Things You Need to Know

Whether you are a first time homebuyer or have went through several purchase and refinance transactions on real estate, there are things you may want to know that may not have been explained.

What is the difference in using a mortgage broker and a banker? A mortgage banker has one set of guidelines, pricing, and parameters to fit your loan in; if you don’t fit they have to turn you away for financing. Home Team Equity, LLC has established relationships with over 450 wholesale banking lenders to insure that we can tailor a mortgage to your financial needs and give you better rates as we are working with the lenders on a wholesale level.

Do I have to provide so much documentation? There are MANY components that factor up what mortgage consultants need to get you the best rate possible at the amount of money that you need. All financial institutions base the rates off of how much risk it is to lend the money; the more risk, the higher the rate. The borrower that will be able to document stable income for 2 years and document assets in the bank without any large deposits will get the better rate. However, with so many niches and wholesale lenders, if you chose to go with a lower amount of paperwork and have a credit score to support the lesser than requested documents, chances are excellent that we can still get you a good rate without all the hassle but keep in mind, that chances are you will have to pay a slightly higher rate or may be approved for less than a desired loan amount.

Why didn’t I have to provide all of the requested documentation in the past? The mortgage banking industry has been tightened up on their requirements. There have been consistently large numbers of lenders closing their doors escalating in the beginning of this year due to loans that have had payment defaults. As of June of 2007 there have been 91 banks that have "imploded" since late 2006, which is an UNBELIEVABLE number. Primarily this was caused by borrowers that got into loans that they could not afford due to lenders being lose with their guidelines and mortgage brokers not analyzing the borrower’s financial picture to make sure the borrower’s could afford the payment, regardless of what the mortgage lenders were allowing them to get away with for qualification purposes. There is a website set up that posts updates on the banks that have been sold, closed, filed bankruptcy or entering other avenues within the last year. The website to see the latest list is: http://ml-implode.com/imploded.html

What are different loan document types? These are industry standards but with over 450 wholesale lenders we shop our lenders for different niche document types for you Don’t forget the higher the risk to the lender, the higher the rate. Full documentation Both income and assets are disclosed and verified, and income is used in determining the applicant's ability to repay the mortgage. This documentation, designed to save time, accepts copies of the borrower's original bank statements, W-2s and or tax returns for self-employed and paycheck stubs rather than sending and waiting for requests to employers and your bank to be sent back for verification. Stated income/verified assets: Employment and income are disclosed and the employment is verified. The amount of income is not verified but goes through a series of reasonability tests. Assets are verified, and must meet an adequacy standard such as, for example, 6 months of stated income and 2 months of expected monthly housing expense. Stated income/stated assets: Both income and assets are disclosed but not verified. However, the source of the borrower's income is verified but the assets are not. No ratio: Income is not disclosed and therefore, cannot be verified. The standard rule used for qualifying is that the total housing expense and total monthly debt compared to the monthly income cannot exceed a specified percent. This rule is ignored as there is no way to calculate that percentage since there isn’t an amount of income disclosed. Assets are disclosed and verified and lenders may require more assets due to the higher risk of this type of loan. No doc: this is the highest risk type of loan to a lender. Employment, assets or income is not disclosed or verified. Although these options are available, other components of your loan and credit have to meet the lenders guidelines.

What are the different terms for loans available and what are the benefits? There are many different loan terms and types available. That is why it is so crucial that our mortgage consultant takes into account your financing needs for today, tomorrow, and years to come. Interest only - your monthly payments are based off of only the interest that iss due to the bank. No money will be applied to the principal amount of the loan. Some banks will monthly recalculate your balance owed on the loan if you make an additional amount of payment towards the principal. ARMS – adjustable rate mortgages – this means that your interest rate will be fixed for a certain period of time and then will begin to adjust after the fixed period. Fixed Rate – these loans are fixed for the term of the loan 15, 20, or 30 years are common fixed rate loans Balloons – most commonly is the 30/15 – this would mean that the amortization of the loan is spread out over thirty years but the note becomes due in 15 years HELOCS – home equity lines of credit -these are lines of credit that you can draw money off of. You receive a check book and sometimes a debit card for your convenience. 2nd Mortgages – these are fixed loans that are in addition to a first mortgage – these are usually balloons. On certain loans an additional monthly fee of mortgage insurance may be required if percentage of the amount of the loan that you are requesting compared to the value of the home (this calculation percentage is known as your LTV) is above 80% so your mortgage consultant may do a 2nd mortgage for you if it would be financially beneficial to you.

Why would I want to consider having a prepayment penalty? A prepayment penalty is a fee that is charged to you should you payoff your loan early. There are 2 types of prepayment penalties, a hard and a soft. The hard is regardless of if you sell or refinance your loan, you will be charged this fee. The soft is where there will not be a penalty assessed if you sell your house. This is required on some loans and an option on others. If it is required, you may have the option to buy the term down or buy out of it completely but be prepared, this will cost you. If it is not required and you have no plans of refinancing or selling within the next 3 years, by choosing to have a prepayment penalty, this may get you a better rate.

If given the option, should I escrow? For our first time homebuyers, escrow means that your taxes and insurance are included in your monthly payment. A huge majority of the banking industry actually gives a better mortgage rate if you do escrow. Certain loans require that you have escrows. Beyond popular belief, this is not because they are making money off of your money sitting in an account collecting interest until the annual bill comes due. Once again, it is about the risk factor. Many people annually lose their homes due to unpaid property taxes. What if a borrower didn’t pay their homeowners insurance and a hurricane or a fire took place and destroyed the home while it wasn’t covered?

What is the APR? The Annual Percentage Rate is based off of different fees charged to you on your loan. To simplify the understanding of this complicated calculation, APR allows you to evaluate the cost of the loan in terms of a percentage. If your loan has a 10% APR, you’ll pay $10 per $100 you borrow annually. All other things being equal, you simply want the loan with the lowest APR. The higher the APR percentage compared to the loan interest rate, the more fees you are being charged.