Mortgage rates change constantly through an unpredictable combination of government policies and economic conditions. This video explains the common term ‘rate lock.’
A “Rate Lock” is a guarantee that a lender will honor a specific combination of interest rates and points for a given period of time. A lock protects a buyer from rate increases but commits them to a higher rate if mortgage rates fall below the locked rate.
As of 2014, rate locks aren’t usually an option until a purchase offer for a specific property – new-home or resale – has been accepted by the seller. The borrower’s credit score, the loan-to-value ratio property type, location and other factors plus, of course, market rates and market conditions will also affect rate-lock decisions.
Decide whether to lock or “float” based on your capacity for risk and your best rational knowledge about construction and closing schedules. If your rate lock expires an extension might be available but both you and the lender will be looking at current mortgage rates to decide the best option.
Like the video shows, “earnest money” is money you put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price though the amount can vary with local customs and conditions.
If your offer is accepted the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your earnest money is returned to you. If you back out of a deal, you may forfeit the entire amount.
As you’ll see in the video, the lenders consider your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses.
Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support.
According to the FHA, monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41% of income.
Lenders also consider cash available for down payment and closing costs credit history and the rest of your financial picture when determining your maximum loan amount.
Watch this video and take a few notes! There are three major credit reporting companies:
- Equifax – www.equifax.com 1-800-685-1111
- Experian – www.experian.com 1-888-397-3742
- Trans Union – www.transunion.com 1-800-916-8800
Obtaining your credit history is as easy as calling and requesting one. Once you receive the report, it’s important to verify its accuracy.
As we show you in this video, a credit bureau score, or “credit score” is a number based upon your credit history that represents the possibility that you will be unable to repay a loan.
Lenders use it to determine your ability to qualify for a mortgage loan.
The better the score, the better your chances are of getting a favorable loan.
Know your score and ensure that lenders have current information about it.
RESPA stands for the Federal Real Estate Settlement Procedures Act. This video tells you about it all.
RESPA requires lenders to disclose information to potential customers throughout the mortgage process. By doing so, it protects borrowers from abuses by lending institutions.
RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices and business relationships between closing service providers and other parties to the transaction.
For more information on RESPA, visit HUD.GOV or call 1-800-569-4287 for a local counseling referral.
You’ll see some pictures in this video to help you remember later, but a good faith estimate lists all fees paid before closing all closing costs, and any escrow costs you will encounter when purchasing a home.
The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.
Yes, loan origination involves costs and fees. As you’ll see in the video, when you turn in your application you’ll be required to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal a copy of your credit report and any additional charges that may be necessary.
The application fee is generally non-refundable.
Watch this video and take a few notes!
First, devise a checklist for the information from each lending institution. You should include:
- the company’s name and basic information
- the type of mortgage
- minimum down payment required
- interest rate and points
- closing costs
- loan processing time
- whether prepayment is allowed
Speak with companies by phone or in person. Be sure to call every lender on the list the same day as interest rates can fluctuate daily.
In addition to doing your own research your real estate agent may have access to a database of lender and mortgage options or suggest a variety of different lender options.
The video puts this in more visual terms, but your personal situation will determine the best kind of loan for you.
By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best.
- Do you expect your finances to change over the next few years?
- Are you planning to live in this home for a long period of time?
- Are you comfortable with the idea of a changing mortgage payment amount?
- Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?
Lenders can help you use your answers to decide which loan best fits your needs.