We all make plans before a year starts. Very few of us, however, can stick to those plans through the whole year. Experts believe a planner can realize his financial plans if the plans are realistic.
Financial plans
What plans have you made for a mortgage? Or have you made any plan at all? If you haven’t, then make plans today because 2016 has started its journey already, and you don’t have much time. Needless to say, the plans need to be realistic and achievable.
In this article, I’ll lay out a complete picture of the mortgage segment, so you could retrieve the takeaways and be at ease making strategies.
Mortgage credit quality
A lot depend on your mortgage credit certificate. The issuance of the certificate is conditional, which means you may not obtain it. Make sure you meet all requirements. As different states have different programs, check with your state authorities. Even if you qualify, you are not eligible for all types of home loans. So, consult with an expert to know the types of home loans, mortgage credit certificate can be used with. You must be wondering what factor/s determine the quality of your mortgage credit. The answer is your….
Credit scores
For an impressive mortgage credit, your credit score needs to be between 620 and 740. A score below 620 disqualifies you for best mortgage rates. Credit scores not only affect the mortgage rates, offered by lenders, but also the loan-to-value (LTV) ratio. In case of a 95-97% LTV ratio, where the down payment is 3-5%, if your credit score is over 740, you will be assessed 0.250 points by Fannie Mae. If your credit score is less than 620, you’d be assessed 3.250 points for all loans with LTV ratio topping 80%.
The catch here is even if the lender is satisfied looking at your credit report, you should still give at least two hoots about whether to go for a high-risk loan. Simply put, an outstanding credit score shouldn’t translate to a 90-97% LTV ratio. There are other factors to consider.
Secured debt mortgage
Unless your home is the collateral for the money that you are borrowing, your mortgage doesn’t qualify as a secured debt. What’re the benefit of a secured debt? It strengthens your credentials and you earn the lender’s trust. In case you become a defaulter (you might), the lender can claim your mortgage asset. Apart from this, secured debt lets you avail tax deductions on mortgage interest. To enjoy tax deduction, you need to fill out form 1040 and itemize deductions.
Know interest deduction
When filling out the form, you can specify a itemized deduction for mortgage interest on your home. You can not only purchase a property, but improve it too. If you are single, then loans to deduct interest can total up to $1 million. Married couple need to file separately, and their loan limit is $500000.
There’s one type of loan in which case interest is deducted on principal balances. The IRS calls it the home equity debt. For singles, the principal balance limit is $100000 and for married couple, it’s $50000.
It’s great to make plans for the mortgage process, but you also need to think of….
Down payment
If you are planning to apply for a mortgage loan, begin to save for the down payment from today. The ideal down payment on mortgage is 20%. However, there’s no hard and fast rule per se. In fact, the FDH requirement is 3.5%. For the majority of other lenders, it’s 3-5%. But it’s always good to reduce dependence on loan, and so, you should have a stable line of equity ready.
Of course, if you have plenty of money stashed in the bank already, you are in a win-win situation because not only you can shell out that money as down payment, but because you can apply for a…
Jumbo loan
The loan amount exceeds beyond $625000. Last year, lenders offered jumbo loans at an interest rate of 3.6%. The reason they consider a jumbo loan of low risk is almost all the borrowers have a good credit score and they have secured debt and other equity just in case of a default.
Also, the borrowers of jumbo loans can put down large down payment (this is where the money in the bank comes in handy), and quickly earn a lender’s trust. If you dream of a lavish bungalow or thinking of investing in a condo and have a large amount in the deposit account, you might want to go for a jumbo loan.
Look for lenders
Now that you know the various different aspects of mortgage loans – including interest rates, the role of credit scores, etc. – you can start looking for a lender now. At this point, you might want to consider finding a wholesale mortgage lender. A wholesale mortgage lender is a lending institution that funds mortgage loans but uses an independent mortgage broker for the application process. And do come back to us to share your experience after securing a loan at a favorable rate.
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