What is a mortgage in the US? what am I getting into?
A mortgage is a legal contract between an individual and a lender that specifies the terms under which an individual is able to obtain a loan to purchase a property. The loan is secured by property or real estate. In exchange for funds received by the homebuyer to buy the property or a home, the lender gets the promise of that homebuyer to pay back the funds within a certain time frame for a certain cost.
The mortgage industry works a little differently in the US than it does in many other parts of the world.
Mortgage loans are treated as commercial paper, which means that lenders can convey and assign them freely. Regardless of which company owns your loan, a loan is a loan — and what’s on your mortgage note hasn’t changed.
The US also has a number of government-sponsored enterprises, such as Fannie Mae, Freddie Mac, and Ginnie Mae that exist to facilitate this system.
How much can I borrow?
Home affordability is about more than just how much you can borrow. You'll also need to consider the up-front costs of buying a house, as well as the ongoing expenses of home ownership.
Your income, credit history, the size of your down payment, your employment and residence history are all factors in how much you can borrow. Depending on circumstances, the amount you can borrow may exceed the amount you can comfortably afford - so it pays to borrow cautiously.
It’s important to understand not only what you qualify for in a loan, but what you can and want to spend on this portion of your overall living expenses. Buy the home that you can truly afford so you can have peace of mind when paying your monthly bills.
The lender’s calculation of how much you can borrow takes into account:
- the mortgage payment for principal and interest
- the escrow payment (money held in an account for specific charges) for mortgage insurance (if applicable), annual taxes and property insurance
From there you should also consider other costs of ownership: utilities, landscaping, house maintenance and potential homeowner’s association fees. Be sure to factor all of these costs into your monthly budget.
What steps can I take to ensure I am seeing the best rate on my mortgage?
From STEM Lending! While current numbers don’t match the historically low rates of 2012 and the first half of 2013, they’re still nothing to sneeze at. Average 30-year mortgage rates started 2014 at an average of 4.42% and dropped to just under 3.9% by the end of the year. That’s where they remain heading into 2017.
What are the initial questions or forms I have to have ready for the mortgage banker?
Initially, we will ask you for your first name, last name, date of birth, property location & zipcode, purchase price, expected down-payment, and your estimated credit score. That way, we will have a quick understanding of who you are & where you are in your process of finding a home and mortgage. When we move on to creating your account and submitting your full application to our network of lenders, that is where we'll perform both income and asset verification, using third party applications such as Yodlee, Quovo, Finicity, TurboTax, or others. If you have files in word of .Pdf form that you'd like to upload, that is also fine. We will always make it crystal clear why we are asking for your information. If you have further questions, our mortgage experts are always available for live chat.
Do you perform credit checks? Does this hurt my credit score?
Our primary intent is to ensure that every prospective borrower who comes to STEM Lending has an incredible user experience. It's in our interest and yours to make sure you have the highest possible chance of being accepted by our partner lenders, who will ultimately fund and originate your mortgage loan. As a result, we perform our own analysis of your creditworthiness before submitting anything to our lenders. This analysis leaves no mark on your credit history and will not impact your credit score.
However, if you continue to fill out our full application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
What is the difference between a pre-qualification and a pre-approval?
What is the minimum down payment I have to have ready to get a mortgage?
Conventional loans, the mortgages lenders prefer to make, can have down payments as low as 3% for qualified buyers. Some lenders offer grants to allow even less money down. But for the last 12 months, most buyers seeking conventional financing have put down 20%, according to Ellie Mae.
FHA loans, often the go-to solution for first-time buyers of modest means, require a minimum of 3.5% down, and sure enough, loan-to-values for the period averaged 96%, probably due to rounding.
VA loans are famous for offering mortgages that require no down payment at all. Still, loan-to-values averaged 98% over the last year, likely due to borrowers financing their closing costs.
20% is good — but not mandatory
The fact is, 20% down payments aren’t strictly required, but they may be a good idea. Good reasons to put down at least 20% include:
- You won’t have to pay for mortgage insurance
- Your monthly payment will be lower
- You’ll probably earn a lower mortgage interest rate
- Lenders will be more likely to compete for your business
Can I refinance an existing mortgage?
Why would a lender sell my mortgage?
Time is money. Lenders need capital to originate new mortgages to new borrowers, and most mortgages have 30-year terms. If a company were to wait for borrowers to pay off their loans, it would need an unreasonably high amount of capital to fund new mortgages. So, instead of waiting 20 to 30 years for a borrower to pay down his/her mortgage, many lenders sell the loans they originate to an investor, such as a government-sponsored enterprise (for example, Fannie Mae or Freddie Mac).
Is it legal for a lender to sell my loan?
Yes, it is entirely legal for a lender to initiate a mortgage transfer, but to be clear: not every lender sells 100% of the loans they originate. Some lenders hold higher-balance loans on their balance sheets; sometimes these same loans are sold to investors so that the lender can free up cash and originate more loans. It really depends.
The Real Estate Settlement Procedures Act requires that a lender disclose plans to transfer servicing for your loan to another lender in the Mortgage Servicing Disclosure Statement. If you didn’t receive this document when you applied for your loan, your lender should have mailed it to you within three business days of your application.
How do I find out if my loan has been sold?
Lenders must notify borrowers within 30 days of the sale of their mortgage to another entity. This notice will include the name and contact information for the new owner of your loan, when your loan will be sold, and whether the sale will be included in public records.