part of the process. Whenever wiring money is required or requested pick up the phone."

The FTC recommends the following steps to prevent phishing at all times, not just when you’re financing your home.

  • Don’t click on links or open attachments – even people you know could have been hacked.
  • Look up a website or phone number yourself to contact a company – don’t use the link or phone number from an email.
  • Call a company or a friend if they are asking for personal or financial information – don’t respond to an email.

While the D.C. couple purchased their home with the aid of family and other funds, they are still missing their $1.57 million. Take precautions online to avoid falling victim to a similar scam.

Michele Lerner

Michele Lerner is an award-winning freelance journalist and author based in Washington, D.C. who has been writing about real estate and personal finance for more than two decades. She writes for consumers, Realtors and investors. Her work appears regularly in The Washington Post, New Home Source, Bankrate, Fox Business, MSN, Yahoo, The Motley Fool, REIT magazine, Realtor.com, HSH.com and numerous Realtor association publications. She is the author of "New Home 101: Your Guide to Buying and Building a New Home" and "HOMEBUYING: Tough Times, First Time, Any Time."

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