In the past, when it came time to evaluate a prospective loan applicant, a very personal approach was taken, with a human manually reviewing the loan application. Today, almost all lenders now use an automated underwriting system(AUS.)
The AUS automatically reviews and evaluates the loan application and credit history of the applicant, as well as the total amount of the requested loan, using a mathematical formula to determine eligibility. The entire process only takes a few seconds and it either does not approves the loan or marks it as a Strong File or Weak File. A Strong File indicates that the application meets the loan requirements and does not require any additional documentation. A weak file, on the other hand, indicates that there were some discrepancies or problems with the application, so more documentation is required.
For example, someone with a strong file, might not need to provide any employment documentation or tax forms, while someone with a weak file would.
While the loss of a personal touch in the underwriting process definitely has negative connotations, one of the nice things about using an AUS is that initially, there is often no need to provide any documentation.
Depending on how the Automated Underwriting System evaluates the application, there are three basic levels of documentation: Full Documentation, Stated Documentation, and No Documentation.
Full Documentation loans will require that all aspects of the application are verified by a third party. Generally, this means providing tax forms, such as the past few years W2s and paycheck stubs. The lender may also require that the applicants bank verifies the loan using a Verification of Deposit(VOD) form. Typically, the full documentation loan is the most common type of refinance loan.
Stated Documentation loans are when the lender simply uses the information that is provided on the loan application, without actually verifying it with a third party.
No Documentation loans, as the name implies, are loans that require no documentation. The lender does not request any banking or employment information, as well as not running a credit report.
In some cases, the consumer does has some control over how much documentation they provide. Of course, from a literal standpoint, they are free to provide no documentation at all, but the lender is under no obligation to offer a loan in this case. Instead, it is almost always up to the lender to determine how they will document the mortgage application.
With that said, some lenders do offer a no documentation loan, but they will usually require a 20% down-payment and the mortgage will have a higher interest rate.
In the end, the lender is out to make money, so while they may be willing to forgive a minor digression on ones credit report, they will only do this if they think it is profitable. Anytime they do accept a risk, such as not checking employment, the lender will usually increase fees or rates to counterbalance this risk.
Buying a home is not just a big decision from a lifestyle perspective, but it is also a major financial decision. Usually, most people do not have the money to buy a home up front, so they use a mortgage. Sometimes, it is possible to refinance a mortgage and greatly reduce the overall cost of the loan.
In order to refinance a mortgage, you would of course have to already have a mortgage. If done properly, refinancing a home can be an excellent way of reducing monthly costs or dramatically reducing the amount of interest you will pay over the course of the loan. However, if you are not careful, it is possible to loose a great deal of money and end up worse off then you were to begin with.
There are a number of similarities to the process of getting your first mortgage and refinancing your loan. However, rather than simply going with the lowest offer, which is typically the way most people choose a mortgage, there are a number of important subtleties when it comes to refinancing a home.
If you are a homeowner, it is likely you have come across at least one advertisement proclaiming that you can cut your monthly payment in half by refinancing your home. These companies are not lying and can in-fact dramatically reduce your monthly mortgage payment. However, often this is at the expense of extending the period of your loan, which in turn means you end up paying more in interest.
Also, these companies are often predatory lenders, who are very aggressive and when you are done, you have virtually lost all the equity in your home that you worked so hard to build up.
Refinance Loans are very similar to mortgages and you must follow the same types of regulations as other
Common sense would say that if you have been paying a higher mortgage payment for many years, the lender would automatically approve a refinance loan with a lower monthly rate, but this is not the case. Instead, it is almost always necessary to follow the same sort of application process that a person would when they are applying for the initial mortgage. It is almost always necessary to prove employment history, as well as showing your assets and running your credit when refinancing a loan.
The exception to this rule, however, is FHA Loans that are offered by the Federal Housing Administration and VA Loans, that are offered by Veterans Affairs. Both of these Government Agencies offer what is called a streamline refinance. As part of the streamline refinance, as long as the monthly payments are lower, credit is almost never an issue. Usually, the only requirement is that the homeowner has not been late on a payment over the course of the last 12 months.
Choosing the right mortgage lender is one of the most important steps a home owner will make when purchasing a home. Buying a home is a very big long term investment and you do not want to end up in a bad places, such as by using a subprime lender to finance your mortgage.
One of the most important steps in selecting a lender is to explore all of your options. It is generally not a good idea to jump on the first offer that you receive, but instead you should take this offer and compare it to other lenders. This way, you will have a much better idea of how competitive the mortgage offer is.
Usually, the best place to start looking for a mortgage at your local bank. In most cases, your own bank will be more inclined to work with you if there are discrepancies on your credit report and will be able to give you a fairly quick response. There are several reasons for this, but much of it comes down to the fact that you are their customer and as long as you have a good relationship with your bank, they will want to keep you happy.
Another reason it is a good idea to speak with your bank, or at the very least an actual local brick and mortar bank, is that these types of banks typically have a fairly competitive interest rate, which is indicative of the current market. So, by starting with your own bank, you will have an incredibly solid basis for comparison, when evaluating your options.
Next, it is a good idea to speak with a few mortgage brokers. Your real estate agent may have one they recommend, but remember they do get a commission if you use them, so their suggestion may be biased. However, since you are not obligated to use their broker, there is seldom any harm in investigating what type of deal they can offer. In some cases, they will be able to give you a rate that is considerably lower.
However, mortgage brokers are basically commission based salesmen. They usually have relationships with multiple lenders and will be able to check each of these lenders to find the best deal. Since they are commission based, mortgage brokers will only get paid if you go through them though, so it is very important to understand that not all mortgage brokers will be working in your best interest.
The Internet is a powerful ally when purchasing a home. It can be an excellent tool for finding home values in the area or even using Goolge Street View to take a virtual tour of the neighborhood. It can also be an excellent way to vet prospective lenders.
You can start by checking Google News and searching for the name of the company. By default, Google News will only show you the most recent stories, so make sure you expand your search to at least include the last few years.
By searching for the name of the company, you will be able to find out any important events that have occurred, as well as any legal troubles they may have had.
Next, do some regular searches to see what people are saying about the lender. However, remember that the company may be setting these sites up themselves, so they should be taken with a grain of salt. Also, NEVER give out your personal information when preforming this type of research.
Once you have several offers, both from your bank, a mortgage broker, and perhaps a mortgage bank, which is a bank that is primarily in the business of issuing mortgages, compare the different offers to find out what is the best for your situation.
This stage of the process is fairly straightforward, but it is important to not only take into account the interest rate and monthly payments, but also the companies policies. For example, the mortgage broker might offer you the best deal, but require that you pay a certain percentage of the sales as their commission. This percentage is called the brokers “points” and it could very well be that after you pay the points, you end up worse off than if you paid a slightly higher interest rate. Many of these fees, which are often called “junk fees” can actually be negotiated though.
In addition to looking out for the additional costs of the mortgage offer, it is also important to take into account their policy on late payments and how it affects your interest rate.
Often, the argument of Renting vs Buying comes up and both sides of the debate bring up some very important points. However, in the end, no argument should be taken at face value and instead each person should take the time to evaluate whether renting or buying is best for them.
One of the main reasons that many like renting is that if something breaks, you can just call up your land lord and let them worry about it. For example, if the Air Conditioning needs to be replaced, it will come out of the land lords pocket and not yours. This means that you are not reliant upon your own funds or time to fix a problem and instead can simply pick up the phone.
Not only, do you not need to worry about things breaking, but basic home care is seldom the concern of a renter. This means you don’t have to worry about replacing the roof or a tree falling on the home. Instead, usually the biggest upkeep a renter might have to worry about is mowing the lawn.
Another reason many people prefer renting is that it offers more freedom than owning a home does. This is to say, if you want to pick up and move to a different city or even country, you can do so, with little or no consequence. In the worst case scenario, you might be breaking your lease, in which case you would loose your deposit, but aside from this, there are very few ramifications for leaving. This can be especially important when you are young and have not settled down yet.
When you purchase a home, you are also in some regards at the whims of the market. For example, home prices have been dropping for the past year or so and many people now owe more than their home is “worth.” This isn’t necessarily a problem, but if you do decide to sell your home when the value is low, you will loose money. Home values and property values is not something a renter has to worry about.
Buying a home is also a big commitment financially and since most people don’t have the money to buy the home upfront, they must use a mortgage. This means that you not only owe your lender a great deal of money over the course of a long time, but you also end up paying a great deal of interest on the home.
Renting offers some advantages, but it also has some downsides. One of the biggest downsides is that at the end of your lease, you don’t have anything to show for all the money you spent. In some regards, it is really money down the drain, as you see no return on the money you spend renting. This differs from owning a home, where each of your payments is going towards the principal of your loan.
Of course, being that most mortgages are for 30 years, much of the money you spend on your home is going towards interest, so this point is arguable. However, in most cases, when you decide you are done with your home, you can sell it and at least get some, if not more, of your money back. This can not be said of renting, in that when you walk away from your rented home, you will have nothing, except perhaps your deposit.
Another disadvantage to renting is that you are at the whim of the landlord. There are of course a number of renter’s rights, so there is some protection, but in the end, if your landlord wants you out, you will end up out.
Also, by renting, you loose a great deal of your privacy. It is not uncommon for the landlord to send someone over every month to check your filters, fire alarms, and ensure the apartment is in good repair. If they decide something needs to be fixed or replaced, there is little you can do to avoid them coming into your home. This is not the case when you own your own home and are, in effect, your own landlord.
Ultimately, whether renting or buying is best for someone, greatly varies from person to person. What is an advantage to some, might be a disadvantage to others, so it is very important to analyze your current financial and personal situation, to determine what is best for you.
A big part of this decision also comes down to analyzing the current housing market and knowing when to act. For example, house prices are currently at an all time low, as are interest rates. Compared to a few years ago, you can get much more bang for your buck, so it could be a very good time to buy a home. It could be that house prices and interest rates will continue to go down, but they are currently lower than they have been for many years and eventually, the prices will go back up. Knowing when to get your money in, is a big part of deciding between renting vs buying.
When purchasing a home, few homeowners have enough money to buy the home without using a mortgage. Mortgages, which are a special type of home loan, have been used for hundreds of years, but today’s mortgages are much different from those used in the middle ages.
One of the biggest differences between modern mortgages and those of the past is that today, the person who takes out the home is actually considered the homeowner. In times past, the person who held the mortgage, which was often a member of nobility, was considered the homeowner.
Until the person had paid off their home, they not only did not own it, but had very few rights. This began to change in the twentieth century and has gradually moved towards more rights for the homeowner. However, even though today the bank is not considered the homeowner, they do have a lien on the home, so in someways, the change is more of a symbolic one.
There are many places to get a mortgage, although in today’s housing market, many lenders are being much more conservative in who they offer loans to. One of the best places to start when looking for a mortgage is your own bank.
Your banks don’t always have the lowest rate, but because you already do business with them, they are often going to be able to give you an answer much more quickly and might be willing to overlook less than perfect credit. Also, in many cases, you can find out whether you qualify for a mortgage at your own bank without having to pay an application fee.
When starting to look for a mortgage, starting with your own bank will give you a very general feel of what types of rates to expect, as well as whether you will likely be able to receive a loan from other sources. It is important, however, to not only focus on your bank as the only option, but instead it is essential to use their offer as a basis of comparison against other loan sources.
Usually, checking out the rates of a mortgage broker is the next step. A mortgage broker is an individual that has relationships with one or more lenders, but is not directly associated with them. Instead, the mortgage broker gets a cut from all mortgages they sell, which is referred to as their points.
Sometimes, mortgage brokers, especially those who are associated with more than one lender, have access to some great deals, but it is important to always remember that they only get paid if you take the loan. Since a mortgage brokers salary is commission based, there is almost always some form of bias associated with their suggestions. For example, it is not uncommon for some lenders to offer special bonuses to brokers if they sell a certain loan, so this will affect what type of loan they push.
Of course, this in no way means that all mortgage brokers are acting solely in their own best interest, but there is the risk of a conflict of interest that all prospective homeowners should be aware of.
When buying a home, few individuals have enough money upfront to purchase the home. As a result, the majority of homeowners use a special loan called a mortgage to purchase their home. Mortgages are long-term loans, usually between 15 and 30 years long, which include the principal and an interest rate.
The principal of a mortgage is the term used to describe the total amount of the mortgage. For example, if you used a mortgage to purchase a $150,000 home with no down payment, the principal of the mortgage would be $150,000.
The interest rate of a mortgage is the way the bank or other loan holder makes their money. When you take the time to consider how much interest you pay on a home, it can sometimes cover the cost of the home several times, but this is the cost of not having enough money to buy the home upfront without a loan.
Depending on the type of mortgage, the interest rate is either fixed or adjustable. In a fixed rate mortgage, the interest rate remains the same for the entire length of the loan.
In an adjustable rate mortgage, the interest rate is adjusted, using the current interest rates as a metric, periodically over the course of a loan. Most adjustable rate mortgages have an interest rate that is adjusted once every 2 or 3 years, although this can vary, with some being adjusted every year and others only being adjusted once every 5 years.
Typically, an adjustable rate mortgage offers a lower initial interest rate and if the market is not preforming well, it is even possible for the interest rate to be lowered when it is adjusted, although this is not something you would want to bank on. Instead, it is a good idea to plan for the interest rate of an adjustable rate mortgage(ARM) to increase each time it is adjusted.
One very important part for prospective homeowners to consider when evaluating an ARM is how frequently the interest rate is adjusted, how much the interest rate can be adjusted each period, and how much the interest rate can be adjusted over the entire course of the mortgage.
Fixed Rate Mortgages, on the other hand, usually have a slightly higher interest rate, but offer the advantage of remaining the same for the entire length of the mortgage.
When evaluating options and trying to find the best deal on a mortgage, it is important to view an amortization table for the mortgage. An Amortization Table breaks down each payment for the entire length of the mortgage, showing how much the payment is and how much of the payment is going towards interest.
Over the course of the mortgage, the first several years go towards paying the interest of the mortgage. So, for several years, the overwhelming majority of each months payment is going towards interest. After about 5 to 10 years, this reverses and more of each payment is going towards the principal of the mortgage. By looking at an amortization table, you can tell when this switch will occur.
Using an online Amortization Table Generator, which most banks offer on their websites, can be an excellent tool not just for understanding the loan itself, but also for seeing how things like extra payments can affect the amount of interest you pay over the course of the loan.