If you have had problems with your credit in the past and are now considering purchasing a new home, or refinancing your existing home, there are a few key things you must know about mortgages to get the most out of your home loan.
WHAT IS THE MONTHLY PAYMENT AND HOW LONG IS IT FIXED?
Most loans granted to people are fixed for a year or two, then rates & payments change. As a borrower, you should recognize that there are programs in the market that allow for up to five years at a fixed rate. This gives you a longer period to work on repairing your credit to prepare for refinancing into a mainstream mortgage.
WHAT ARE THE TOTAL CLOSING COSTS?
Closing costs include prepaid interest, third party fees and other costs. Many lenders who specialize in helping people with problem credit charge excessive fees and points. You should recognize that there are programs available with minimal fees & points.
WHAT IS THE ANNUAL PERCENTAGE RATE (APR)?
The APR is the actual cost of the loan expressed as a percentage rate. The APR is a great tool for consumers to use to compare mortgage products between lenders.
HOW FAST CAN YOU GET A LOAN DECISION? AND THEN A CLOSING?
There are lenders available that can make local decisions and have a loan closing in as little as four weeks!
IF YOU ARE GETTING AN ADJUSTABLE RATE MORTGAGE (ARM), WHAT IS THE “INDEX” AND “MARGIN”?
The index refers to the starting point of your rate. This is generally a published rate, like the U.S. Treasury. The margin is the number that will be added to the index to determine your new interest rate on your first change date and each change date after that.
WHAT IS A LOAN-TO-VALUE RATIO (LTV), AND WHY IS IT IMPORTANT?
The LTV refers to the amount of your loan in relation to the value of your property. When reviewing an application for someone who has had problem credit, lenders generally prefer to see LTV ratios at 80% or lower. Other programs are available, but you may expect to pay a premium for them.
DOES THE LOAN YOU ARE APPLYING FOR HAVE PREPAYMENT PENALTIES?
A lot of lenders who specialize in loans to people who have had problems with their credit incorporate a penalty if the borrower pays off the loan in advance of their original term. A better choice may be to work with a lender who will write loans without prepayment fees and will help you to understand how you can improve your credit so that you can refinance into a traditional mortgage in a relatively short period.
DO I HAVE TO ESCROW PROPERTY TAXES AND INSURANCE?
Recognize that with the right Loan-to-Value ratio, you may be eligible to waive this traditional requirement.
DO ALL LENDERS CHARGE THE SAME FEES?
Absolutely not! That is why it is so important that each borrower shop around for the best products available for their individual needs.
If you have further questions or would like more information on the process of applying for a mortgage, please call one of our mortgage professionals at 207-854-6000, or visit any of our branch locations.