Who isn’t in the mortgage business? You have auction companies, Wall Street banks and now Quicken Loans selling mortgages. For years, you might have trusted the Quicken software for your finances; now you can use its service portal – Rocket Mortgage – for house loans. This Quicken Loans Rocket Mortgage review describes its features, advantages, disadvantages and whether this automation is the wave of the future.
Trusted Quicken Loans Brand
As an industry leader, Quicken has already demonstrated its prowess in helping you do-it-yourself (DIY). It has given you the tools, templates and an easy-to-use interface for adding up your financial numbers. Today, individuals can use Quicken to manage their own finances, instead of hiring accountants, wealth managers or bankers.
Do you remember when the automobile manufacturers started creating their own credit institutions? It kind of made sense for them to bring the financing in-house, since it was so key to their business.
Quicken could expand into a number of lending fields, but real estate has been hot since the 1990s. The award-winning Quicken brand is a welcome addition, making you feel better about online mortgage lenders.
Did You Know? Quicken has actually become the #1 online home lender.
Did You Know? Quicken has even salted away its position as the #3 home loan lender (for online or offline).
That is pretty impressive. When you go online, it only makes sense for you to trust the same financial system, you have been using for your home budget, accounting and taxes. Also, your financial data is already in your Quicken database.
Rocket Mortgage Service Portal
Rocket Mortgage is simply about branding. It is run by Quicken Loans – it is their mortgage service portal. This Rocket Mortgage allows you to view estimates of what mortgages you qualify for.
What does Rocket Mortgage Offer?
All mortgage rates are subject to change. But, if you just want a rough overall snapshot of what Rocket Mortgage has to offer, here are the figures from May 2016:
- Fixed Rates from 8 to 30 years
- Adjustable Rates of 5/1, 7/1 or 10/1
- Minimum credit score of 620 (or 580 for FHA loans)
Therefore, if these are what you are considering, then Rocket Mortgage might be of use.
If you have ever applied for a loan, you realize that all the forms are basically the same. They need your name, Social Security Number and income. Of course, they can look up your credit score themselves.
Do you really want to rewrite this information on a piece of paper, over and over again? Probably not. With Rocket Mortgage, you can efficiently use your Quicken files. Rocket Mortgage places valuable information at your fingertips.
For example, if you give Rocket Mortgage authorization, it can download your asset statement from 95% of U.S. financial institutions. Isn’t that nice? Sure it is. It can also verify the employment and income for more than 60% of Americans.
JD Power Award-Winning Software
Some government and banking websites are fairly drab. Thankfully, Rocket Mortgage has conquered this “blahness,” by creating an engaging website. It breaks down the mortgage lookup process into the following “Nine Steps:” 1. Living Situation, 2. Home Information, 3. Desired Location, 4. Who’s on the Loan?, 5. My Money, 6. Government Questions, 7. My Credit, 8. My Solution and 9. Get Approved.
Rocket Mortgage has been the winner of the JD Power & Associates awards for “primary mortgage origination” from 2010 to 2016 and “mortgage servicing” from 2014 to 2016.
Nowadays, even shoe shine boys are offering financing.
When it seems like everyone has a cousin named Vinny, lending some money, trusting in a good name like Quicken Loans, only makes sense. Although, the website is primarily DIY, you can get some human assistance by clicking on the “Talk to Us” button. You can get a loan amount within minutes after you “Push button. Get mortgage.”
Wave of Future?
Adobe, Fabletics and Rocket Mortgage have continued the “online-only” business trend. Fabletics has engaged in a “reverse showroom” process by garnering online customers first and then, later telling them where to find their offline stores.
Cyber Monday shows that there is a ripe market for “online only.” Robotics, artificial intelligence and automation threaten the very lifeblood of doctors, lawyers, accountants and bankers, according to CNBC. Rocket Mortgage is cutting-edge.
+ Ballpark Estimate
– No HELOC
All in all, Rocket Mortgage is a great idea and has quickly become the industry leader. If you want fast answers, this DIY mortgage lookup process is solid. “Online only” is here.
The mortgage industry has experienced some significant changes in the last couple of years. Consumers looking for a mortgage now have fewer reasons to deal with a bank, mainly due to the proliferation of alternative lenders. These are companies that don’t function as traditional banks, as they don’t take deposits from their customers and usually focus on lending.
While the mortgage industry is worth $1.5 trillion, major banks have started distancing themselves from it after stricter regulations were put in place right after the 2008 economic crisis. Alternative lenders have stepped in to take their place and are now the preferred choice by many first-time buyers and existing homeowners looking to refinance. They offer some advantages over dealing with a bank, such as more transparency regarding mortgage rates and a faster way to complete the entire process, the majority of which can now be done online.
If you’re shopping for a mortgage, it’s always good to know what the new alternatives to banks are. You will find non-bank lenders that specialize in working with consumers having less than stellar credit, online mortgage marketplaces and brokers that help shoppers find the lowest rates and online lenders that aim to speed up the entire lending process, sometimes having the ability to handle the entire application online.
You Can Now Choose From More Mortgage Options Than Ever
According to information from the Federal Reserve, 45 percent of home loans are now obtained from alternative mortgage lenders. Competition in the market is growing and so is innovation. The loan process is now faster, as many lenders move to electronic submission of documents, though in most cases you will still have to visit an attorney or notary to sign documents in person.
Of course, you still have the option of dealing with a bank if that’s what you prefer. But you also have access to many alternatives that just weren’t there a decade ago.
Credit Score Not High Enough? Alternative Lenders May Help
In the aftermath of the 2008 housing practices, the nation’s biggest banks, such as Wells Fargo and Bank of America, have all been hit with lawsuits and fines as a result of questionable lending practices. Increasing regulation of the mortgage industry has followed, which has led to the giants of the finance industry to issue home loans only to the most qualified categories of applicants.
However, this doesn’t mean that prospective buyers with lower credit scores are left without any option. Alternative lenders have stepped up to the plate and are now taking on an ever-growing number of applications for FHA loans, which are often used by first-time buyers and people with credit problems.
Many of these non-bank lenders are smaller, local companies that don’t have to deal with the restrictive regulations that big banks do. The role of credit unions in mortgage lending is growing too. In 2015, they originated over 8 percent of mortgages in the United States, which is double the figure from just five years prior.
Online Lenders Make Getting Your Mortgage Faster Than Ever Before
If you want your mortgage application to be processed as fast as possible, many online lenders now offer innovative services that streamline mortgage lending. Quicken Loans, the largest online lender, now offers a “Rocket Mortgage” service, which offers mortgage or refinance application decisions online in as little as eight minutes.
Mortgage Middlemen Find the Best Rates for You
Many tech startups have recently entered the mortgage industry, not as lenders, but rather as middlemen that connect consumers with lenders that offer products suitable for them. This is how online mortgage marketplaces, like Zillow and LendingTree, operate.
They analyze the information you provide them and return a list of several mortgage lenders, along with corresponding rates. You then choose one or more lenders to continue your application with. The marketplace you used receives a commission for the lead from the lender.
Although most online mortgage brokers rely on an automated process, some offer more personalized services, working closely with both the applicant and lender. This is the case with Sindeo, an online mortgage broker that provides a kind of mortgage “concierge service.” You will get to speak to an advisor that will help you choose the best loan for your needs, in addition to ensuring that the application process with the lender goes smoothly.
When you apply for a home loan, most lenders will largely base their approval or denial decision on the same four factors. These are your income level, your debt level, your financial assets and your credit rating. They have specific debt-to-income ratios that you must meet. They also want to see that you have enough money to pay the down payment and closing costs while still having a reasonable reserve of funds remaining in your accounts after closing. Most home lenders also require that borrowers have good to excellent credit scores. However, if you think that you have less than perfect credit and are ready to become a homeowner, you may be wondering what your options are for getting a home loan. The good news is that you may still be able to qualify for a home loan with lower credit scores in some cases.
Review Your Current Credit Rating
If you have not reviewed your credit rating recently, it is important that you do so as a first step. Ensure that all information being reported about you is correct. Examine your scores from all three credit reporting bureaus. Some people are surprised to learn that their scores are higher than thought, and others have the opposite experience. Your lender will need to know your credit scores to pre-qualify you, and you can save yourself loan application fees and unnecessarily credit pulls by telling a loan rep your credit scores up-front.
Take Time to Repair Your Credit Rating
Because of the importance of having a good credit rating to qualify for a loan and to get the best interest rates available, you may take time to repair your credit rating before applying for a mortgage. Some people, for example, may have a low credit score because they have too many outstanding accounts. Spending a few months paying off and even closing some of your accounts may have a positive impact on your credit rating. If you have an outstanding collection account with a balance owed, this can be impacting your credit score. Most lenders will require you to pay the collection account off before closing anyway, so it may be best to pay it off now and wait a few months for your credit scores to increase as a result. It may be wise to work with a credit repair specialist as well. Credit scores are calculated based on complicated algorithms, and some people make financial decisions with the belief that they will improve their credit scores. However, they may have the opposite effect of decreasing their scores. A credit repair expert can help you to make the most effective changes to your credit report.
Consider an FHA Home Loan
Most banks and lenders offer FHA home loans. These are special loans backed by the Federal Housing Association, and they typically are characterized by having a competitive interest rates and low down payment and closing cost requirements. If you put down less than 20 percent, however, you may have to pay PMI. PMI can increase your monthly payments for year to come in some cases. FHA loans have specific requirements, especially involving your ability to make your housing payments on time. However, they are often more lenient on credit scores than other loan programs.
Have Compensating Loan Factors
Whether you consider an FHA loan or another type of home loan, some lenders may be more willing to accept a lower credit score if you have other positive, compensating factors. For example, your scores may be lower because of an event that happened a few years ago. However, you may have worked hard over the last few years to improve your financial situation, and you may now have minimal debts in your name. You may also have substantial liquid assets in your bank accounts. These are some of the compensating factors that may make a lender more inclined to approve your loan on an exception basis. While some lenders are willing to do this, others stick firmly to the minimum credit score requirements their institution has established.
Your mortgage payment will be a major expense in your budget for many long years. The interest rate that you qualify for is based on your credit rating and will directly impact your mortgage payment. Even if you can qualify for a higher rate under some loan programs with a bad credit score, it may make sense to stay in your current home for a few more months or years until your credit rating and financial status have improved. Taking on the expenses of home maintenance, mortgage payments and more can be difficult to manage when your finances are not solid, so you should only purchase a home when you are comfortable with your financial situation.
Many homeowners come to consider mortgage refinancing at some point for several reasons. Refinancing is replacing the original mortgage with a new one, usually to get better loan rates or terms. Maybe you are halfway through your first loan repayment and thinking of taking out another loan, but how do you do it? Because of all the processes that homeowners have to undergo the first time, many believe that refinancing is a breeze- you just talk to the right people and sign a document or two, and you are done. However, a refinance demands just as much work as the original mortgage.
Before approaching your lender for another loan, find out why you need it. There are instances where homeowners refinance and end up worse off than they were with the first loan. A rate or term refinance is one that lowers the monthly interests and payment agreement of your current loan. This refinancing works if the present home loan rates have gone down compared to when you first took out the mortgage, meaning most lenders are offering better interests. A refinancing can also be cash-out where you get a bigger loan than your current mortgage debt, which means you can repay it and use the difference for a large purchase like a car or home renovation.
You can also refinance to shorten the length of the term. Your existing loan could be for thirty years, yet you have only paid five. If so, you can approach a lender and get a loan for twenty or fifteen years. A refinance can also be used to get rid of mortgage insurance. When you have a home that has spiked in worth and paid off some of the loan debt such that it is lower than 80% of the property’s appraised value, refinancing will not require mortgage insurance. You can also refinance when you want to switch from one lending institution to another.
Know the Home Value
Once you have determined your refinancing objectives, check the market for your home’s current value. With a few online searches and opinions from property experts, you can learn if your home has risen in worth. For instance, you can start thinking about a cash-out refinance when your home doesn’t have enough value to grant you equity to borrow against.
Check Your Credit
Since the last time you got a mortgage, how has your credit score improved? Lenders apply the same rules just as when you were asking for the first loan. If your payments have been consistent and timely, then you won’t have problems. Of course, a high credit score gets you good interest rates. It is more profitable to wait a while to improve your credit score instead of refinancing with a bad one.
Calculate the Costs
Online mortgage calculators are useful in this instance. Don’t start shopping for a new loan before knowing what it will cost you. Maybe your current mortgage was taken out six or seven years ago, meaning a few things have changed. The title search, application charges, and attorney fees are just a few of the expenses that will determine the overall costs of your mortgage, so make sure you learn about them. Mortgage calculators can help you approximate all this and give you an idea of the payments and the period it will take to break even.
Shop for Mortgages
Presently, homeowners have numerous mortgage products that cater to a broad range of needs. With the knowledge of how much your home is worth and the amount you seek, look for lenders with the best offers. A refinancing doesn’t always have to be by your current lender but start with them and see if they are willing to negotiate better terms. Get loan estimates from at least three lending institutions for comparison. These quotes should include all the details of the mortgage, plus costs.
Once you have decided on the lender, find out the paperwork that accompanies the process. Make certain you can gather the necessary documents and present them in time. For people who have most of their financial transactions online, get printable documents and download statements, among other things.
Get a Legal Professional
Some of the paperwork can be a bit complicated with sections that you don’t comprehend. Don’t sign a contract unless all the terms are clear and the implications of not fulfilling them are well laid out. Some workers loop themselves into unfavorable contracts all because they don’t want to spend on a lawyer. Find a property attorney to clarify some of the aspects.
Cash in hand is needed to clear some of the closing costs such as property taxes and insurance, so be sure to budget for them. With proper planning and consideration, a loan refinance can be very effective in reducing your current payment rates and interests. Also, check with lenders about restrictions or regulations about refinancing before you apply. Whatever your motivation for refinancing is, know how to time it. Waiting a few months may prove more sensible than rushing into it.
The down payment is often one of the major roadblocks to getting the home of one’s dreams. Many lenders are starting to back away from the FHA loan. Lenders have stated that regulations have caused them to back away from FHA loans. Many banks have also taken themselves out of the FHA market by putting extra credit requirements on top of the lending standards set by the FHA.
Get a Down Payment for Thousands of Dollars
Renters want to put more money in their emergency fund as well as save for retirement and their children’s education. They would rather do that than save for a down payment. Twenty percent is typically the minimum required down payment. That is a major expense. For example, if a home cost $300,000, then one will have to make a down payment of $60,000.
However, if that number dropped down to three percent, then it will seem more feasible. For example, one would have to make a $10,000 down payment on a $300,000 loan. People who get a FHA loan can get a down payment for just 3.5 percent. There are two other programs that allow you to get a loan for a three percent down payment. You can get a loan backed by Freddie Mac and Fannie Mae.
This information can be confusing. Fortunately, we can simplify this information.
Home Loans That Lenders Like
Freddie, Fannie and FHA all sound the same. However, there are differences between the three lenders. Many lenders have turned their backs on FHA loans, but they like Freddie and Fannie-backed mortgages. Lenders do not have to worry about all of the restrictions and regulations of FHA-backed mortgages.
FHA loans are ideal for some buyers such as people who have a credit score that is below 720. Borrowers can also get help with their down payment. However, there are some restrictions that have been set by the programs. People are allowed to borrow up to 97 percent of the value of the home. One buyer has to be a first-time homebuyer, which means that the person has not owned a home within the past three years.
You will need to purchase private mortgage insurance. However, you can cancel your private mortgage insurance if you have 20 percent equity in your home with a Freddie Mae or Freddie Mac-backed loan. You will have to pay FHA mortgage insurance the entire time that you have the loan.
If you are not a first-time homebuyer, then there are other programs that can help you get a down payment for less than five percent.
What is the Bottom Line?
FHA loans are still an option for first-time homebuyers whose credit is not a perfect. However, if you have great credit, then you can get Freddie and Fannie-backed loans. You can get a down payment for less than 20 percent. Furthermore, it is a good idea to compare lenders.
Buying a house can be complicated. Many people dream of owning their own home. Home ownership in the United States is very high. Many people in America want to buy a house. Part of the traditional home buying process is getting a mortgage to help pay for it. A mortgage allows people to buy a house. The bank lends the buyer much of the money for the home price. In turn, the buyer agrees to pay the mortgage back, usually in increments every single month. This is known as interest. Interest on a mortgage is tax deductible. Getting the right mortgage is a process. This process can be as quick as a week or two or as long as several months if the mortgage is particularly complicated. Any home buyer needs to understand the mortgage process in great detail before they start buying a house. Doing so can help them feel comfortable and confident at every stage in the home buying experience. It can also help the buyer know what to expect before they start, making the process more familiar and less scary.
The process of creating a mortgage typically starts when the buyer heads to a bank. Banks lend funds to buyers all the time. A buyer will need to pay specific costs along the way. This is particularly true at the very end. The very last stage of the mortgage is known as the closing. The closing is when the literal exchange of property ownership takes place. After this process is completed, one owner will move out and another can take possession and move in the house. The closing is the completion of the home buying process where all documents are signed and each party gets to move on. Any home buyer should know that the closing typically involves the payment of certain costs. A home buyer needs to know what costs they can expect to pay. While mortgage costs costs can vary from place, in general, most mortgages will involve the payment of certain specific costs.
Fees Related to Property
Most homeowners are asked to pay certain types of fees. One kind of fee are fees that are related to property. An appraisal fee is a fee that helps the lender determine what the property is worth. Bank officials need to make sure the property is worth enough so they can get their money back should the buyer wind up defaulting on the mortgage. Another kind of fee that the buyer will typically be asked to pay is a home inspection. The lender needs to have the home inspected in order to make sure the house is in good condition. A home inspection is designed to help reveal both minor and major flaws. If there are major flaws, the price may have been adjusted to account for this as well as the mortgage.
The applicant may also need to pay other kinds of costs at the closing. The buyer can expect to pay an application fee just to get the mortgage. If the buyer isn’t using a new mortgage but taking over an existing one, they expect to pay an assumption fee instead. Some states require the mortgage applicant to have a lawyer with them as they buy the house. In that case, they will need to pay for an attorney to be present at the closing. Some buyers may be paying what are known as points. Points are pre-paid mortgage interest. Such funds are due during the closing process. Another fee that may be required is known as a loan origination fee. This fee is often a huge one and will include the work required to process all paperwork required to get the loan. In most instances, this hefty fee will be about one percent of the entire loan.
The mortgage closing will also usually require the payment of certain other fees. If the applicant is putting less than twenty percent down, they will be asked to pay for insurance costs that will cover the lender’s needs if the mortgage goes into default. A borrower may also be asked to pay fees related to specific mortgage companies such as the Federal Housing Administration. The buyer may also need to pay fees such as condo fee in advance. Many buyers can also expect to pay property taxes for a month or two before they move in. Most lenders will also require the buyer to pay for a title search in order to make sure there is no other claim to the property. Should there be an error, the buyer will also pay for insurance for both the lender and the buyer to protect their interests in the property.
A home loan mortgage payment will be one of your largest expenses after you purchase your home. You understandably want to find the best rate and terms for the loan you need. The first step to take is to find a quality home lender that offers exceptional pricing and friendly customer service. Caliber Home Loans is a reputable lender that has been offering mortgages to its customers for several years. This may be the right company to turn to for your home loan needs, and a closer look at what it offers can be enlightening.
The History of Caliber Home Loans
Caliber Home Loans was formed in 2013 when Caliber Funding and Vericrest Finance merged. This mortgage company is located in Dallas, and it is solely owned by Lone Star Funds. Lone Star Funds is backed by billionaire John Grayken. The company has an in-house servicing department, and it services approximately 94 percent of the loans it originates. It also is a wholesale lender. This means that it offers loans to mortgage companies and other local lenders as affiliates.
Home Loans Available Through Caliber Home Loans
Caliber Home Loans strives to provide its direct consumers and its lender clients with an exceptional range of loan programs to meet a wide range of needs. Its many competitive loan programs include FHA, VA, USDA and conventional loans with both fixed and adjustable rate loans. It also caters to first-time buyers as well as those who need to refinance their existing loans. Investors will find loan funds available up to $2 million for investor properties, and there are second home programs for owner-occupied properties for both domestic and foreign borrowers. Many individuals have experienced financial hardship and are looking for a way to start over. The Fresh Start program available through Caliber Home Loans is well-suited for those who have at least a 580 credit score, and it is acceptable if they had a bankruptcy or a foreclosure in the past.
Competitive Loan Rates and Fees
Because the loan programs available through Caliber Home Loans are substantially varied to appeal to a wide range of clients, the interest rates and loan terms vary as well. For example, through the FHA program, you may have a very low down payment of 3.5 percent. Through the Fresh Start program, you may have to pay 15 percent down or more. The interest rates are very competitive, but they adjust based on credit scores and debt-to-income ratios. You can learn more about current interest rates and terms available through Caliber Home Loans by visiting the company’s website.
What to Expect From the Loan Process
Caliber Home Loans has numerous branch locations across the country and is licensed to do business in all 50 states. You can easily begin the loan process by reaching out to a representative or by completing the loan application online. This will give you more information about the loan programs that are most well-suited for you as well as the loan terms and interest rates you qualify for under each program. This lender takes full advantage of technology through all aspects of its loan process. It uses technological verification of funds, credit history, income and more to reduce the amount of documentation that borrowers need to provide and to streamline the process. Some loans may close in as little as ten days because of this incredible process.
Other Things You Need to Know About Caliber Home Loans
While there is much to love about what Caliber Home Loans offers to its direct and wholesale customers, the unfortunate reality is that this company seemingly falls short in some areas. For example, because of its Fresh Start loan program, it has been criticized for extending home loans to individuals who do not have a solid credit history and who may not be able to financially assume the responsibility of a large home loan. The company has also been under investigation because of its practices related to delinquent mortgages. More than that, J.D. Powers has given Caliber Home Loans a below average ranking for customer service. In fact, the company ranked 16th out of 18th in a 2016 survey related to customer satisfaction. It received the lowest rating possible in areas such as onboarding, customer resolution, loan closing, interaction, loan approval process and several others.
Caliber Home Loans is a popular home loan company that offers loans across the country directly to consumers as well as through mortgage brokers and affiliates. Its programs are very competitive and may be well-suited for most borrowers, and it offers a streamlined loan process and a fast closing time. However, it does seemingly fall short in a few key areas. While you strive to find the right home loan company to work with, keep these important points in mind.
Unless you have been saving for awhile or your income doubles suddenly thanks to some unexplained serendipity, then you either wait until you can afford to pay in cash or apply for a loan to get a new house. This is when mortgage loans come in handy. However, finding the right mortgage lender is tricky to say the least since there are countless lending agencies at work. Here are four effective ways to find the best mortgage lender.
Know the Fundamentals
Prior to any sorts of engagement, take full control by being informed. For instance, mutual savings bank is similar to savings and loans, as both are focused on the community’s interests. On the other hand, credit unions are member-owned financial institutions offering favorable interest rates and easier membership access. Mortgage bankers and correspondent lenders are quite similar as they rely on other sources to fund your loans, and then potentially sell your servicing rights to other lenders or investors. This is commonly practiced by the smaller mortgage banks. Incidentally, mortgage for purchase of home rose by 1.2 percent, while the rest of the applications including refinancing fell by about 2.9 percent. Generally, there is about 49.10 percent rate of applications in the United States from 2007 to 2017.
Learn to Ask the Right Questions
There is an enormous number of mortgage lenders out there. This explains why it is very important to be inquisitive and use reliable resources to determine the most appropriate loan provider. Survey on mortgage borrowers showed that 47 percent of home buyers fail to compare lenders and this cost them money. Go straight to the point and ask for their interest rates. You may also ask them of the possible ways to lower this rate, and then put them side by side with the information from other lenders. One of the possible ways to lower this rate is by purchasing discount points from them. According to Les Krasmky, Executive Vice President and General Counsel to Silk Abstract Company, paying for points to lower the interest rate will decrease the monthly payment while increasing savings from accrued interest over time. Also, ask them for their preferred communication channels, response rate, turnaround time for application, your responsibilities for them in case you avail, required down payment, and the rules when waiving the mortgage.
Examine the Loan Documents
Pay very close attention to the Initial Loan Estimate and the Closing Disclosure. These will show the exact finance terms, closing cost responsibility, inclusions of loan, existence of home inspection contingency, closing date, and other essential information. Corelogic reported about 12, 718 mortgage application frauds have been estimated by the second quarter of 2016 and about 3.9 percent increase in the fraud risk index. The undisclosed agreements, third party risk, non-arm’s length transactions, and straw buyers account for about 3.2 percent increase in transaction fraud risk. Be wary of lenders who depict vague information regarding the process of lending itself. With the increasing risk of fraud, opt to keep shopping around for potential mortgage lenders until you feel confident with whom you find.
Get Your Credit Score Ready
Credit scores are used to predict the likelihood of repaying future loans. The average American credit score is 695. Scores are mainly dependent on the data showing how you handled your debts in the past, such as payment history, utilization and history of credit, applications, and types of credit. Higher credit scores are proven more attractive to potential lenders and gives you more power to qualify for loans, and make demands. Paying all existing bills, not just credit cards, on time will help to increase your credit score. Also, keep your credit card balance at 30 percent of available credit or lower. It will also be helpful to maintain all accounts active to boost your length of payment history and utilization. A regular monitoring of credit report will help to dispute any errors immediately. Consequently, a bad credit score will affect the process of application for some mortgage lenders. Luckily, there are specialized lenders who give chance even to those with low credit scores.
Mortgage payments lasts for about 15 to 30 years, thus, it is very important to pick the right lender to work with. After all, it takes more than just a good interest rate to determine if you’ve made the right choice. Remember that everything will turn out right if you pay close attention to every important detail regarding your capacity to pay and your loan policies as a whole.
Borrowers weigh a number of options when thinking about taking out a loan. Well, they should think about certain things. Procuring the wrong lending option can lead to a lot of troubles. Making a bad decision when borrowing could lead to paying more than what is necessary. Bad loans almost always come with ridiculous interest rates and terms.
Home equity lines of credit are sought by many since these forms of credit are relatively inexpensive and painless to acquire. Truth be told, home equity lines of credit come with many positives. Are either perfect? “Perfect” is a nebulous term. No source of credit is perfect, although lending institutions may hint at absolute perfection in the marketing campaigns. Home equity lines of credit do present some drawbacks.
Borrowers need to properly understand all the pros and cons associated with a home equity line of credit. Through such understanding, the best and most informed borrowing decision can be made.
The Structure of Home Equity Borrowing
A home equity line of credit is revolving credit borrowed off the value of a house. A bank or other financial institution will assess a borrowing amount based on the sale value of the property. If the home is worth $150,000, a bank could provide a home equity line of, say, $60,000. Lenders usually will go as high as issuing a line of credit that is upwards of 85% of the value of the home.
If there is still a mortgage owed on the home, the amount of money afforded via a home equity loan will diminish. If a property is worth $200,000 and $100,000 is owed, the line of credit ends up being issued based on removing the amount still owed from on a mortgage from the equation.
Once approved for a line of credit, the borrower/homeowner could then access the line of credit in a manner no different from a personal line of credit. The debt would not be fixed in the way a personal loan is issued. Monthly payments are required, but fixed payments over a set period of time are not mandated. Borrowing again and again on the remaining available credit is possible.
In a way, lines of credit are similar to credit cards. Since this type of line of credit is secured by the owned property, the limits can be quite high.
The Major Advantages
There are a few major advantages to acquiring a home equity line of credit. One benefit is the credit lines are much more easily approved than unsecured loans. The value of the house backs the borrowing. As such, a lender is better able to approve an application to a borrower.
Interest rates on home equity lines of credit are usually quite low. Lower interest rates are common with home equity lines since these are secured loans. When collateral is present, the lender is taking less of a risk than would be the case with a personal line of credit on a checking account.
The interest rates on a home equity line of credit remain fixed. Variable interest rates can be costly. Many borrowers find themselves in a lot of trouble when variable interest rates increase. Mortgages with variable lines of credit that increase are sometimes at the root of a foreclosure situation.
Personal lines of credit are usually capped at low amounts. $10,000 to $15,000 would be the ceiling for most people hoping to be approved for an unsecured loan. Home equity loans, as already noted, come with much higher ceilings based on the available equity in the home.
Drawbacks to a Home Equity Line of Credit
The main drawback to a home equity line of credit is also its main advantage. While borrowing from home equity is fairly easy, the home is the collateral on a default. Anyone who defaults on the money borrowed from a line of credit may find him or herself in foreclosure. Entering into foreclosure could end up being disastrous for most people, but default would make such a situation unavoidable.
Another problem may arise. Imagine borrowing a tremendous amount of money on a line of credit only to see the real estate market collapse in a few short years. Now, the home is not worth what it once was but the amount of the debt remains the same.
Taking out a home equity line of credit may seem too good to turn down. Borrowers do need to think things through before ever borrowing money on a home. Borrowers must select solid lenders capable of offering good terms and highly reasonable interest rates.
Most importantly, borrowers should only utilize home equity lines of credit for the right reasons and should never compromise their financial health.
Buying a home can seem like a confusing, complicated process, and many people who are more than well-qualified for home ownership may shy away from the process as a result. While the loan process can take a few weeks to complete in most cases, the reality is that it may not be as complicated as you might think. Pre-qualification is the first step in the loan process, and by learning more about it, you can gain a better understanding about what it takes to get approved for a home mortgage.
What Is Pre-Qualification?
When you purchase a home, you generally must prove to the underwriting team at your lender’s office that you have the financial means to afford the home. Lenders take on risks when extending a loan to you. Therefore, they have created certain ratios and requirements that you must meet. It is not enough to simply document your budget and show that you can afford to make the mortgage payments. Instead, the lender will review your income, debts, credit rating and assets to confirm that you meet their minimum lending requirements. Through pre-qualification, the lender will screen you in each of these areas to ensure that you meet their basic qualifications. Some of the information provided during pre-qualification, such as your income, may be stated. After the pre-qualification process ends and the loan moves into the loan processing stage, you will be required to document all aspects of your financial situation by providing pay stubs, tax returns, bank statements and other documents.
How Your Income Is Calculated
You will typically provide a stated income figure on your loan application, and the pre-qualification will be based off of this. You ideally want your stated figure to match the income that the lender later verifies through your documentation. Therefore, it is important to know how the information will be documented later. After the pre-qualification phase, most lenders will review your last two to three months’ pay stubs to determine your income, and they may also contact your employer as further verification. If you are self-employed, your tax returns for the last two to three years may be reviewed. Most lenders will use your net income rather than gross business income to generate self-employed income data. Other sources of income, such as alimony, rental income and more, may be reviewed in different ways. Ask your lender how these will be calculated before you fill out the loan application.
What You Need to Know About Debts
Your income will be analyzed in conjunction with your current debts and the projected mortgage payment. First, a ratio will be calculated based on your income and your mortgage payment alone. Second, a ratio will be calculated with your income as well as your mortgage payment, credit card payments, student loans, car payments and other debts. These debts are listed on your credit report. Utilities, cell phone bills and more are not included in this calculation. Ratio requirements vary by lender, but most lenders want this final ratio to be 45 percent or less.
The Importance of Your Credit Rating
Even if you have excellent finances, your credit rating must also meet the lender’s requirements. Most lenders have a minimum credit score requirement that you must meet, and they may also have a graduated scale that issues better interest rates for higher credit scores. Because of the importance of having a good credit rating when applying for a mortgage loan, it may be wise to improve your rating to 680 to 700 or better before you apply for a loan.
How Your Savings Balances Impact Your Pre-Qualification
The lender also wants to verify that you have enough cash available to pay the down payment and closing costs. More than that, most lenders also require that you have a reserve of funds available after closing. In most cases, this reserve of funds may equal two to three months’ worth of mortgage payments. You will need to verify that the entire amount of funds has been available in your account for the last two to three months. The lender may review your bank statements and may require explanations for any large deposits. If you plan to receive a gift of funds, such as from a family member, verify with your lender up-front if they will accept this arrangement. Not all lenders allow a gift of funds.
As you can see, a lender will review a considerable amount of information during the pre-qualification stage. Some of this information, however, may simply be stated. Most lenders will simply ask you to complete a loan application and allow them to pull your credit report for the pre-qualification, so the entire process may only take a few hours to complete in some cases. If you are ready to move forward with the home buying process, research lenders who you want to work with as a first step.
If you have recently started shopping around for a new home loan, you may have spoken to a few lender representatives or mortgage brokers who have talked about FHA loans and conventional loans. Some may have recommended one option more heavily than the other. However, you should not simply take the advice of someone about something as significant as a home mortgage without understanding and comparing the options thoroughly. With this in mind, you need to initially understand what an FHA loan is and how it varies from other home loan options available.
Understanding What an FHA Loan Is
When a bank extends a home loan to a new client, they assume a considerable amount of financial risk. There is always a possibility that the client will default on the loan, and the bank will then incur fees for repossession, make-ready and selling the home. An FHA loan is a special type of loan that is insured by the federal government through the Federal Housing Administration. The bank has less financial risk when making an FHA loan because it is insured by the government. Because of this, you can expect a low down payment requirement. In fact, you may only have to pay 3.5 percent down with only one loan to manage. Lenders may be more lenient on the credit score requirement a well. These loans are not available through all lenders. Only FHA-approved lenders can offer these loans. You can use a gift of funds from a family member for the down payment. Keep in mind that if you place less than 20 percent down, you will need to pay a mortgage insurance payment, and this additional payment will remain in place over the life of the loan.
Exploring Other Home Loan Options
A conventional loan is essentially any type of standard bank loan that is not backed by the government. These loans may have competitive rates, and they do require mortgage insurance to be paid if you have less than 20 percent down. However, with a conventional loan, the PMI vanishes after you have 20 percent equity in the home. Some lenders will allow a first and second lien loan structure to give up to 95 percent or more loan-to-value. These loans are available with fixed and adjustable rates as well as balloon programs. Because there are so many variations in conventional loans, it is wise to carefully compare these programs individually.
Comparing the Options
The primary factors that set FHA loans apart from conventional loans are often the same factors that borrowers are most concerned about. These include the down payment requirement, the credit score requirement and the interest rate. You should pull your credit report before you begin shopping for a loan. With this information, you can easily eliminate some options. You may also review your finances to determine the down payment amount that you are most comfortable with. A higher LTV is most commonly associated with an FHA loan, but a conventional loan with a second lien as another possibility. Compare the monthly payments for both options before you decide how to proceed.
Making Your Final Decision
Many people will keep their home mortgage in place for several years or longer before refinancing it or selling the home. Some may even keep their loan for decades until they pay it off entirely. This means that your mortgage payment as well as your down payment decision will impact your finances for years to come. Take ample time to explore the options and to review their impact on your finances. If you are uncomfortable with the monthly payment or down payment requirement, shy away from that option. Continue your search until you find a solution that is right for you.
FHA loans offer many financial benefits, but they are not ideal for everyone. Because many lenders may attempt to steer you into an FHA loan, it is important to understand how these loans are different from other options and to thoroughly compare all options available. The best lenders will create two to four loan options for you to review in detail so that you can choose the best one for your needs, including both FHA and conventional loans.
When you apply for a mortgage, one of the first things that lenders will check is your credit score and credit history. But what if you haven’t established credit? This is known as having a nontraditional credit history, when you haven’t used credit cards or other types of loans. Since these are two of the primary ways that people build credit, this makes it more difficult to get your loan. Fortunately, there are still options out there for you.
1. Get Your Payment History onto Your Credit Report
Your history of paying bills on time, particularly your rent, can be used as proof of credit worthiness. Experian, which is one of the major credit reporting bureaus that assigns credit scores, will include payments made to your landlord as part of your credit history. The caveat is that your landlord must opt in to Experian’s system to report payments to them, and many landlords don’t do so, especially private landlords who only rent out a small number of properties.
To ensure that your payment information gets reported, you can ask your landlord to opt into the system. Wondering if your other bills can also help improve your credit score? Student loans can, so if you’ve been paying those for at least six months, you can expect it to have a positive effect on your credit. Cell phone bills and bills from utility companies may or may not factor into your score, depending on the provider – privacy laws in certain states result in many providers not reportig payments.
2. Get a Loan Through the Government
There are mortgages available with the backing of the Federal Housing Administration (FHA), and the U.S. Department of Housing and Urban Development has put rules in place for lending to people with nontraditional credit histories. There are several requirements if you want to qualify for an FHA-backed mortgage.
For the previous year, you can’t have any rental payment delinquencies on your record. You also can’t have more than one 30-day delinquency on any of your other bills, such as an auto loan payment or an electric bill. You can’t have had any accounts go to collections with the exception of medical-related incidents. Your debts can’t exceed 43 percent of your gross income, and that’s your debts with the potential mortgage payment included. After you put a down payment on your house and settle the mortgage costs, you must have enough money saved to cover one month’s expenses.
Keep in mind that qualifying for one of these loans doesn’t mean it will be a walk in the park to get one. Many mortgage lenders won’t work with you, because it’s more of a process to set the mortgage up.
3. Give a Small Lender a Try
There are more options out there for obtaining a mortgage than just the big banks. Shop around and look for online lenders, smaller banks, and independent mortgage brokers. You can often get more personal attention when you choose one of these smaller financial institutions, which can make the difference when you’re trying to get a mortgage with a nontraditional credit history.
You should also check out credit unions, which are gaining popularity on the mortgage market. In the five-year span from 2010 to 2015, credit unions nearly doubled the number of mortgages they originated, rising to 8 percent. Credit unions are an especially good option if you’re already a member at one. Not only do credit unions typically provide the personalized service of a smaller financial institution, but they may have flexible qualification criteria.
Moving Forward on Your Mortgage
It’s definitely not as simple to qualify for a mortgage when you have a nontraditional credit history. That doesn’t make it impossible, though, as an on-time payment history can boost your creditworthiness in the eyes of many lenders. If you don’t have much debt and have some money saved up to handle the costs of getting a mortgage, you can likely find a lender willing to work with you. Shop around so you can figure out what your options are.
If you are planning to apply for a mortgage in the near future but not right away, it’s a wise decision to start planning for that now. Are you renting? Ask your landlord and any other providers you pay regularly to report those payments so they will help your credit. Of course, you need to make sure that you make all your payments on time when you do this. You may even want to apply for a credit card, use it for small purchases, and pay your bill every month for an additional boost to your score. Every little bit helps and will put you in a better financial position.