What is a mortgage?
Except you have enough money to buy your house immediately, the mortgage is an essential part of buying a home. Unlike the other kind of loans you may know about, the mortgage is specifically connected to the house you are buying. You borrow a percentage of the value of the property, repaying the amount you borrowed plus interest charged by the mortgage lender. In case you are not able to repay your mortgage your house could be taken away and sold. Therefore you need to consider different factors before you decided to take a mortgage.
REPAYMENT MORTGAGE AND INTEREST-ONLY MORTGAGE
With the repayment mortgage, you gradually repay the amount you borrowed. The amount you borrowed is called capital. Each month something that you pay goes of to capital and the rest to the interest. By the end of the mortgage term, you need to repay everything you borrowed. In another hand, the interest-only mortgage has lower monthly payments as you are not paying off the actual money you borrowed. You are only paying off the interest.
PRE-QUALIFICATION LETTER & PRE-APPROVAL LETTER
A pre-qualification letter is a letter that goes with an offer. It may be a handwritten or online application that is not verified. There are not any supporting documents provided to support the data given. A pre-approval letter is much more influential than a pre-qualification one. It contains all the supporting loan documents to verify the data that has been submitted. It provides credit, tax returns, paycheck, bank statements, and so on.
QUALIFICATION VS AFFORDABILITY
When it comes to mortgages, it is necessary to know how much monthly payment can you afford. You need to think about the budget and what is comfortable for you. It is crucial to identify what you can afford from a budget viewpoint. For example, someone can afford 3000 dollars monthly mortgage payment. After the qualification underwriting guidelines will show that they can pay up to 4000 dollars, but it doesn't mean they will be comfortable with that payment. It is essential to have enough information so you can make a better decision while you are buying property. Sometimes you will need to expand your budget to get the home of your dreams.
The minimum score is from 620 to 640 for the Federal Housing Administration (FHA) loan. When it comes to the debt to income ratio, the percentage of your debt load is shown as your gross monthly income. If you make 1000 dollars a month and your maximum debt to income ratio is 45% for a conventional loan, you can dedicate 450 dollars of your monthly salary towards your debt load. For Federal Housing Administration it can go up to 50%.
A mortgage broker is a loan officer in the marketplace. Their task is to find the customers, get the loan application and process the loan. Once they process the loan, they have a lot of investors that they can send that loan to for underwriting. Mortgage brokers choose an investor that fits the client best in regards to their loan qualifications. Eventually, they try to match that with the best rated based on those qualifications. Due to that, they had to give up control over the loan file to the investor. The investor can underwrite the loan, close it fund it, choose an appraisal management company to send the appraiser out to the marketplace.
Mortgage bankers have complete control over the transaction. The process under-eye closed fund. They have the ultimate authority regards to managing the business. Mortgage bankers are making sure that they get to the closing table on time. A mortgage banker doesn't need to be only one person, it can be a company, or organization that originates mortgages. Mortgage bankers handle their funds, or funds borrowed from a depository lender, to finance mortgages. A mortgage banker can allow a mortgage for a bank.
A conventional loan is a security backed by a mortgage. They are creating an investment for Wall Street, although the guidelines are a little bit different. The minimum down payment requirement is 5% down. The minimum fico score is 660 to 640. A contribution from the seller varies depending on how much down payment they have. A conventional loan is not supported by a government office. Conventional loans are split into "conforming" and "non-conforming" mortgages.
FEDERAL HOUSING ADMINISTRATION LOAN
A Federal Housing Administration loan is often called a Government National Mortgage Association securities. Ginnie Mae is the secondary Wall Street market investment. It is formulated out of that mortgage. The Federal Housing Administration loan has a 3,5% down payment. It can go down to 645 fico scores across the countries. They can get up to 6% seller contributions at the 3,5% down payment.