"the Cost of Your Loan"
--click box above--
explains the cost of a loan over the life of its term.
FACTS and NOTHING
A buyer must know these two facts about every seller:
The seller has set a price for her/his house.
S/he wants to know if YOU can get a loan for this amount.
Sellers are not interested in haughty talk or sincere promises by your representing agent. It is your duty to furnish facts. Without them, you may wind up with nothing.
Do you know the answer to this question:
How much will a lender loan you?
The FIRST thing you must do as a potential home buyer is speak with a mortgage broker or money lender and LEARN this fact. An offer not accompanied with a pre-approval letter is weak; it might not be taken seriously by a seller. Funding for mortgage loans in today's real estate market climate IS available, however, QUALIFYING for a loan is much more difficult than in recent years. The amount of each loan has been significantly reduced but NOT because money is tight. The loan requirements are much more rigid.
A seller will not waste time in escrow (with his home off the market) with a buyer that has not proven a financial capability.
PRE-QUALIFIED and PRE-APPROVED
A pre-qual letter is fundamentally good for your own information. Knowing exactly what you can afford will benefit you in time-savings and emotional drains. You will readily know that the cute, 2 bed / 2 bath in the Ivanhoe school district is $100,000 above your affordability. Or, you will have the reassurance that it is exactly in your financial outline and so, be secure to take the next step in the process to owning it.
Getting pre-qualified starts with a conversation between you and a loan officer. This can be done over the phone. The loan officer will collect basic information from you regarding your assets, income, monthly debts, credit history. With this information he will estimate your mortgage affordability. In writing, this is your pre-qual letter.
This is not a mortgage loan approval.
This is not so good as a pre-approval letter.
The process of getting a pre-approval letter is more intensive than the pre-qual process. It involves a comprehensive formula including your personal information and electronic checking of your credit history. Your FICO® score is used in this process.
The pre-approval is a true mortgage loan commitment. The lender indicates the total amount available to you and commits to a loan—typically, the commitment is good for sixty days.
A pre-approval letter is leverage when making an offer.
You want this when dealing with a seller!
After obtaining your pre-approval it is wise to check with this same lender approximately every two weeks for possible changes in the lender's underwriting policies. If you qualified for a loan under a specific program and that program is discontinued you may be denied the loan.
TYPES OF MORTGAGE LOANS
- Fixed Rate
- Adjustable Rate
- Convertible ARM
- FHA and VA
FIXED RATE LOANS
Typical length of fixed rate loans is 30 years. There are also 20-year and 15-year loans.
Advantages and disadvantages of the varying lengths and terms of fixed rate mortgages are:
30-Year:
Qualifying is the easiest of the fixed rate loans.
Monthly payments are lower than the 15 and 20.
Most desirable if you plan on living in the same home for decades.
For income tax purposes, this term provides the maximum interest deduction.
20-Year:
Pay off the loan in 2/3 the time of a 30.
The cost of the overall loan (the interest) is less than the 30.
15-Year:
The cost of the overall loan is less than both the 20 and 30.
Equity builds more quickly than the 20 and 30.
ADJUSTABLE RATE LOANS (ARM)
The ARM is typically a cheaper loan than the fixed, and easier to qualify. However, adjustable rate mortgage loans are risky. What starts off with a monthly payment that fits your budget may wind up rising to a level that is above your means. If you become delinquent in three consecutive payments the bank may foreclose on your house.
The percentage rate of this loan moves in tandem with a financial index. There are 17 indexes that are used. The Constant Maturity Treasury (CMT), Cost of Funds-Indexed (COFI), and the London Interbank Offered Rate (LIBOR) serve as the basis for 80% of all ARMs. The movement can go up or down and has a pre-determined "cap": it cannot rise above the specified rate (conversely, it cannot fall below a specified rate). Also, there is a time period for when the rate may change. Typically, this time period is 12 months.
If you consider this type of loan ASK YOUR LOAN OFFICER to calculate an AMORTIZATION SCHEDULE for the worst possible future scenario in the life of your loan.
CONVERTIBLE ARM
A Convertible Adjustable Rate Mortgage works like any other ARM but offers a distinct advantage: it allows the loan to change into a fixed rate loan after a predetermined time period. This time period is usually during the second through fifth years of the loan.
FHA and VA
The Federal Housing Administration (FHA) and the Veterans Administration (VA) offer a wide range of mortgage loan choices. These include 30-year and 15-year fixed rate loans and ARMs. Insured by these government agencies, the loans feature low or no down payment terms and are often assumable should you sell your house. VA loans are restricted to individuals qualified by military service or other entitlements, but FHA loans are open to all qualified home buyers.
WHERE TO GO FOR A LOAN
MORTGAGE BROKERS
A mortgage broker acts as an intermediary who sells mortgage loans on behalf of individuals or businesses.
Traditionally, banks and other lending institutions have sold their own products. As markets for mortgages have become more competitive, the role of the mortgage broker has become more popular.
Currently, mortgage brokers are the largest sellers of mortgage loans for lenders.
MORTGAGE BANKS
Unlike a federally chartered savings bank, a mortgage bank generally specializes in making mortgage loans. They do not take deposits from customers. Their funds come primarily from the secondary wholesale market, such as Fannie Mae and Freddie Mac.
BANKS
The bank is traditionally known an an institution that acts as a payment agent by conducting checking or current accounts for customers, paying checks drawn by customers on the bank, and collecting checks deposited to customers' current accounts.
Banks make mortgage loans, too. The funds received by depositors is used to loan money. The bank makes money by charging a higher percentage rate to borrow money than it pays for customers' accounts.
The Ennis-Brown House by Frank Lloyd Wright in Los Feliz Hills
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cell/text:
(323) 467-8062
office:
(323) 906-2483
Buyers
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