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Mortgage Loan Information

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Pre-Qualification
Your loan officer will go over with you, in advance, how much money the bank is likely to loan you to get a home mortgage. This can be done quickly based on information that you provide over the phone along with a quick credit check.

Pre-Approval
The loan officer will guarantee you a loan for a home mortgage up to the amount that you qualify for, provided your future home of choice appraises at an appropriate value and a few other normal conditions are met. This requires verification of some information and may take a day or two. Some loan officers can underwrite their own loans and give you approval within an hour. Make sure any conditions are easy to take care of and address them as soon as possible. For example, obtaining a home owner's hazard insurance policy prior to closing is a standard condition. Some people who waited until a few days before settlement have had trouble getting insured in time because of increased underwriting standards based on CLUE reports and fewer insurers offering home policies.

A Pre-approval also improves your bargaining position when making an offer since the seller knows you already have a pre-approval for at least your offered amount. Your lender will provide you with a letter stating that you have been pre-approved. Your Realtor should work with your lender to make sure that your lender letter provides the appropriate information to support your offer. The recommended information and wording may change as the real estate market conditions change.

Mortgage Loans
There are many different types of loan programs available. Some help out the low income buyers and others are for buyers of high priced properties. The programs change, run out of money, end, and start at various times. It is important to talk with your Realtor and a lender to find out if there are any special programs that might benefit you. Some programs are unique to a particular location or property type. You should also consider how soon you are likely to move again. If you are likely to move within 7 years, then a 7/1 ARM or similar program may be to your advantage over a 30 year fixed rate. Also a slightly higher interest rate with no PMI or an 80/10/10 loan is worth considering in many cases. Make sure you understand if and when your rate can increase. Also know what maximum rate it can increase to in a worse case scenario over a few years. If there is a chance you may be wanting to refinance or move soon, watch out for loans with pre payment penalties. Even if your rate is locked in, your mortgage can increase if your property taxes or insurance rates go up. Be very careful and cautious if your lender starts talking about loans with negative amortization. Your loan balance can actually go up if you only make the minimum payments on negative amortization loans.

Who to see
There are two main categories of people wanting to help you get a loan - brokers and lenders. Brokers search multiple sources to get you money, while lenders such as Banks, some mortgage companies, and Credit Unions have their own funds. Some lenders have affiliations that enable them to be brokers if their own organization can't make the loan that you need.

The mortgage brokers have a working relationship and daily access to the rates charged by numerous organizations that lend money. Different brokers have affiliations with different and overlapping lenders. The brokers will orient their advertising towards the fact that they can shop around among numerous lenders to get you the best rate. In addition to the rate, you should also consider the fees. If you have credit problems or need a special type loan, a mortgage broker may be your best shot at getting the loan. However, since the broker is acting as a middleman, he has less control over the loan process of the lender and adds another layer of bureaucracy and fees into the transaction. Also many of the lending companies working with brokers charge high fees. My experience is that loans going through brokers are more likely to experience settlement delays and higher fees than loans going through lenders.

A lender should offer the benefits of knowing up front what all of your loan expenses are going to be. Make sure your loan officer has established direct communication with his underwriter. Some loan officers can even do their own underwriting. Underwriting is the process of reviewing and approving the loan application. Also be aware that the lender will do a final review of your file a day or two prior to settlement and any changes in your credit status could result in revocation of your loan approval. I know of one case where someone apparantly went to a credit repair company and managed to get a couple of late payments temporarily removed from her credit report while she was challenging them. When she could not support her challenge the payments were put back on the report and her approval was revoked when the late payments were discovered by the lender just prior to settlement. Not only did the lady not get the house, but she also lost her security deposit. This warning not only applies to questionable credit repair tactics, but to anything that might affect your credit score such as making a major purchase and thus acquiring new debt prior to settlement. So don't go out and buy a new car or new furniture for your house before you own the house.

If you compare lenders and/or broker rates make sure that you are comparing the same type of program at the same interest rate. Also compare them on the same day as interest rates can vary from day to day and sometimes even change during the day. Make sure to ask for a listing of all fees such as underwriting, processing, tax service, appraisal, origination, points, credit check, document review, flood certification, lock-in, etc. You are free to choose any mortgage lender or broker, but a Realtor such as myself usually knows of 2 or 3 that we can recommend to you. When looking for a mortgage lender or broker, I strongly recommend that you get recommendations from a Realtor or someone you know.


 
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