Some home buyers don't know the negative effect debt can have on a mortgage application. You don't have to be debt-free to purchase a home, but excessive debt can reduce purchasing power or result in a higher mortgage rate. When applying for a home loan, your lender pulls your credit report and credit score, and evaluates how much you owe on credit cards, auto loans, student loans, and more. When compared to your income, this information gives lenders an idea of how much you can spend on housing. As a rule, your mortgage payment cannot exceed 28 to 30 percent of your gross monthly income. Your total monthly debt payments, which also include the new mortgage payment, shouldn’t exceed 36 to 43 percent of your gross monthly income. This maximum depends on whether you receive a conventional or an FHA home loan. Although you’re allowed to spend up to 30 percent of your gross monthly income on housing, this doesn't mean a bank will approve any amount up to this percentage. For example, if your loan or credit card payments take… Read more

Most borrowers want the lowest possible mortgage interest rate. This is why they work to improve their credit scores before applying for a home loan and comparison shop. But these aren’t the only ways to find the most favorable rate - borrowers can also reduce their mortgage rate by paying discount points. Discount points are optional, but offer a practical way to reduce the interest rate on a home loan. A cheap rate lowers the amount of interest paid over the life of a home loan, plus borrowers can enjoy a lower monthly payment. Although discount points are helpful, buying points isn't the right choice for everyone. Each borrower has to count the cost and then decide whether discount points makes sense for their situation. What is a Discount Point and How Does It Work? A discount point is a type of upfront prepaid interest paid to a mortgage lender in exchange for a lower mortgage rate. For every discount point you buy, you receive (on average) .25% on your interest rate. If you apply for a home loan and… Read more

Some home buyers choose a fixed-rate mortgage in order to make regular, steady payments. But this isn’t the only option. You can also choose an adjustable rate mortgage (ARM), which features a fixed interest rate for a set number of years, followed by an interest rate that changes year-to-year based on the market. There are several options for an adjustable rate mortgage, with the 5/1 ARM being one of the most popular. This type of mortgage has a fixed interest rate for the first five years of the mortgage term. Every year thereafter, the interest rate resets. With each adjustment, your rate may decrease, increase, or remain the same. Fluctuating rates can have a tremendous impact on monthly payments, so this option may not be right for everyone. Here's what you need to know before agreeing to a 5/1 adjustable rate mortgage. Who can benefit from a 5/1 ARM? Some people avoid adjustable rate mortgages because these loans are riskier than other lending options. However, an adjustable rate can be beneficial in certain situations. An interesting feature of ARMs is that… Read more

If you're in the process of purchasing a home loan, you probably know how difficult it is to qualify for a zero-down loan. Most people don't - money must be brought to the closing table for down payment, which can range from 3 to as high as 20 percent. It must also be clear that you as the borrower have enough assets for your down payment and closing costs - and unfortunately, a mortgage lender needs more than your word. They'll require proof of funds, which they must confirm are sourced and seasoned, but what exactly does that mean? 1. Funds for mortgage-related expenses must be sourced. When you apply for a home loan, the lender needs to know the source of funds used for mortgage-related expenses. From your standpoint, the source of funds may not matter. As long as you have cash available, a lender should willingly approve your loan, right? Unfortunately, it's not that simple. For home purchases, lenders do not allow applicants to borrow funds for their down payment and closing costs. The money must come from their own funds or as a… Read more

If you're a first-time homebuyer applying for a mortgage, you might think the bank approving your loan will be in your life for the next 30 years. But oftentimes, this isn’t the case. After getting a loan, a mortgage company or bank will service your loan. This includes sending statements, collecting your payments and managing your escrow account. What you may not realize, however, is that another lender may take over servicing your loan at some point in the future.  It's not unusual for mortgage lenders to sell home loans after closing. For some lenders, selling mortgages is absolutely necessary for creating capital to originate additional loans. But while this is common practice, you may have questions about the process. Here's what you need to know. 1. When your lender sells your mortgage before the first payment is due  When you meet with a mortgage loan officer to complete your application and review the Loan Estimate, the loan officer will answer questions, plus provide information about the lending process. You’ll hear a lot of information in this meeting, so pay… Read more