Have you decided on mortgage financing for your real estate purchase? But do not know where to start? Our mortgage guide outlines all the steps and resources you will need to buy a condo or co-op. Start with the section on the benefits of pre-approval for a mortgage or learn about bad credit mortgages.
Also, before beginning your search for a New York City condo, co-op or investment property to buy it is essential in being aware of the financing requirements for non-cash buyers. Whether choosing to work with a mortgage bank or broker the information below will prepare you in advance.
You will find essential information; to help you understand your mortgage loan financing types, options and how to secure the best interest rate.
Mortgage Financing Guide
Table of Contents
- Mortgage Tips for First-Time Home Buyers
- What is, required for US Residents and Resident Aliens?
- Why should I get a mortgage pre-approval?
- How to apply for a mortgage?
- How to determine which type of mortgage is right for you?
- How to decide between a Fixed Rate vs. Adjustable Rate loans?
- What different types of home loans are there?
- What is a non-conforming mortgage?
- How to get the best interest rate?
- Tips for finding the best rate
- How does a credit score influence interest rates?
- What are bad credit mortgages?
- I am a first home buyer, and I need help
- Why check my lender through a rating company?
- Is it better to borrow from a bank?
- What is mortgage financing PMI Insurance?
- Can I take a more substantial mortgage than I need?
- What is a home line of credit?
- How can I save money on mortgage financing?
- Questions to ask a Bank or Broker before lending
- Mortgage financing companies in New York City
Mortgage Tips for First-Time Home Buyers
First-time homebuyers are often confused when it comes to obtaining a mortgage. While it is tempting to merely sign-on for the one with the lowest rate, you will be doing yourself a huge disservice. There could be various fees attached, as well as different terms. You will need to be able to make an apples-to-apples comparison. Fortunately, some tools allow you to understand the terms of your loan before signing on the dotted line.
Figure out the type of mortgage you want
Although the 30 years fixed mortgage is the most common, other types may be appropriate. You may decide to obtain a 15 year fixed mortgage. The interest rate is usually lower, and you will pay off your loan quicker, saving money in interest costs. However, the payment is generally higher. There is also many adjustable rate mortgage is fixed for a period, which is followed by a floating rate that is tied, to another interest rate, such as LIBOR or the federal fund’s.
A fixed rate allows you to know your monthly payments with certainty. Conversely, an adjustable rate will fluctuate, depending on the interest rate. There are several factors to consider in making your decision, including your risk tolerance, how long you plan on living in your residence (the shorter time frame means an adjustable rate might be the right choice), and your view on the economy and interest rates.
The Federal Home Loan Mortgage Corporation (FHLMC), commonly referred to as Freddie Mac provide average rates on a variety of mortgage products. A good starting point, giving you a sense of the general level and direction of interest rates, but this is the national average. You will need to hone your search to New York City. Keep in mind that you will have to obtain a jumbo mortgage for a loan larger than $679,650. These have higher interest rates, and the bank might require a more substantial down payment than for a conforming loan.
Co-ops, condos…oh my
New York City’s plethora of co-ops and condos means interested buyers should be aware of each one’s peculiarities when it comes to accessing a mortgage.
A co-op board may put you through the wringer, with financial disclosures and a strict vetting process. Giving; the lender, greater confidence. However, not all banks grant mortgages for a co-op. Furthermore, the co-op building may not allow any mortgage or will enable you to finance only a certain percentage of the purchase price (e.g., only 50% of the price).
It is easier to obtain a mortgage to purchase a condo than it is for a co-op. On the condo side, you should also look at the building’s characteristics. As we noted previously, if more than 50% of the condo units are investors, banks are more reluctant to lend. A high vacancy rate and percentage of owners who are delinquent results in lenders being more skittish. If a single investor owns a large number of units (e.g., 10%), lenders may turn down your mortgage application.
Not so fast
Just because you have been pre-approved for a mortgage does not mean you will automatically get the loan. The lender will also check the co-op or condo building’s finances. Following guidelines from the Federal National Mortgage Association (FNMA, or Fannie Mae), the institution will determine whether or not the building is a safe investment. Including an examination of the building’s reserves (10% of revenue is the guideline), any legal issues (if there is pending litigation, a bank will almost certainly not extend you a mortgage), and commercial space occupying more than 20% of the building’s square footage.
We previously mentioned a potential issue if one person owns more than 10% of the shares or units due to fear of putting too much of the property’s future in the hands of a single person. If it is new construction, at least 70% of the apartments should be in contract to pass muster with Fannie Mae.
These types of problems are discovered, during the attorney review process. You can also do some of your homework beforehand by asking your buyer’s broker to see a copy of the financials, however. He or she might even be able to tell you about the presence of other issues.
Knowledge is power
The Consumer Financial Protection Bureau (CFPB) was created, in the aftermath of the housing crisis. “Know Before You Owe” is a mortgage disclosure rule that replaces four forms with two: the Loan Estimate and the Closing Disclosure. The Loan Estimate makes it easier to shop around and compare different loan offers while the Closing Disclosure provides notice to avoid surprises at closing.
When shopping for a mortgage, there are other considerations. Look at the fees each lender is charging. To accurately compare lenders, use the annual percentage rate (APR). You may also want to consider paying points, or upfront interest, to obtain a lower interest rate, depending on how long you plan on living in residence. These are all part of the closing costs, which are typically 2%-5% of the purchase price, and include >title insurance, title search, government and escrow fees, home inspection, and an appraisal, along with any points you may decide to pay.
Don’t get overwhelmed by the process. There are mortgage brokers that can help you shop for the best rate, and your buyer’s broker should also be able to explain the basics.
There is a fixed rate mortgage
Provides comfort since the interest rate on your loan will never go up for the entire term, meaning your mortgage payment (principal and interest) will not change. But, if you pay property taxes and insurance through your monthly payment, these will change. Of course, this is a double-edged sword. If rates go down, your loan payment will not, unless you refinance.
A mortgage can be for a variety of lengths
A conventional mortgage is for thirty years, but there can be ten, fifteen twenty, even a forty year (the longest we’ve seen), or some other term. It is essential to keep in mind that the longer the mortgage, the lower your payment, despite a higher rate, generally speaking. But, you will pay more in interest over the life of the loan.
A short numerical example will illustrate the point
Using the website bankrate.com, and plugging in the Metro New York area, it returns some banks offering mortgage rates. Bank of America has a 4.15% interest rate. Assuming a $500,000 mortgage; your monthly payment will be $2,430.52. Over the life of the loan, you will pay $374,985.98 in interest. Most of the interest incurred, is typically paid, within the first half of the loan. If you prepay a portion, you can reduce the number of years, and the interest paid.
Examining 15-year rates; there are two available at 3.125%. Using the same $500,000 mortgage, the monthly payment for principal and interest is $3,483.05. $1,052.53 higher than the 30-year mortgage, despite an interest rate about 1% lower. But, the total interest paid over the 15 years is $126,948.41, almost $250,000 less than the 30 years.
Which is better?
It comes down individual preference and personal finances. While it is easy to jump at the 15-year mortgage in our example, which has the added benefit of owning your home in half the time and save interest charges, the monthly payment is much higher.
There is a way to lower your interest rate, besides having a high credit score. You can pay points, which involves a trade-off. Each point is 1% of the mortgage amount and paid upfront at closing. For our $500,000 mortgage, paying 2 points would equate to $10,000. In exchange, you receive a lower interest rate on your loan. If you plan on staying in the house for some years, this could pay off. Your monthly payment would be smaller, and after a certain amount of time, you will recoup your upfront payment, and then the savings kick in.
Banks will quote an APR (Annual Percentage Rate), in addition to the interest rate. The payment is based, on the interest rate, not the APR. But, the latter is essential for comparison purposes. It allows a borrower to compare loan terms on an apple-to-apple basis. It includes fees and other costs associated with the loan. These typically cover items such as points paid upfront, application fees, and a property appraisal.
There are also adjustable rate mortgages (ARM)
As the name suggests, the rate floats, usually based on a short-term benchmark such as one-year Treasury securities, the Cost of Funds Index, or LIBOR. A margin, typically constant, is then added to the index rate. There is a period where the interest rate will fluctuate based on the benchmark stated in the contract. Although the interest rate is typically lower than a fixed rate mortgage initially, it usually increases. Also, the borrower bears the risk of a rise in interest rates. K in mind since interest rates are currently meager, meaning an increase at some point appears inevitable.
There might also be caps, limiting how much the interest rate can rise from one period to the next or over the life of the loan. Another type of mortgage is a hybrid, which is a loan with a fixed rate for a period, which then changes to a variable rate. There are many varieties, such as interest-only ARMs.
For New Yorkers, there are special considerations for co-ops and condos. First, the board may scrutinize your financial information. Co-ops and condos may also require a more substantial down payment, along with sufficient liquid assets. Mortgage rates from banks may be higher, as well.
What is, required for US Residents and Resident Aliens?
Full name, address, and Social Security number.
The amount and source(s) of revenue, for all borrowers.
- Most recent checking and savings bank statements
- Two years of tax returns
- An employment letter verifying your start date, annual salary including bonus
- If self-employed – letter from your CPA or attorney confirming your salary and net worth
Information on all assets such as checking and savings accounts, stocks and bonds, retirement plans, and other real estate owned.
- List of other liquid or non-liquid assets
- Most recent asset portfolio statements (if applicable)
- Most recent 401K or retirement fund statements (if relevant)
Debts and obligations
Information on all outstanding debts and any other financial obligations.
Payment information concerning loans or debts, plus any other references to good credit use.
Six months of the mortgage payment for loans <$650k
Mortgage Loan Programs
- 30 Years Fixed
- 3/1, 5/1, 7/1, 10/1 ARM
- 20% – 35% down payment required
Tourists, Visitors, Residents of other Countries, No U.S address, No job in the U.S.
- Valid (unexpired) Foreign Passport
- I-94 (Required only when the Foreign National is in the U.S. at time of application or closing)
- International Credit Report
Income and Asset Documentation Requirements
- Proof of Income – Tax returns, pay stubs, etc.
- Stated Income available
- Verification of Deposit
- U.S. institution must verify down payment and closing costs
- Reserves can be, verified in a foreign institution with six months of history
- Statement accounts required
- 6 Months of a mortgage payment for loans <$650k
- 12 Months of mortgage payments for loans >$650k
Mortgage Loan Programs
- 30 Years Fixed
- 3/1, 5/1, 7/1, 10/1 ARM
- 30% – 70% down payment required
Note: Information above is a general overview for foreigners seeking to obtain financing for the purchase. Requirements for funding can vary from bank to bank depending on individual home buyer qualifications.
Why should I get a mortgage pre-approval?
Except for when you intend to pay for your purchase in cash, it is essential that you are pre-approved with a New York City mortgage company. Not many of the major mortgage lenders that exist nationally are available in New York because co-operatives tend to be popular in the city; but as long as there’s a need to be served, you’ll always find a mortgage lender for pre-qualification purposes.
Reasons it is essential to be pre-approved for a Mortgage
- A pre-qualified buyer is usually a better option for sellers as they understand that you are serious and prepared to make a purchase. In addition to this, when you are pre-qualified, you also receive preferential access.
- Pre-qualification provides a better understanding of the actual price range you can afford, and this helps you focus better regarding what you may want to buy. A lot of buyers can usually provide more than they believe they can.
- Buying an apartment in NYC is a big step, so when you are competing against other buyers, it is essential to be pre-approved from a recognized mortgage lender, your offer will; be treated, with preference.
- If you are pre-qualified and your offer is accepted, the fact that you are pre-qualified will speed up the rest of the purchasing process; if you are not pre-qualified, your offer will need to undergo much more scrutiny before finally sealing the deal.
How to apply for a mortgage?
A mortgage quote will help you get an understanding of the terms of your mortgage, the amount and the interest rate. You can get a quote on any form of variable rate mortgages. The quote can be for any term of six months to thirty years. The decision is yours. However, most lenders try to direct you towards a mortgage that benefits them, so you need to decide in advance which mortgage option works best for you.
How to determine which type of mortgage is right for you?
Consider the following to help you select the right mortgage financing:
- You should think about funding short-term when interest rates are dropping. If your credit rating and financial situation allow, try to get a mortgage that has one year or less on the term. Check out a mortgage bank websites to see if interest rates are expected to go down, stay the same or increase and in what period the change is expected to occur. You want to choose to lock in your interest rate or not, for how long and whether you will be better offer with an adjustable or variable rate mortgage.
- You should think about a long-term mortgage. Any more than five years and you will likely pay more on interest rates than when you get a shorter-term mortgage or a variable interest mortgage. You may also miss the chance to lower your interest rate. Again, it is essential to consider your credit rating and financial situation first.
- If you can save money, then you should try to get the best pre-payment and payment frequencies available. To get these, you should sacrifice as much interest as possible, or if you are expecting a ‘windfall’ sometime soon. However, be sure not to forfeit more than you can spare.
When it comes to getting the best mortgage rate your best tool is the internet. Several websites give free mortgage quotes from one or more of the top mortgage lenders. They are reducing the hassle and footwork that you have to do.
How to decide between a Fixed Rate vs. Adjustable Rate loans?
Whether you’re looking to buy a new home or remodel an existing one, chances are you will need a loan. In earlier times home buyers had only three mortgage loan types to consider. The fixed-rate conventional mortgage, an FHA loan or a VA loan. Nowadays there’s far more to choose from, and if you don’t understand the subtle differences between them, it can be hard knowing which one to pick. We discuss the difference between Fixed vs. Adjustable Rate loans, Jumbo vs. Conforming Loans and others.
Fact is, there is no one size fits all loan types. Your financial situation and home-ownership needs will help point you in the right direction. To make things easier, here are the most common loan types and what they cover.
Fixed Rate vs. Adjustable Rate Loans
When deciding on with mortgage loan type is one of the first choices, you’ll have to make whether you want a fixed-rate or adjustable-rate mortgage loan. Every loan fits into one of these two categories, or sometimes a “hybrid” combination of the two. These are the main differences between them and as you’ll see both choices have pros and cons that must be, considered carefully.
Will you choose a fixed-rate mortgage or an ARM? And what do these terms mean anyway? Read on to understand your loan options better.
The interest rate, in this case, is locked, for the entire duration of the repayment term. Month after month, year after year, your monthly payment will stay the same. However, for this stability, you will pay a higher interest rate than the initial ARM rate.
An adjustable rate mortgage loan (ARM) has an interest rate which will change over time. In most cases, the change will come once every year after an initial period of remaining fixed. For example, the 5/1 ARM loan starts with a fixed rate of interest for the first five years. After that, it will adjust each year. The main benefit of an ARM loan is that the initial interest rate and monthly payments are lower than a fixed rate loan. But it comes with the uncertainty of changing interest rates in the future.
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage loan type is one with a fixed interest rate for the life of your loan. This fixed rate also means that your monthly principal and interest payments won’t fluctuate from month to month. Fixed-rate mortgages generally last 15, 20, or 30 years.
Why Choose a Fixed-Rate Mortgage?
The most significant advantage to fixed-rate mortgages is their predictability. While they can be more expensive than ARMs, particularly on the establishment, homeowners love knowing what they’ll be expected to pay each month.
They’re an especially attractive option for people who intend to live in their homes for at least seven years, which is the time when fixed-rate mortgages can start becoming less expensive than ARMs.
Fixed-rate mortgagors also find budgeting easier because they always know how much they’ll need for home repayments. And if inflation soars, people on fixed-rate mortgages can feel confident that they won’t lose their homes. Even people with a fundamental understanding of finances can get a grip on fixed-rate mortgage loan type. That makes them an excellent option for homeowners who prefer to keep things simple.
What is an ARM?
The ARM is short for an adjustable-rate mortgage. When you enter an ARM, its interest rate will be generally lower than a comparable fixed-rate mortgage for an introductory period of between five to seven years. After this honeymoon period, your interest rate will be determined, by the market index. Interest rate caps help protect homeowners from substantial interest rate shifts. Just like fixed-rate loans, ARMs generally last for 15, 20, or 30 years.
Terms You Should Know
You will often see an ARM quoted as 3/1, 5/1, 7/1, 10/1, although there are different varieties. The first number represents how long the initial rate will be in place. In a 5/1 ARM, this introductory rate, typically lower than a fixed interest rate, will not change for five years. The second number indicates how often the interest rate is adjusted, which is annually in this case.
You will next need to understand what index it is base. We mentioned two above – LIBOR and the Treasury rate. There will be a margin added to this rate after the initial period expires, which would also be prudent to know.
There are three more fundamental concepts: initial cap, periodic cap, and a lifetime cap. As the names suggest, these put limits on how much your rate can go up. The first cap is how much the mortgage rate can increase at the time of the first adjustment (e.g., in a 5/1 ARM, it would cap the amount the new interest rate can rise after five years.) The periodic cap limits the increase for each subsequent time it can be adjusted, while the lifetime cap sets the maximum amount the interest rate can increase over the life of the loan.
These are important in understanding to compare different ARMs accurately. Unlike a fixed rate mortgage, an equal initial rate between lenders can have very different consequences down the road.
Why Choose an ARM?
The low initial rate of an ARM can be very enticing to new homeowners. While there is a risk of higher payments later, many homeowners feel they’ll be better able to afford these payments in the future, when their job may be more secure, or they’ve completed renovations. The lower repayments can even help families buy larger homes than they might afford on a fixed-term loan. Alternatively; an ARM can free up cash for people who’d prefer to build an investment portfolio rather than sinking a lot of money into their mortgage.
Financial markets rise and fall, and when they fall, people on ARMs benefit with lower payments. In contrast, people on fixed-rate mortgages need to refinance their homes and pay thousands of dollars in closing costs and fees to take advantage of housing market shifts.
ARMs are also an excellent option for people who plan to move houses within a few years. They can enjoy the honeymoon period, and then sell their property before ever risking higher payments.
The decision about which mortgage to accept is a big one, but once you understand your options, you’ll feel confident about making the right choice.
Final Thoughts on Fixed Rate vs. Adjustable
It is especially important to do your homework and understand how high your rate can go. The Federal Reserve held short-term interest rates near 0% and may hold off for the rest of the year. If that’s the case, your adjustable rate will likely not adjust upward for several months.
What different types of home loans are there?
Government Issued vs. Conventional Loan Types
So, once you know whether you want a fixed or adjustable rate loan, next, you’ll want to consider whether you want a government-backed loan or a conventional one.
- Conventional Loans – These are loans from mortgage lending institutions that are not backed by an agency of the government. Different from FHA and VA loans.
- FHA Loans – This is the most common loan choice for first-time buyers, but it’s available to all other buyers as well. The Federal Housing Commission (FHA) is an offshoot of the Department of Housing and Urban Development (HUD); part of the federal government. Through this, the government ensures the lender against any losses that may result from default. What’s great about this loan is that your down payment can be as low as 3.5% of the purchase price. The downside is that you’ll have to take out mortgage insurance which will increase the size of your monthly payments.
- VA Loans – Military veterans and their families may qualify for this program through the U.S. Department of Veteran Affairs. As with the FHA loan; the government will reimburse the lender for any damages resulting from the default. The difference with the FHA is that the down payment is 0%. That’s right; the borrower receives 100% financing.
Secured vs. Unsecured Loans
Another distinction between loans is that they can be secured or unsecured.
- Secured Loans – Most loans are of this type and designate a loan that is covered by collateral such as your house or car. In the event of a default, your property will be transferred, to the lender. How much you qualify for and the interest rate will be determined, by the value of the property but also your credit history.
- Unsecured Loans – As the name suggested, an unsecured loan is not backed, by any collateral. Instead, the interest rate and loan amount are determined, by your credit history and loan amount. For those with a good income, superb credit history, and solid paycheck plan, this can be a good option.
Jumbo vs. Conforming Loans
How much you wish to borrow put your loan in one of two categories.
- Conforming Loans – To meet the criteria for a conforming loan it must meet the underwriting guidelines of Fannie Mae or Freddy Mac. These are two government-controlled corporations that buy and sell mortgage-backed securities (MBS). The primary guidance is the maximum loan amount.
- Jumbo Loans – Any loan that doesn’t meet the guidelines of Fanny Mae or Freddy Mac is a non-conforming or jumbo loan. Because of its size, it presents a much more significant risk for a lender. Usually, to secure one, you’ll need excellent credit and have to make a sizeable down payment.
Open-ended vs. Close-ended Loans
Depending on whether you’re borrowing to finance a home purchase or a renovation, one final distinction remains between loans.
- Open-ended Loans – This is a mortgage loan type with a fixed-limit line of credit that you can borrow from again and again. A credit card is one, the example of an open-ended loan. Another example is a home equity line of credit (HELOC). Based on a percentage of your homes appraised value, the lender approves you a certain set amount. Allows you to borrow and pay back over time quickly. Homeowners going through a renovation project find this very useful.
- Close-ended Loans – Mortgages, car loans and student loans all fall into this category. You are approved for a set amount and can now borrow from again. If more credit is needed, you will then need to take out another loan type.
What is a non-conforming mortgage?
Non-conforming means a mortgage that doesn’t follow the standard underwriting practices of other mortgages. Often because an individual has either bad credit or no credit history, if someone mentions this to you, then don’t be concerned. Meaning you may have to pay higher interest, but you will still be able to get a mortgage.
However, if you are, offered a non-conforming jumbo mortgage loan, it is essential to get several quotes first whether they are from an online source or several mortgage brokers. Be sure to consider all your available options. Remember lenders are competing for your business, and this allows you to get the best possible deal.
How to get the best interest rate?
The interest rate is the most critical part of a mortgage to consider. Your interest rate is, negotiated; for a particular period of six months to thirty years. During this time, you will have to pay the agreed interest rate.
If you can get a low-interest rate, you will pay less in interest costs for the term of the mortgage. When you first negotiate your mortgage loan for a New York City apartment; you will be able to save thousands of dollars by lowering your interest rate.
Your mortgage will be at its highest amount when you first buy your property. Your payments at this time will primarily; interest rate charges when a smaller amount; applied to your ‘principal’ or the actual amount you borrowed. Meaning you are paying less on the large sum of money due to a lower interest rate, and in the end, you will be able to save more money.
So how can you lower your interest rate?
Look around and consider various mortgage options. Make sure you negotiate with your lender as the lender relies on your business for success, and they cannot make money without you. The lender may make you think that they are doing you a favor by approving your mortgage, but you are doing them a favor as long as you pay off your debt on time.
Interest Rates discussed
Lastly, when it comes to interest rates you need to remember that many mortgage lenders will stack the deck to favor themselves. The interest rate they want to charge will make them money. Lending is by no means a charity business.
If you get an interest rate lock for five years, then you will end up paying more for your mortgage. In this case, the lender wants to make sure they make money off you even when interest rates go up. Therefore, if you try to reduce your interest rates by locking in your payments at a low-interest rate now, you may end up paying more because you are increasing the lender’s risk.
If you are willing to accept some risk, especially if you have an excellent job with proper credit, then you can benefit by getting a variable rate mortgage. In this case, your interest rate will change along with the market, which is somewhat risky but it also means that you will be able to save money: A variable interest rate mortgage will be lower than a locked-in interest rate mortgage.
If it seems like interest rates are going to go up, then you can often switch to a locked in an interest rate with no additional penalties. Ultimately, if you can change without penalties, then you will usually be able to get better deals with a variable interest rate mortgage.
How do I know I’m getting the best interest rate deal?
Doing your homework is the only way to know you are getting the best mortgage deal. Check free quotes online, speak to mortgage financing lenders and lastly contact a mortgage broker. After reviewing all the options, you will acquire a wealth of information about your proposed mortgage financing.
Tips for finding the best rate
Follow these tips for securing the lowest possible mortgage rate.
Polish your credit score
Your credit score is mainly, based on your outstanding balances (generally 30 percent) and payment history (typically 35 percent). FICO; reserves the right to change these percentages based on your credit history, but you do have some control over what a creditor sees when you apply for a loan.
The best thing you can do to polish your credit rating is to establish a strong track record. The longer you’ve been paying bills on time and avoiding collections, the better. If you can’t pay a balance off utterly, dissolve as much of the debt as you can. A good rule of thumb is that your outstanding balance should equal less than one-third of your credit limit.
Flex Your bargaining muscle
Shopping for a lender can have you reaching for the Tylenol, but don’t settle for the first rate you’ve offered. Lenders are still trying to recoup the losses they’ve incurred over the past seven years, and the competition for new mortgages is fierce. Ask some candidates to give you a good faith estimate of closing costs, then compare the figures and make your choice.
Once you decide which lender you’d like to work with, negotiate every dollar you can – it all adds up in the long run.
Specific bank fees are non-negotiable, like the appraisal and credit report. Other amounts, like your application and processing fees, could be argued down. Going with a non-escrow plan also saves you cash up front, though you’ll still eventually have to pay those taxes.
Play the rate lock game maybe
Interest rates fluctuate throughout the day, so no matter when you lock in your mortgage interest rate, you’re taking a gamble. Don’t take a blind risk; take a calculated one.
You can choose a 90, 60, or 30-day rate lock. The longer you lock your rate, the higher it’ll be. On the flip side, the longer you lock your interest rate, the more time you’ll have to get your affairs in order and find the perfect home. Base this decision on personal circumstances such as where you’re living now and whether you’ve already found your new home. No matter what you do, be sure to ask for a “float down” stipulation so that if rates fall during the locked period, you’ll get the lowest interest rate.
The road to real estate ownership can be a bumpy one, but the mortgage process will be a lot smoother if you find a lender you feel comfortable. The fluctuating housing market taunts potential buyers with its uncertainty, but one thing remains constant: You have some control over the mortgage rate you end up with, and you should make every effort to seize that control.
Finalizing your mortgage
Obtaining a mortgage can be a confusing and very stressful process, particularly for first-time homebuyers. Lenders seem to hold the power of whether your dream will come to fruition, determining how much you can borrow and what your interest rate will be. However, by shedding knowledge on the process, we hope to ease your mind and put the decision-making power back in your hands.
The loan estimate
When applying for a mortgage, the first step is to request a Loan Estimate, a form that went into effect in October 2015. It is three pages, and the lender must provide it to you within three business days of receiving your application. The form contains valuable information, such as the estimated interest rate, monthly payment, and closing costs. In the wake of the housing crisis, the document is designed to be written a note in clear English to be precise.
Six key pieces of information are required to receive a Loan Estimate: name, income, social security number (to complete a credit check), the address of the home you plan to purchase, an estimate of the home’s value, and the amount you intend to borrow.
Official documents are not required to obtain a Loan Estimate, although the Consumer Financial Protection Bureau (CFPB) recommends you do so to get the most accurate estimate possible. You should also request a loan estimate from several lenders. Options to compare to choose the best loan.
Assuming you are happy with the loan terms from one of the lenders, you need to inform one of them that you are ready to go forward with a loan application. They are typically done, within ten business days. Otherwise, the lender can alter the Loan Estimate or start the process again. You may be asked to provide additional documentation to verify the information you have submitted. The lender will decide on whether to approve or deny your loan application.
Typically, lenders will ask for several records. These can be broken down into income and assets/liabilities. It will behoove you to have these on hand before your loan application. On the income side, the list includes two years worth of W-2s and income statements/1099 forms for self-employment income, recent pay stubs, and at least your last federal income tax return. To verify your debts, lenders will ask for a list of all loans, such as credit cards, student loans, car loans, and personal loans. For asset verification, statements from your bank, mutual fund, brokerage, and retirement accounts (e.g., 401k and IRA) should be made available upon request.
There are two critical ratios lenders use to determine how much to approve for a loan, at least on a preliminary basis. One is the ratio of monthly housing costs to monthly income and the second is the debt-to-income.
In the first ratio, lenders will typically limit housing costs to 28% of your monthly income. For debt-to-income, your monthly debt serving costs should not exceed 35% of your income.
The mortgage process does not have to be a daunting process. Armed with some necessary information, and being well prepared with your paperwork, you will likely find the process much smoother than you expect.
How does a credit score influence interest rates?
Consider whether you need to buy right away. If you can wait, don’t rush into your purchase. Instead, take the time to get a department store credit card. The other option is to consider a small, short-term loan from a bank or credit union of about six months to a year. Make sure you make regular payments on time; this will enable you to establish proper credit in just a couple of years. While building up your credit score history, you can also work on saving money for a down payment, ultimately giving you a better chance when re-entering the property market.
You can expect to pay a higher interest premium if you need to buy right away due to your lender not knowing how you will handle the loan. Nevertheless, don’t get discouraged, no matter what your credit still try and get the best deal possible.
It can be a good idea to try a mortgage broker who you can show your stability like a good job and regular pay to, and there is the possibility of advancement due to their contacts. Be aware that your interest rate may still be higher than those with excellent credit history.
What are bad credit mortgages?
Even if you have financial problems or bad credit, you can still obtain a mortgage, a bad credit mortgage.
You are considered to have “bad credit” if you haven’t been able to build up your credit history yet, and you will have a low credit score if you don’t yet own a credit card or have a loan. If this is the case, a bad credit mortgage may be a good idea.
What exactly is a mortgage for bad credit? These mortgages give you a chance to establish your credit history if you cannot wait. It can also be a refinancing option for those who already own a home.
No matter how you got into your current financial situation, you need to find a lender who will work with those who have bad credit. These lenders often realize that bad credit happens and you likely have a good reason for it. Before talking with a lender, it can be a good idea to see what your credit score is by going online.
When you get a bad credit mortgage, you will enjoy the following benefits
- Clean up your credit history or establish proper credit
- Gain relief from a mortgage with a high interest
- Consolidate previous bills into one convenient payment each month
- Pay off existing creditors to get debt relief
- Get the extra money needed to pay for home repairs or emergencies
- Help you to avoid bankruptcy
I am a first home buyer, and I need help
When buying a New York City apartment; you will have the free services of a real estate agent since the seller is paying for the agent’s commission. Take the time to interview several real estate agents. Each agent will be able to give you some useful information on the real estate market.
You should also talk with your financial institution or bank; they can provide valuable information from these sources. While speaking with them, you can even get mortgage pre-approval. This way you can determine what budget you are working with and whether or not you are ready for the big step of buying a home; including whether or not you are in a realistic financial situation to buy a house.
So what if you found the perfect property and you’re in a hurry to make a purchase? Take a moment to read our section on buying a home. Here you will find valuable information and tips.
Take your time when buying a home and educate yourself as much as possible so that you know understand what is ahead. Buying a home is probably the most important purchase you will ever make, so it pays to take the time to look for the best deal.
What if I’ve heard bad things about my lender?
It is a good idea that you don’t sign your mortgage papers yet. Instead, take the time to review the consumer feedback from other mortgage lenders. You should also make sure your mortgage lender has the financial stability necessary to offer you a loan by checking with rating companies. Sometimes lousy customer service can come from economic pressures within an organization.
If you’ve already signed your loan papers and are making payments to the lender, then you still have choices. First, you need to make sure you continue to make on-time payments. Make sure you keep accurate payment records whether you have a reputable lender or not. This way you will have the data you need to back you up in the event of a dispute.
If you are concerned about your lender’s procedures, then you need to get legal advice. For help, you can try a consumer watchdog group. Often when a company is put on the spot or placed in the media; then many lending companies will choose to do the right thing.
What are my payment options and what are the differences?
There are various payment options; they typically allow you to make extra payments or choose to increase the number of your loan repayments. Making an additional or larger payment; you will be able to pay off the total amount of your loan much sooner.
The difference in payments can be significant. You will have a better chance of making payments if your lender makes your payment plans flexible and achievable.
Lump Sum Payments
To understand this let us consider an example. Often banks give you just one day on the anniversary date of your mortgage to make a lump sum payment. Therefore, even if you have extra money you may not be able to make your additional payment. As a result, you spend the money, and they don’t have it when you need to make your lump sum payment. By making lump sum payments at any time, you can significantly reduce how much you pay on your mortgage loan.
Then some lenders allow individuals to increase their payments. Some lenders will only let you make double payments. So what happens if you can afford to pay the extra money, but not enough to make a double payment? While just a little bit may not seem like a lot, it can quickly reduce the principal of your mortgage by hundreds of dollars in a year. Over thirty years this will save you thousands of dollars in interest. You may also be able to pay off your mortgage years earlier.
When it comes to a mortgage loan, you need to get the best payment options while not giving up the chance to get the best interest rates.
Why check my lender through a rating company?
Should your lender become insolvent, there is the chance that your loan will be due and payable immediately to pay off the creditors of your lender? While you could get a mortgage with another lender to get rid of this problem, you will face a lot of financial strain and stress.
Also, if a lender starts to have financial issues, then they may not keep good records. If proper documents are not maintained, then it may appear as if you owe more money than you do and as a result, you may end up paying for the same debt twice.
These problems are a lot less likely to occur if you choose a financially stable lender.
Even if your lender appears financially stable, it is a good idea to keep close records on your mortgage payments. Even the best lenders can lose the occasional document, and you don’t want to, be billed for more money than you owe.
Is it better to borrow from a bank?
No, it’s not, while you may prefer your bank you can pay considerably more during the life of your mortgage with as much as one percent difference.
However, it pays to check a few numbers before going somewhere else for a mortgage. If moving your mortgage loan to new bank cause fees that exceed your savings from a lower interest rate then you may want to stick with your bank. It is also essential to consider the payment options available, does one lender offer better payment options?
Make sure your payment options are comparable.
You also need to consider the ‘hassle’ factor to an extent. If you go to a new bank, you may have to set up new pre-authorized payment plans or additional paperwork issues.
Therefore; if the options and numbers for a mortgage are in your favor, then you should stay with your same bank. Be sure to tell your bank if you can get better rates somewhere else; tell them why you would prefer to stick with them, and then ask if they can offer a lower interest rate. You should also make sure you have quotes available from other lenders; if you are a customer in good standing, most banks will want to keep you.
If the bank doesn’t want to keep you then, you will need to be prepared to take the next step.
What is mortgage financing PMI Insurance?
The market today is full of products related to mortgage insurance. Some of these work to help you save money to purchase a home, others serve to make your mortgage payments in the event of ill health, death or loss of work due to disability.
Often a lender offers mortgage life insurance. This type of mortgage insurance ensures that your mortgage financing will be entirely paid off in the event of your death or the loss of your spouse if you are both named on the original mortgage.
The best deals on this type of insurance are directly from the insurance companies. Lenders commonly offer package deals that cost you more and don’t provide many benefits. While your bank may try to get you to purchase mortgage life insurance, it is usually more cost effective to buy it from someone else.
Mortgage life insurance
Buying mortgage life insurance through your lender can be up to three times the expense of a term life insurance policy in the same amount, yet the effects are the same, In the event of a death, you will be able to pay off your mortgage. If you are going to buy an additional insurance policy to pay off your mortgage in the event of a death, then you want to compare the cost of getting two, policies versus a single package policy through your lender.
However, if you have a history of bad credit, your lender may require you to have insurance. If this is the case, then you will need to get additional insurance coverage. However, it is a different type of insurance. Typically, this type of policy will be for private mortgage insurance.
If you don’t have the complete 20% down payment for a New York City apartment, there is another type of coverage you may be required to get. While this insurance policy means you can buy a home, it is an additional cost that will not benefit you.
Can I take a more substantial mortgage than I need?
Have you qualified for more than you need when it comes to mortgage financing? Is your New York City apartment going to need renovation or repair or do you have other financial debts that aren’t getting any smaller? If any of the above situations apply to you, then you may be able to benefit by taking out a bigger mortgage than you need.
If you have a fair amount of money for a down payment; then you may want to take more out of the mortgage and put less money down. Meaning you will have more cash on hand for use, as you need it. However, why take more out of your mortgage and increase what you owe? Often a mortgage loan is cheaper than all other types of loans.
A mortgage interest rate is 5 to 10% less than other loans depending on who you get your mortgage loan through and how high your credit rating is.
Current mortgage interest rates are between 3-5% if you are; well qualified with good credit, and borrowing from a reputable bank. Most consumer mortgage loan types come with an interest rate of 10% or higher, the interest rate on credit cards is often between 15 to 18% and can be as high as 29% if you don’t have a good payment history. Means you can save a lot of money and get further ahead if you replace your credit card debt with a mortgage payment.
What is a home line of credit?
So what if you want to fix up your new home? If you bought a property that needs repairs; then there are two advantages to taking out more mortgage financing than you need. First, you will be able to add value to your home through renovations. Second, you will be able to get the money needed for repairs at a lower cost. You will also benefit from having saved money on the repairs; enabling you to get more value and enjoyment from your new home.
Be aware that you aren’t reducing your down payment about the home purchase price when increasing the amount of your mortgage.
Sometimes lenders will require that your mortgage and down payment equal the market value of a home and won’t give you money more than the home value; in this case, you could apply for a home equity loan.
If you are taking out a more substantial mortgage amount; ensure that that decision is your own. Don’t let your lender or real estate agent push you into making this decision. Potentially a hallmark practice of predatory lending; and if you aren’t careful, you can end up with a higher mortgage payment than you can handle.
Make sure you consider your specific financial situation before choosing to increase the amount of your mortgage. This option is only right for you if it places you in a financial position that is manageable and benefits you in the end.
How can I save money on mortgage financing?
The best option is to get the lowest interest rate available; this allows you to save money over the long term.
However, you should be careful because if you have a shorter amortization, then you will likely have higher payments. While you will be saving money in the end with this option due to lower interest rates, you will also need to make sure you can afford the short-term payments.
One way to lower your risk and still save money is by getting a 25 to 30-year amortization on your mortgage while increasing your payments. Most lenders allow you to do this without charging any penalties. Even if you can only improve your payments by a small amount; you will be able to pay off your mortgage years earlier while also enabling you to reduce your payments back to the original low amount if you need the extra money.
Make larger loan repayments
Provided you have the right mortgage; you can quickly increase your payment by as little as five percent. Even though this is a small change in your payment amount; it can make quite a difference in the long term. That extra five percent works to pay off the balance or principal of your loan faster.
If a new baby comes along for example or you have a medical emergency, and you need that five percent; merely reduce your payments back down to the original amount; you can have the five percent for those other expenses.
Check to see if there are any prepayment penalties
Keep in mind that many lenders will have some restrictions on how much you can increase your mortgage payment and the number of times you will be allowed to adjust it.
Pay in lump sums
Another way to reduce the time that you will be paying off your mortgage is making payments in lump sums. If you cannot afford higher fees, then this is a good option. Take your annual bonus from work or your tax return and put it toward your mortgage financing. Again, this will help reduce the principal of your mortgage and will lower your interest rate in the end. Even if you can only make small payments; every year you will be able to reduce the total time it takes to pay off your mortgage.
Questions to ask a Bank or Broker before lending
Most buyers seek pre-approval with their chosen lender before making an offer on a property. Once your offer is accepted, and the contract is signed, it’s time to complete your mortgage application package and choose the right home financing product. These questions will help you make an informed decision about your mortgage.
What mortgage products do you offer?
Since the real estate crisis; most lenders offer three main types of mortgages: Fixed rate mortgages of 15, 20, and 30-year terms; adjustable-rate mortgages; ARMs; where the interest rate fluctuates over the life of the loan or hybrids that combine a period of fixed rate mortgage, typically from three to ten years, with the remaining years at an adjustable rate.
Which mortgage product do you recommend for me?
Ask your lender to discuss the advantages and disadvantages of available mortgage loans.
Are rates, terms, fees, and closing costs negotiable?
Can I use discount points to buy down my interest rate? A point costs 1% of the mortgage amount; paid upfront, in exchange for a reduction of the interest rate over the life of the loan. In some cases; buying down your interest rate can save tens of thousands of dollars over the life of your mortgage loan.
What is your policy regarding private mortgage insurance (PMI), and how much does it cost?
PMI is usually required if your mortgage amount is more than 80% of the value of the home. Most lenders will let you drop PMI once you’ve built up enough equity, but be sure to ask your lender’s policy.
Will, you service the mortgage yourself or is it contracted out to a third party?
What are the escrow requirements for my loan? Most lenders pay your property taxes and homeowner’s insurance premiums using money collected each month in addition to the principal and interest payments and held in an escrow account until the tax and insurance payments are due.
How long is the lock-in period?
Will my rate go down if interest rates drop during that time? During the lock-in period, the lender will honor the quoted interest rate even if interest rates go up.
How much is the penalty if I should need to extend the rate lock?
There could be times the Co-op board approval process may exceed your rate lock period so knowing the penalty or whether you should extend crucial to understand.
Do you charge a penalty if I prepay the loan?
If you plan to sell your home in three or four years, it’s essential to understand the lender’s prepayment policy.
How long will the loan process take?
The average time to close a loan is 45-60 days.
Mortgage financing companies in New York City
There are numerous mortgage companies in New York City; to make it easier we have provided a list below of both Banks and Brokers. We have worked with each of the companies listed below and highly recommend their services for your mortgage financing needs.
When considering a financial transaction; it is crucial that you read all the fine print as well as do your research. Financing your real estate purchase can mean you will be leveraging a significant debt and reducing just one percentage point can save you thousands of dollars long-term. Take the time to research all types of lenders available to make sure you are getting the best service and deal possible.
The first thing to consider when contacting a mortgage company is the level of service and the experience they offer. Research, the mortgage company at an online consumer rating site or the Better Business Bureau. The Better Business Bureau is the industry standard for consumer protection and provides information on mortgage companies that are BBB validated
Recommended Mortgage Lenders in New York City
With over a decade assisting buyers only Elika has established strong relationships with mortgage financing lenders in New York City such as.