Loans 101

Posted by John Reeves in | 0 Comments

Nov

Can I Get A loan?

Reef Point Realty can assist you in finding a lender. A lender plays an important role in helping you through the process of loan pre-qualification. Your Reef Point Realty Specialists are investors and will be able to guide you step by step. Getting pre-approved will give you a price range, and leverage with the seller. There is more room to negotiate, especially if the buyer is motivated to sell. They’ll know you’re serious and ready for business.

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First things first, check your credit score. In 2011 you’ll want a FICO score of 620 or higher to get multiple loan options. The lower the score the lower your options are, and the higher your interest rates will be. Just to give you an idea, you’ll need a score of 760 or higher to get the best loan rates.

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One thing to keep in mind is the 3 to 20% down you’ll need for closing costs. It is not necessary for the pre-qualification or pre-approval stages. But be prepared, your lender will review your bank statements during final approval to ensure you can make the payment.

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The next phase is determining your debt-to-income ratio. Most of us have debt, but if you’re up to your ears in it you will not get pre-qualified. When lenders look at this ratio they take how much you earn and compare it to how much goes towards your debt each month. If you can pay down your debt before applying it will help improve your likelihood of getting a loan. Lenders will also take into account open credit. If they see a lot of opportunity for debt it could affect your ability to get a loan. So close those accounts and stop all other applications for credit during this time.

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Finally, when you are pre-approved ask yourself if you can afford the amount of the loan. One of the main causes of foreclosure is getting into a big loan. Set up a budget prior to dealing with a lender.

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Choosing A Lender

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Don’t put too much time into the name of the lender who’ll underwrite your loan. After all, in a few months your mortgage note will have likely change hands. But, once you’ve narrowed it down verify with the Better Business Bureau that they are a reputable bank. As a convenience, Reef Point Realty has a list of lenders they can recommend. We advise home buyers to look at mortgage interest rates, lender fees, and the cost of closing the loan.

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A good place to start is with your bank, since you’ve already established a relationship. You’ll find that they’ll be willing to take time explaining your options. Later you’ll want to search online. This will widen the pool of lenders from which you can select. We understand that this part of the home buying process can be intimidating, an experienced Reef Point Realtor will be happy to help you through it.

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Choosing A Mortgage

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There are two groups of mortgages: fixed interest rate mortgages and adjustable rate mortgages. , Under those two groups are many options. Before a buyer can select a mortgage they need to know what choices are available.

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Fixed Rate Mortgages

There are no surprises with these loans. The advantage of this mortgage is you’ll know the cost of housing for the duration of the loan. These are the loans most people are familiar with:

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30-Year Fixed Rate Mortgages

Offers the lowest monthly payment for fixed rate loans
It never changes over the course of the 30 years

Lenders may offer 25, 20, and 40-year term mortgages. You’ll have lower monthly payments, but more total interest to pay due to the longer term of the loan.

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15-year Fixed Rate Mortgages

Own your home in half the time
10 to 15% Higher mortgage payment
Half the total interest cost
Own the home before your kids go to college
Own the home before retirement

The 15 year fixed rate mortgage is a good option for saving on total interest cost, and owning your home earlier.

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“Convertible” Fixed Mortgages

Convertible mortgages allow the buyer to change the loan’s interest rate. This option is available after a set period of time or a predetermined movement in the interest rates. This loan is also known as: Reducing Interest Loan (RIL), Reducing Interest Mortgage (RIM), or Reduction Option Loan (ROL).

Lowers interest rate with a payment or small loan amount based fee.

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Mortgages That Change

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The Hybrid ARM blends fixed rate and adjustable rate features. Hybrid ARMs are labeled by their initial fixed-rate and adjustable-rate periods. A 3 year fixed interest rate period followed with a 1 year interest rate adjustment period would be referred to as a 3/1. The reset date is when the Hybrid ARM shifts to an adjustable-rate payment schedule. When the loan resets it floats at a margin over a specified index just like any ordinary ARM.

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Features

interest rate that is fixed for an initial period of time then floats
Transfers interest rate risk to the borrower

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-Option ARMs

An Option ARM offers borrowers four monthly payment options: a specified minimum payment, an interest-only payment, a 15-year fully amortizing payment, and a 30-year fully amortizing payment. The minimum payment on an Option ARM can greatly fluctuate when the unpaid principal balance reaches the maximum limit on negative amortization. One could expect a typical adjustment of 110% to 125% of the original loan amount if that happens. This loan can be downright risky, and is best suited for the experienced buyers with growing incomes.

Features