When To Get Qualified?
Even if you have not picked out houses to visit yet, it is important to see your mortgage professional first. Why? What can we do for you if you have not negotiated a price, and do not know yet how much you want to borrow?
When we pre-qualify you, we help you determine how much of a monthly mortgage payment you can afford, and how much we can loan you. We do this by considering your income and debts, your employment and residence situations, your available funds for down payment, required reserves, and other considerations. It is short and to the point, and we keep the paperwork to a minimum!
Once you qualify, we give you what is called a Pre-Qualification Letter (your real estate agent might call it a "pre-qual"), which says that we are working with you to find the best loan to meet your needs and that we are confident you will qualify for a loan.
When you find a house that catches your eye, and you decide to make an offer, being pre-qualified for a mortgage will do a couple of things. First, it lets you know how much you can offer. Your real estate agent will help you decide on an appropriate offer, but being pre-qualified gives you the confidence to know you can follow through.
More importantly, to a home seller, your being pre-qualified is like you walked into their house with a suitcase full of cash to make the deal! They will not have to wonder if they wasted their time because you never qualified for a mortgage to finance the amount you are offering for the home. You have the clout of a buyer ready to make the deal right now!
You can always use the calculators available on our site to get an idea of how much mortgage you can afford, but it is important to meet with us. We will provide you with a Pre-Qualification Letter! Also, we may find a different mortgage program that better suits your needs.
When to get Pre-Approved?
Before you begin to shop for a new home, contact Troy Bank and Trust to speak with one of our mortgage professionals so we can figure out how much you can afford. Knowing this will put you in a better position as a buyer. It is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan.
The difference between getting pre-qualified and pre-approved will be crucial when you decide to make an offer on a house. When you get pre-qualified for a loan, we will collect information about your debt, income, and assets. We will look at your credit profile and assess goals for a down payment and get an idea of different loan programs that would work for you. At that point, we will issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow. It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend.
Getting pre-approved for a loan gives you a competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount. To get pre-approved, you will complete a mortgage application and provide various information verifying your employment, assets and financial status such as W-2 forms, bank records and credit card statements.
We will review your mortgage options and determine the loan that best meets your needs. Once the application process is complete we will issue you a pre-approval letter indicating the amount you have been approved for your home. The pre-approval is subject to an appraisal of the home you wish to purchase and certain other conditions. If your financial situation changes such as you lose your job, interest rates rise, or a specified expiration date passes, it will be necessary to review your situation and recalculate your mortgage amount accordingly.
When to Refinance?
There aren't quite as many loan programs as there are borrowers, but it seems like it sometimes! We'll work with you to qualify you for the best loan program to fit your needs. But there are some general considerations you can have in mind in advance. Also, you may use our calculators to help determine your best option.
Are you refinancing primarily to lower your rate and monthly payments? Then your best option might be a low fixed-rate loan. Maybe you have a fixed-rate mortgage now with a higher rate, or maybe you have an ARM -- adjustable rate mortgage -- where the interest rate varies. Even if it's low now, unlike your ARM, when you qualify for a fixed-rate mortgage you lock that low rate in for the life of your loan. This is especially a good idea if you don't think you'll be moving within the next five years or so. On the other hand, if you do see yourself moving within the next few years, an ARM with a low initial rate might be the best way to lower your monthly payment.
Are you refinancing primarily to cash out some home equity? Maybe you want to pay for home improvements, pay your child's college tuition bill, take your dream vacation, whatever. Then you'll want to qualify for a loan for more than the balance remaining on your current mortgage. If you've had your current mortgage for a number of years and/or have a mortgage whose interest rate is higher, you may be able to do this without increasing your monthly payment.
You want to cash out some equity to consolidate other debt? Good idea! If you have the equity in your home to make it work, paying off other debt with higher interest rates than the interest rate on your mortgage -- for example, credit cards, home equity loans, car loans, some student loans -- means you can save possibly hundreds of dollars a month.
Do you want to build up home equity more quickly, and pay off your mortgage sooner? Consider refinancing with a shorter-term loan, such as a 15-year mortgage. Your payments will be higher than with a longer-term loan, but in exchange, you will pay substantially less interest and will build up equity more quickly. If you have had your current 30-year mortgage for a number of years and the loan balance is relatively low, you may be able to do this without increasing your monthly payment -- you may even be able to save! For example, let's say years ago you took out a $150,000 30-year mortgage at eight percent. Your payment is about $1,100, exclusive of taxes, insurance and so on. If your balance today is down to $130,000, you might take out a 15-year mortgage at six percent and have an almost identical monthly payment. This is a great option for people whose main goal is not to save money on their monthly payment but rather want to build up equity and pay off their home more quickly.
Refinance Closing Costs?
Should you consider financing closing cost, escrow reserves, or other cash needed at closing?
If you've built up some equity in your home, when you refinance, you may be able to "cash out" some of that equity to pay off credit cards or other revolving debt, improve your home, help py for college, etc. The same is true of refinancing costs: If you have enough equity in your home, you may be able to roll some of the cash due at closing into your loan.M
Some of the "cash needed to close" as it is sometimes called, includes settlement costs and fees, prepaid interest, escrow reserves, state or local government charges, or even extra funds needed to pay off your existing mortgage. Some or all of those costs can sometimes be financed as part of your new mortgage loan.
But you have to be careful. It is not always the case that you can borrow up to 100 percent of your home's value. Many loan programs are based on what's called a "loan-to-value" ratio. You may qualify for a very advantageous refinanced mortgage if you borrow no more than 80 percent of your home's value, but may not qualify for the same terms if you borrow 90 percent. Troy Bank and Trust can help you qualify for refinance loan programs for as much as 95 percent of your home's value in most cases.
The bottom line is that in many cases you can reduce your up-front costs for refinancing your mortgage in exchange for higher monthly payments for the life of the loan. But whether, and to what extent, you can do this depends on the value of your home and the amount of your new mortgage and what options you decide are best for you. You may use our calculators to help determine your best refinance option.
If you have had your current mortgage for a few years, chances are you have built up enough equity to finance cash needed to close and still have a smaller loan balance than your original -- and a balance that will qualify you for a favorable mortgage program tied to your loan-to-value ratio. One of our mortgage professionals can help you decide!
Many people find that it is advantageous to pay the cash needed at closing from checking, savings, money market accounts or other assets. The advantage to this is the less you borrow on the new refinanced loan, the lower your monthly payment will be. Our mortgage professional will work with you to see if there is an advantageous refinancing program for you based on your ability and willingness to pay closing costs and other fees and the amount you wish to borrow.
Your Down Payment Options
The amount you have available for a down payment will affect what types of loans for which you can qualify. Down payments typically range from 3 to 20 percent of the sales price for the property. You may use our calculators to help determine how your down payment will effect your overall options.
Tips for Accumulating a Down Payment
- Look for ways to reduce your monthly expenditures to save toward a down-payment.
- You could enroll for an automatic savings plan at your bank to have a portion of your payroll automatically transferred into savings.
- Most people save a couple of years for their down payment.
Borrow the down payment:
- Check the provisions of your retirement plan. You may be able borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account.
- Be sure you understand the tax consequences, repayment terms and/or possible early withdrawal penalties.
Make a deal with the seller
In some circumstances, it is appropriate to ask the seller to carry a second mortgage to cover your down payment. Typically, you will pay a slightly higher rate for this second mortgage.
Sell some investments
Get a second job and save your earnings
Skip a year's vacation
Gift from Family
Parents and other family members are often anxious to help children buy their first home and may have the means to give you a gift of money for a portion or all of your down payment.
Why you should get an Inspection?
Whether you are buying or selling a home, you may want to have a professional home inspection performed.
A home inspection will look at the systems that make up the building such as:
- Structural elements, foundation, framing etc
- Electrical systems
- Health/Welfare Criteria
- Cosmetic condition, paint, siding, etc.
If you are buying a home, you need to know exactly what you are getting. A home inspection, performed by a professional home inspector, will reveal any hidden problems with the home so that they may be addressed BEFORE the deal is closed. You may want to require an inspection at the time you make a formal offer. Then, hire your own inspector and pay close attention to the inspection report.
Likewise, if you are selling a home, you want to know about such potential hidden problems before your house goes on the market. Almost all contracts include the condition that the contract is contingent upon completion of a satisfactory inspection. And most buyer's are going to insist that the inspection be a professional home inspection, usually by an inspector they hire. If the buyer's inspector finds a problem, it can cause the buyer to get cold feet and the deal can often fall through. At best, surprise problems uncovered by the buyer's inspector will cause delays in closing, and usually you will have to pay for repairs at the last minute, or take a lower price on your home.
It is better to pay for your own inspection before putting your home on the market. Find out about any hidden problems and correct them in advance. Otherwise, you can count on the buyer's inspector finding them, at the worst possible time.
Real Estate Transaction Closing Information
Once your application for a mortgage loan has been approved, the final steps is the closing, or settlement, of your purchase or refinance transaction. If you are purchasing a new home, even though you have signed a purchase agreement and your loan request has been approved, you have no rights to the property, including access, until the legal title to the property is transferred to you and the loan is closed. Please navigate the closing section of our web site so that you will have a good understanding of what is involved in the closing process.
At closing, you will sign the mortgage loan documents, the seller will execute the deed to the property, funds will be collected and disbursed, and the closing agent will record the necessary documents to give you legal title of the property. Settlement of a mortgage loan is a legal process with specific procedures and requirements that vary according to location.
What is a Credit Score?
Before we make a decision to approve your loan application, we need to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, we will look at your income-to-debt obligation ratio. For your willingness to pay back the loan, we will consider your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they're named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).
Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. Credit scoring was developed as a way to consider only what was relevant to somebody's willingness to repay a loan.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren't as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit -- credit scores requested.
Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.
You are allowed, by law, to obtain a free credit report once each year. To check your credit report follow the directions of the U.S. Federal Trade Commission. If you see accounts you don’t recognize or information that is inaccurate, contact the credit reporting agency and the information provider. The three national credit reporting agencies are Equifax, Experian, and TransUnion.
*Home Owner Deductions
One of the advantages of owning your own home is that the home mortgage interest and real estate taxes paid can be deducted from your federal income tax. To do so, you will need to comply with current tax laws and complete the appropriate federal tax forms and itemized deduction schedules. A good reference for Home Owner Tax Deductions is IRS Publication 530, however, always confer with your tax advisor or IRS for details regarding updated tax laws concerning Tax Deductions.
Home Mortgage Interest: For your home mortgage interest to be deductible, it must be for a first or second mortgage, a home improvement loan, or a home equity loan. Additionally The mortgage loan must be secured by your main home or a second home. Only interest paid for that tax year can be deducted The amount you can deduct can be limited if your mortgage balance is more than $1 million ($500,000 if married filing separately) or the mortgage was taken out for reasons other than to buy, build or improve your home.
Points: Points (aka loan origination fees, maximum loan charges, loan discount, or discount points) are generally treated as pre-paid interest and, as such, the full amount cannot be deducted in the year paid. Rather, the deduction must be taken over the term of the loan.
Real Estate Taxes: State or local real estate taxes can be deducted from your income if they are paid in the tax year. To qualify, the tax must be levied on the properties assessed value, the taxing authority must charge a uniform rate for properties in its jurisdiction, and the tax must not be for your special privilege but for the benefit of the general welfare.
Restrictions on Itemized Deductions: The amount of itemized deductions you can take are restricted by your adjustable gross income. In 2003, the limits were $139,500 for single persons, persons filing as head of household or qualified widow(er), or married persons filing jointly; and $69,750 for married persons filing a separate return.
Non-deductible items: Many of the expenses related to owning your own home cannot be deducted from your income tax. These non-deductible items can include:
- Most settlement costs, including (but not limited to) appraisal fees, notary fees, VA funding fees, and mortgage preparation costs
- Insurance Local assessments that generally add value to your home, such as sidewalks, sewers, etc.
- Utilities Depreciation Check with the IRS
*The information contained in this section is for informational purposes only and may not reflect current tax year rules and regulations. You need to consult with your tax attorney, CPA, or the IRS for current tax year rules, restrictions and regulations.
Mortgage Loan Servicing
On some of our loans, your monthly mortgage payments may be handled by what is known as a mortgage servicer. The mortgage servicer is responsible for collecting your monthly payments and handling your escrow account.
If your loan amount exceeds 80% of the value of your home you will be required to have an escrow account. An escrow account is a special account held in your name to pay obligations such as property taxes, insurance premiums and other escrow items. The mortgage servicer uses the funds from your escrow account to insure that these expenses are paid in a timely fashion. This process avoids the risk of having lapsed insurance coverage or delinquent taxes. Also it gives you the peace of mind of knowing that you wont have to make large lump sum payments during the course of the year.
At the time the escrow account is established, you will receive a statement of estimated expenses and the expected total of those expenses for the next 12 months.
Each year thereafter, the mortgage servicer will provide you with a statement that outlines what portion of your mortgage payments were applied to principle, interest, taxes, insurance, and other escrow items. The annual statement also details any adjustments in payments to cover taxes, insurance and other escrow items.
During the course of your loan, your mortgage servicing company may change. Prior to a change, your current mortgage servicer will notify you in writing with the effective date the first mortgage payment is due at the new mortgage servicers office. You should also receive notification from your new mortgage servicer. These notifications should include:
- Name and address of the new mortgage servicer.
- The last date your current mortgage servicer will be accepting your mortgage payments.
- The date your new mortgage servicer will begin accepting payments.
- Free or collect telephone numbers to call for more information about the transfer of service for both your current and new mortgage servicers.
- Notice of whether you may continue any option insurance (such as disability insurance), what action, if any, you have to take to maintain coverage, as well as whether the insurance terms will change.
In the event that your mortgage servicer changes, the new servicer is required to honor the terms and conditions of your original mortgage agreement, with the exception to the terms and conditions related directly to servicing the loan.
Following the transfer, you will have a 60 day grace period in which you cannot be charged a late fee if you mistakenly send your mortgage payment to the old servicer rather than the new one.
If you have any questions or disputes with the new servicer, contact your servicer in writing. Continue to make your monthly payments while your dispute is settled. The servicer is required to investigate disputes and make any necessary corrections within 60 business days.
Get Your Loan Faster
Five ways to make the loan process go faster!
We should say that "working with us" is the first way! When you let us help you find the loan that is right for you, you are taking advantage of some of the area's best technology and expertise to get you a loan decision and funding on your loan quickly.
But here are five "other" ways you can speed up the process of getting a mortgage loan:
1. Have everything ready and in one place. On our website, you'll find a "Needed Items list" of things you might need in support of your mortgage application. If you get them all together and keep them in a safe, portable place like a special pouch or folder, you can cut down on time spent rooting around for things we may need. Also, you will help cut down on your own anxiety and confusion.
2. Be honest and complete when you fill out your application. "Fudging" your employment or residence history or omitting open credit accounts you would rather not have considered does not increase your chances of getting a favorable loan. In 100 percent of cases, it makes it harder, and takes longer.
3. Respond promptly to requests for additional information. During processing, we or the lender considering your loan may need additional information. Provide it as soon as you get the request, or return the call as soon as you get the message.
4. Be prepared to explain derogatory items in your credit report. This is really part of number 2 above. If you had an illness or a divorce where you missed or made late payments, or you have other instances of late payments or delinquencies on your credit report, be prepared to explain them. Be honest, and do not be nervous! The loan we are not judging you, we are just trying to fill in all the blanks in our paperwork so that your application can be processed.
5. Let the appraiser in! The appraisal is one of the lengthiest parts of the mortgage loan process. Studies have shown that the single biggest factor in appraisal "lag time" is the appraiser's inability to reach the homeowner to make an appointment. If you are refinancing and the appraiser calls to make an appointment, make it as soon as convenient for both of you.
And remember that the appraiser does not want to buy your house. He or she will say what the house is worth clean and tidy and in reasonable repair, even if you have some dirty laundry on the laundry room floor or dirty dishes in the sink. Cleaning does not get you a higher appraisal! Letting the appraiser in as soon as possible gets your a loan faster.