There are very few people in the South Padre Island Area who can afford the luxury of paying cash for a home purchase. When buying a home, most buyers tend to use a mortgage. Mortgage is a way to secure a loan for a house purchase. It is also known as a Deed of Trust. You’ll sign a promissory note and a mortgage at the closing, when you secure a loan to fund your home purchase.
Here are some useful hints to help you apply for a home loan:
The First Step:
Contact a mortgage expert to get pre-qualified or pre-approved before you begin searching for available homes in the market. This gives you higher chances of having your Offer to Purchase accepted by the seller. Sellers tend to accept an offer from a buyer who already has funds than those who still need to secure a loan.
Also, it is advised that you prepare a copy of your credit report before contacting a mortgage specialist. This way, you can clear up any issues that may appear on your report.
Pre-Qualification: This is an informal way to see how much you may be able to borrow. Pre-qualifying can usually be done over the phone by providing the mortgage specialist with your income, your long-term debts, and the amount of down payment you can afford.
Pre-Approval: This is a mortgage lender’s commitment to loan money to you. When getting pre-approved, you provide your loan specialist with all of the necessary financial records needed to apply for a loan. Getting pre-approved will provide you with the exact amount that you can afford and it shows sellers that you are serious about buying a home.
Applying for a Loan:
Here are the financial records that your mortgage specialist will require in order to process your application:
∙W-2s or tax returns for the past 2 years.
∙Proof of gross monthly income for the past 30 days.
∙Proof of investment income, including rental incomes.
∙A list of creditors, including account numbers, balances, and monthly payments.
∙Two months worth of banking statements.
The lender will also require you to submit a copy of the sales contract for the property you wish to buy. If you are selling a home, you should also provide its sales contract to the lender.
During your application, expect the lender to verify all the information that you’ve provided. They’ll also run a credit report to check your past payment history and verify any outstanding credit balances. Be careful not to apply with too many lenders, it can trigger a red flag and may cause your credit worthiness to go downward when numerous checks against your name will be done in a recent period. The lender will also check your credit worthiness by use of FICO score.
Types of Loans:
There are several different types of loans available when applying for a mortgage:
Conventional: These loans can be broken down into two types: Fixed-Rate loans and Variable-Rate loans. A Fixed-Rate loan is generally a 15-year or 30-year loan. The interest rate of this type of loan does not change during the life of the loan; therefore, your principal and interest mortgage payment will stay the same until the loan is paid off.
A Variable-Rate loan is one in which the interest rate will change over the life of the loan period. These types of loans are commonly referred to as Adjustable Rate Mortgages, or ARMs.
Hybrid Loans: These loans will generally have a fixed rate for the early life of the loan, such as the first 3, 5, or 7 years, and then roll over to a variable rate loan once the fixed period ends.
Government Program Loans: These loans are insured loans through either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). A government program loan generally requires a smaller down payment than a conventional loan. In addition, the interest rates on these loans are commonly below the current market rates. FHA loans have special programs for first-time home buyers and low-income home buyers.
Bridge Loans: This type of loan is for buyers who plan to close on their new home before they can sell their current one. A bridge loan can be set up to completely pay off the old home’s mortgage, or it can be set up by adding the financial obligation of the new home to the existing amount of debt. A bridge loan is a short-term loan, usually one year, and includes large, prepaid interest.
The lender will make a decision if they’ll commit on your loan once everything is processed. You’ll receive a Commitment letter from the lender if they decide to approve your loan. This letter contains certain conditions, such as repairs to the home, before the final approval is made. It will also include “lock-in” rate. It is the lender’s promise to make the loan to you at a specified rate and number of points. It is generally honored for a certain period of time, such as 30 days. You may have to pay additional fees to extend the lock-in period if it expires before the sale closed.
On the other hand, you’ll receive a rejection letter if the lender decides to reject your loan application. You can use this letter to reclaim the earnest money you offered with the Contract of Sale. This letter serves as a proof that you have complied with the purchase agreement but unfortunately, rejected for a loan.
You may want to do a final walkthrough of the home once your loan has been approved to be sure that the home is in “as-was” condition. This is also your opportunity to determine if the requested repairs have been made to the home and meet your approval.
Generally, the closing procedure will be conducted by a lawyer at their office. You’ll be informed the total amount you need to bring to closing by the closing attorney a day before the closing. They’ll also give you additional information that you may need to bring for the proceedings.
On the day of closing, remember to bring:
∙A certified check for the total amount of your closing costs.
∙A picture ID, such as a driver’s license.
∙Your personal checkbook.
∙Evidence of mortgage insurance (if this information has not already been requested).
Closing Costs Include:
∙Property taxes (to cover the tax period up to that date)
∙Loan origination fees (this covers the lenders expenses)
∙Interest (paid from the date of closing to the 30 days before first payment)
∙First premium of mortgage insurance
∙First payment to the escrow account for future taxes and insurance
∙Loan points (a “point” is a fee that equals 1% of the loan amount. They enable you to secure a lower interest rate for the mortgage.)
∙Home inspection fees (if you choose to have an inspection)
∙Any additional preparation fees.
The details of the contract will be explained to you during the closing. If everything meets your approval, you’ll be asked to sign all of the contracts to finalize the purchase.