US Bank Home Mortgage Arkansas Bryant
US Bank home mortgage loan officer contact for Bryant, Arkansas. U.S. Bank Home Mortgage is part of U.S. Bancorp. US Bank is a financial services holding company that is headquartered in Minneapolis, Minnesota and has bank branch locations in 24 states.
U.S. Bank home mortgage has an extensive offering of loan programs, including: fixed rate mortgages, adjustable rate mortgages, low down payment/ high loan to value programs, second home purchase programs, jumbo loans and FHA loans.
Contact information for the US Bank Home Mortgage representative in Bryant, Arkansas:
Debbie Hairston-Arroyo
Mortgage Loan Officer
U.S. Bank Home Mortgage
100 Commerce
Bryant, AR 72022
Office: 501-847-3246
Cell: 501-786-1825
Fax: 501-847-6243
Debbie.hairston@usbank.com
Along with contacting the local loan officer, consumers looking for home mortgages for a purchase or refinance can contact the US Bank main toll free mortgage specialist line at 888-831-7524, locate the local US Bank branch, send an email request t or fill a mortgage application online.
The US Bank website also provides tool resources to find the best mortgage to fit your needs with current mortgage rates and mortgage calculators including a pre-qualification calculator.
Once a borrower has a US Bank mortgage account the online resources of the bank allows the users to pay their mortgage online, view their mortgage payment history and review their monthly mortgage statement.
Employment and Income Calculations for a Mortgage
In order to qualify for a home loan, standard ratios are applied to the borrower’s income and debt payments. For conventional conforming mortgage loans the standard ratios are 32% and 38%. To calculate these debt ratios the mortgage lender needs to measure the borrower’s debts and income.
The first debt ratio measures borrowers new monthly mortgage payment divided by gross monthly income. The second debt ratio measures the monthly mortgage payment plus all other contractual monthly payments divided into the gross monthly income. These two debt ratios are often referred to as the front end ratio and back end ratio in the mortgage lending industry.
When applying for a home mortgage, a borrower should not only be aware of these debt ratio requirements but how they are calculated. When these debt ratios are calculated, one of the hardest measurements to calculate and often improperly calculated components is the borrower’s gross monthly income. What appears to be a simple calculation is often made difficult because of the borrower’s employment history and income fluctuations as well as guidelines that are mandated by the mortgage industry.
The anticipated amount of gross monthly income and likelihood that it will continue must be established to determine a borrower’s capacity to repay a new mortgage loan. Income that can not be verified or will not continue or is not stable, can not be used to calculate debt to income ratios on a mortgage loan request.
Gross monthly income will be checked by the mortgage lender for consistency and continuity. Once a stable income and employment position is considered acceptable, the mortgage lender will need to calculate gross monthly income based on historical pay and employment verification. Standard income is calculated by analyzing the average income and hours worked as well as the contractual relationship with the employer.
If the mortgage loan borrower is paid twice a month, then the gross monthly pay from the two most recent paychecks is added together to determine monthly income. If the borrower is paid every other week, then the gross bi-weekly paycheck is multiplied by 26 then divided by 12 to determine the monthly income figure. If the home loan borrower is paid weekly, the weekly gross pay is multiplied by 52 then divided by 12 to determine gross monthly income.
Mortgage loan applicants that have stable income with set employment contracts are the easiest gross monthly income calculations for the mortgage lender. For example; a school teacher that is paid a $60,000.00 per year should have a w-2 from the previous year that reflects that income amount and pay stub that confirm and monthly income amount of $5,000.00.
However, a construction worker that is paid $25.00 per hour may or may not be as easy a calculation to determine the monthly gross income. If the worker is consistently working a set number of hours per week, the gross monthly income is achieved by multiplying the hourly wage by the number of hours worked per week, which is then multiplied by 52 weeks and divided by 12.
If a mortgage applicant receives overtime or bonus income the income can be used to qualify for the home loan with restrictions. The borrower must have received the bonus or overtime income for a period of at least two years and the income has to be determined as likely to continue at the average rate of the past two years.
Part time or seasonal income may be used to qualify for a home loan if the income has been earned for a period of at least two years and is likely to continue.
Commission income can be included if it has earned for a period of at least two years and will be determined by the mortgage lender based on an average of the past two years income. If the commission income shows a decline over the two-year period the mortgage lender may deny the inclusion of the income to qualify for the mortgage loan request. Commission income that has not be earned for more than one year will generally be excluded from gross monthly income calculations.
A borrower may qualify for the home loan request if they have earned commission income for less than one year but have earned income not including commissions that would be sufficient to qualify the borrower for the mortgage.
Commission income must be verified with two years of signed federal income tax returns along with one month of current income pay stubs. Any business expenses or unreimbursed business expenses declared on the tax return will deducted from the gross pay calculations.
Unemployment income may be used as qualifying income for a home loan request if the income is recurring and consistent. The test for recurring and consistent income is documentation of two years history in income and reasonable belief that the income will continue. Examples of recurring unemployment income includes seasonal workers or recurring factory layoffs.
Any income earned that is legal non taxable income may have the savings that would have been paid as tax added back into the monthly gross income calculations to qualify for the home loan request. The process of adding income to non taxed income sources such as social security income is referred to as grossing up the income in the mortgage lending industry
The amount of income that can b added to the regular income that is not subject to federal income taxes must not exceed the appropriate tax rate for that income amount. The mortgage lender must document and support the additions to the income. The mortgage lender should use a tax rate that is appropriate for the borrower’s income level and should not be greater than 25%.
Projecting future income to qualify for a home loan is not allowed. Projected raises or self employed income that has not been documented can not used for qualifying purposes.
There is no established limit regarding the amount of time a home loan applicant has to have on a job to qualify for the home loan. The mortgage lender is generally required to verify the home loan applicant’s most recent employment covering the past two years. Gaps or periods of time of unemployment does not mean that a borrower will declined for the mortgage loan request but employment gaps should be explained and documented.
Although a home loan applicant will have to document gaps in employment that are longer than one month, seasonal unemployment is an acceptable source of income, recent school graduation is acceptable.
Frequent job changes that are either lateral moves or advances in income and position are not considered high-risk employment and income situations. But, the mortgage lender is required to document or assess the probability of continued employment which can either be accomplished in writing or determined by reviewing the previous to years employment and income history.
Home loan applicants that have recently returned to work after a prolonged absence from the work force may pose a problem for the mortgage lender to consider the total monthly gross income of that borrower. The mortgage lender will generally try and document a two-week employment history that excludes the long employment gap and will usually require six full months of income on the new job.
Standard employment verification procedures for new home loan applicants will generally entail a process of validation that is dependent upon the source and type of income the borrower obtains.
Salaried borrowers will generally need to supply to the mortgage lender the borrower’s most recent two years W-2’s and pay stubs that cover a 30 day periods of time. The mortgage lender will generally verify employment by phone or in writing if sufficient data is not obtained over the phone.
Overtime and bonus income must be verified with two years W-2’s and a written employment verification to ascertain the rate of previous bonus and /or overtime income and the likelihood of that rate continuing.
Child support or alimony may be used to qualify for a mortgage loan. The mortgage lender will be required to validate the divorce decree and the borrower will have to supply at least three months of canceled checks verifying receipt of the income. Child support, alimony and social security that is not received for those of retirement age must be verified to continue for at least a period of three years into the future.
Social security income and pension income is often paid to individuals by direct deposit. These sources of income will be verified by reviewing the bank statements in which the funds are direct deposited. These sources of income will generally be verified by the sender with annual awards letters. The mortgage lender will request a copy of the most recent annual award letter as well.
Rental income will need to be verified with tax returns and leases. The average of the last two years of net rental income will be used as the monthly income figure. Often, this figure is negative since many rental properties generate a loss for the owners that can be used to offset other taxable income sources. Unfortunately, the only help in overcoming the loss is to add in the depreciation charges that may be on the tax return for the property to calculate an adjusted gross rental income amount.
A mortgage loan borrower that owns more than 25% of a business is considered self employed on most all mortgage programs. Self employed borrowers will have to two years of corporate tax returns f the business owned is a schedule C or S corporation. If the borrower runs a sole proprietorship, two years of personal income tax returns will be needed.
Understanding the needs of the mortgage lender to calculate and verify income will help a borrower understand the mortgage loan approval process and expedite that approval.
Mortgage Lenders, Banker, Brokers, Oh My
Shopping for a home mortgage can be a daunting task. Not only do you have to shop the dizzying selection of mortgage loan products with varying mortgage rates and costs, but with the plethora of mortgage companies out there now you have to choose the type of mortgage lender too.
Choosing the mortgage lender by the type of organization should not be a challenge. Each lending institution will certainly have its strengths and weaknesses but the type of organization should not generally be a deciding factor for obtaining a home loan. Different mortgage lender will have differences in the variety the home loan offerings and mortgage rates between lenders and between regions where they operate but the differences in loan types is generally quite small.
There are exceptions to choosing a mortgage lender, for instance, if you are looking for a construction loan, not all lending institutions will be competitive for this type of home loan. Prospective home loan borrowers need to shop and compare loan products between mortgage lenders when the home loan request more specialized but this has little to do with the type of mortgage company itself.
The regional differences in products and the availability of home loan types and prices applies to brokers, bankers, credit unions, savings and loans and other licensed institutions that originate residential mortgages.
The term mortgage lender has usually been reserved for the financial institution that provides the actual funds at the home loan closing. However, since mortgages are frequently transferred, bought and sold in such a quick time frame, whether the institution that originates the loan is in fact the mortgage lender has become insignificant and most all mortgage originating companies are referred to as the mortgage lender.
There are hundreds of mortgage lenders and mortgage brokers available that will prequalify and preapprove a mortgage loan for almost any consumer looking to make a new home purchase or refinance an existing home loan. Major categories of mortgage lenders include:
Banks. A bank, commercial bank or savings and loan may have the largest financial backing and some of the strongest regulations in the mortgage lending marketplace. Banks and savings and loans which are also called thrift institutions were historically the largest traditional mortgage lenders of residential home mortgages. Mortgage brokers began taking a large share of mortgage origination’s starting in the 1980’s but the savings and loans and banks remain a major source of funding for home mortgage loans and for the time, appear to be perceived by consumers as being more reliable and responsible with mortgage lending.
Some banks will sell the home loans they originate shortly after funding the mortgage other banks don’t sell their home loans to other companies after closing. These banks collect the mortgage payments, manage the escrow accounts for taxes and insurance and maintain the relationship for the long term, but this process is becoming less frequent with home loans being bought and sold regularly and the servicing of the home loan either being retained by the bank or sold along with the loan. When home loan product began operating like a commodity and were bought and sold with regularity, the banks position in the mortgage lending market place diminished measurably however, the credit contraction has a brought a resurgence in mortgage origination’s being handled by banks.
Mortgage Bankers. Mortgage bankers often sell their mortgages to large mortgage servicers or to Fannie Mae and Freddie Mac, two major government-sponsored enterprises that specialize in buying residential mortgages from lenders. Mortgage bankers borrow money from banks or pools of investors, underwrite the loans, and sell them to investors for a profit. Mortgage bankers often receive a fee from these investors for servicing the mortgage if the mortgage banker retains the servicing for the home loan they originate. Mortgage servicing includes collecting monthly payments, sending out loan statements, and collecting on late payments.
Mortgage Brokers. A mortgage broker represents a wide assortment of products and can price home loans with great deal of flexibility since they often work with many mortgage lenders. Mortgage brokers do not make the mortgage loan but rather facilitate the process of obtaining a mortgage loan. The mortgage broker processes the mortgage loan request and may shop a home loan application among different mortgage lenders to find desirable home loan terms for the borrower. In exchange, the mortgage lender and/or the home loan borrower pays the broker a fee. This, however, does not necessarily mean that the consumer will get the best mortgage rate and home loan program or the loan officer’s best mortgage rate and loan program.
Credit Unions. Credit unions operate similar to banks but are owned by their members. Credit unions may offer very attractive home loan terms, particularly if they evaluate their entire banking relationship with you. Since they are nonprofit institutions, credit unions may offer attractive mortgage loan rates to their members. Like commercial mortgage lenders, credit unions sell their loans to Fannie Mae and Freddie Mac to maintain access to new sources of funds. The National Credit Union Administration (NCUA) regulates the credit union industry.
Mortgage bankers, credit unions, savings and loans and possibly more companies can offer home mortgages. With the rapid movement of mortgage money it may be a mistake to rely on one type of mortgage institution as being best as opposed to which mortgage company is chosen. Deciding which type of mortgage lender is best will rarely make any difference in the home loan process. Deciding on the mortgage lender or the originator is the important choice. The variability between mortgage companies in any one category of mortgage lender is so small as to make choosing a mortgage company by the type of organization a difficult task.
It is more important to choose a good loan officer and a reputable firm regardless of the organizational structure. Measuring a good mortgage lender or originating company may be a difficult task. During cautious times, more consumers rely on the regulation and size of the banking industry as the number choice for a mortgage loan. The structure of the mortgage lender is not what makes the home loan right but the ability to have ample resources to call upon and a known regulatory body in which to voice a complaint reassures many consumers that applying for a new home loan at a bank is the right choice. Many mortgage lenders have gone out of business, have been sold, or have stopped making certain kinds of loans, leaving their customers stranded and further reinforcing the apparent advantage held by banks.
Given this conclusion it is still essential to compare the mortgage lenders services and history since the services of that branch or that office is what makes the home loan right for any individual consumer.
Once it has been determined that a bank, mortgage lender or mortgage broker is offering the right home loan product at a favorable mortgage rate and overall cost, measuring quality can be difficult attribute to measure until the home loan process is complete. Quality can generally be regarded as prompt, efficient service from the mortgage rate quotes to question and answer sessions regarding the loan applicants’ needs to a trouble free home loan closing. Measuring the quality of those services in advance may be a challenge.
Along with shopping the source for the home loan, a potential home loan borrower will have to shop the total cost of the home loan including the mortgage rate, fees, points prepayment penalties the loan term and a host of other items.
A good starting point to choosing the right mortgage lender is to perform ample research on the home loan program and shop for the mortgage lender over the phone with sufficient knowledge on the types of home loans and how they are processed. Be sure to call more than one mortgage lender and use the online mortgage calculators to help compare mortgage rates and costs. Compare the services by measuring knowledge of the home loan programs, the questions they have for you and ask for references. Be an astute shopper and compare the mortgage loans, the mortgage rates, the closing costs and test the resources and knowledge of those mortgage lenders who are ultimately paid to help you obtain your mortgage loan.
Negative Amortization Mortgages
It was a mortgage deal that you read or heard about, that just seems too good to be true. A financial institution, bank or mortgage lender says they will allow you to make payments that are so small they do not even equal the current mortgage interest due. This home loan programs would drastically reduce your monthly payments and you were on easy street. Negative amortization mortgage are what this type of mortgage arrangement is called. And it only sounds good in most cases. Interest money you save now will cost you dearly later.
The typical monthly mortgage payment is mainly interest, charged for the use of the money you borrowed on the mortgage. At the start of the mortgage term, almost all of the payment you make each month is paid in interest, with a small portion toward the principal of the home loan. Over the period of the mortgage, gradually the amount paid toward the principal increases, and the interest you pay slowly decreases. This process is the amortization of the mortgage loan. A different type of home loan find mostly with adjustable rate mortgages is called a negative amortization mortgage and it is something not to be entered into lightly.
A negative amortization mortgage allows you to pay less interest for a set period of time, normally this may last for a few to several years. Lets say for discussion that your normal mortgage payment each month is $1000, and of that amount $600 dollars goes toward the interest amount and the rest, $400 dollars goes toward the principal. If you begin a negative amortization mortgage you would conceivably have the option to make a monthly payment of say, $500 dollars, which would pay on the interest and nothing on the principal of the loan. You would still be responsible for the other $100 dollars of interest. This other $100 dollars of interest is then added back into the principal of the mortgage loan, and you then will pay interest on this amount, too.
Negative amortization is made available by mortgage lenders by calculating two different interest rates. The first interest rate is referred to as the payment rate and the second interest rate is simply known as, fully indexed interest rate. On adjustable rate mortgages with negative amortization features, you will find that the payment rate changes are normally capped off at 7.5% of the previous payment amount. However, the true interest rate is calculated by simply the adjustable rate mortgage index plus the margin without the use of periodic caps. However, what the borrower pays is ultimately up to them because the borrower is able to choose which mortgage rate they wish to pay. Because of this, you will find many amortization loans being advertised as “payment option” mortgage loans, due to the fact that you are given an option in how you wish you pay. Even though the borrower is able to have flexibility in how they pay for their home loan, they are still subject to the true mortgage interest rate.
This results at the end of the first month actually owing more on your home mortgage than you did at the beginning of the month, and you pay increased interest on the difference until the mortgage is retired or paid off fully.
Short term lower monthly payments leads to short term gain. Lower payments make it easy to qualify for a mortgage loan. But it also leads to long-term financial pain. You end up with more debt on your original mortgage than you started with and greatly increased mortgage interest payments. The longer that you are in a negative amortization mortgage, the greater sum of money you will wind up paying on your mortgage.
There are times that a negative amortization mortgage makes good sense because of the easy mortgage qualifications and lower monthly mortgage payments. But this is true only in certain cases. If you run into financial trouble, or sudden and unexpected expenses you cannot avoid. Or you are laid off of work and can’t find a job right away, in such cases a negative amortization mortgage may make sense. Entering into a negative amortization mortgage due to necessity or with the knowledge down the road you will be on better footing financially is sometimes a positive choice. Once your situation changes you can arrange to make either additional or increased monthly mortgage payments to take up the slack. Or, if you have the money you might pay it all off at once.
Some people use the undemanding qualifications and lower payments to pay for a house while the value of the real estate increased. In such cases a person may choose to live inexpensively in a house while it appreciates in value, then sell later and realize a profit. The profit can then be used to pay off the mortgage. But if the property does not increase in value or appreciate then you may be saddled with a large expensive mortgage and no way to pay it off. Another valid use was for young couples to use the adjustable mortgage rate feature for easy qualification on tight income or budget. The appeal would be that as young workers their income was more likely to increase rapidly in the ensuing years and handling the negative amortization feature in order to buy the house was reasonable trade off.
There is the chance that, as in life, your financial situation may not improve on the time schedule you anticipated. When this happens you can be faced with some very tough decisions and possibly being forced to sell your home or property.
The mortgage calculators designed to evaluate adjustable rate mortgages can be very useful in analyzing the mortgage payments on a negative amortization home loan. In addition, the mortgage calculator can be very useful in viewing future mortgage rate changes and how they will impact the monthly mortgage payment as well as the total amount of negative amortization that will take place when the mortgage rate rises and the payment is capped.
It is a risky business, so think carefully before entering a negative amortization mortgage. It can be attractive to help cope with some situations, but it assumes a large amount of risk and should be avoided if possible. These home loans are available for both a home purchases and an existing mortgage refinance.
No Doc, Stated, Alt Doc Home Loans Explained
Before reviewing the guidelines, the background and product description for alternative document home loans, it is important to be aware that most of these types of mortgage loans are no longer available. Limited variations are still available mostly by portfolio lenders but for the most part, the increased delinquencies and foreclosure rate on these loans has curtailed their use for home purchases as well as refinances.
Stated income loans, no document, no income no asset, SIVA, NINA and no ratio home loans are all variations of alternative documentation mortgage loans. Alternative documentation loans were intended to simplify and expedite the loan approval process. Mortgage lenders may offer a variety of documentation requirements from a full documentation loan to one of almost no documentation, aptly named a no doc loan.
The documentation requirements on a mortgage loan are intended to acquire information about the borrowers income, assets and employment. The varying types of alternative documentation mortgage loans lay the groundwork for how and whether this information will be used by the lender. In addition, the lenders documentation requirements will determine whether and how the mortgage lender will verify the information provided.
These mortgage loans were originally designed specifically for self-employed borrowers with high credit quality and significant amounts of equity or large down payments. Given that the risk to the lender rises as documentation requirements become less rigorous, the rate on these mortgages rise likewise.
A stated-income loan (SIL) or no income verification (NIV) loans were the simplest forms of alternative documentation loans. These home loans are designed to qualify a borrower using the income the borrower states, as opposed to the income the borrower can document. With an SIL or NIV, the lender agrees not to verify the income the borrower states on the application. While a mortgage lender does not verify income on an SIL or NIV, they do verify assets and the actual employment, not the income. From this point of documentation, a whole host of alternatives has crept up to establish the income and asset verification standards. On a no-ratio loan, income is not reported at all; on a stated-income/stated-assets loan, both income and assets are stated; on a no-income/no-assets loan, neither income nor assets are reported; and on a no-doc loan, nothing is reported, including employment.
The advent of these mortgage loans was to provide a means for some borrowers to purchase a home or do a cash out mortgage refinance with fewer documents and close the transaction faster. It afforded some borrowers the ability to maintain more financial privacy and confidentiality. These mortgage loan terms did in fact provide flexibility in mortgage financing for these borrowers. In its infancy, these loans were overlooking the verification of income or the borrower’s capacity to pay and compensating this decision with other factors. To account for this reduction in verification and increased risk, the lender would require greater equity in the property and a stronger credit profile combined with a higher interest rate. It was historically given that borrowers with high credit scores were much less likely to be unreasonable in their financial dealings and fail to make the mortgage payments.
Over time, the standards for credit and equity or down payments were reduced. These mortgage loans were now being offered to a much larger segment of borrowers than the programs were originally intended for. The misfortune on the expansion of alternative documentation loans is that some borrowers, without any practical basis for expecting a rise in income or additional resources of any kind, lied about their current income and took out home loans they could not afford. This irrational behavior of some of these borrowers was most likely encouraged by the behavior of greedy or even predatory loan officers who get paid only if a home loan closes.
With the increase in delinquencies on these mortgage loans, alternative documentation loans are regressing back to the original intention and original strict credit and equity guidelines. A borrower should not be steered to a low documentation or no documentation loan by a mortgage lender in order to speed up the loan application and approval process. Most borrowers should know that they would receive better pricing or a better mortgage rate the more documentation they provide. If an alternative documentation loan is needed, potential borrowers should be comfortable with their financial position regarding the affordability of the loan they may be accepting. As these home loans become more restrictive it is likely that potential borrowers will have to perform an amplified amount of shopping to find the best mortgage rate and terms.
Cash-Out Refinancing Basics
When you enter into cash out mortgage refinance you are making use of the equity that you enjoy in your home. The equity in your home is the part that you own outright. If you have a home that is worth $120,000 dollars, and you owe $90,000 dollars on your mortgage, then the amount of equity that belongs to you is $30,000 dollars. For most all mortgage refinances, you will not be able to borrow all of the available equity in the home.
When you refinance, any kind of refinancing, you are basically in some way trading your previous mortgage for a new mortgage. The new mortgage will likely have different options, a different mortgage rate, different term or length, and a different loan amount than your current mortgage loan. Using cash out mortgage refinancing, you enter into a mortgage for more than the mortgage you currently own, and the mortgage lender or bank gives you a lump sum check for the difference. When you refinance and you use the money for anything other than paying the existing mortgage and costs, you are doing a cash out refinance. Even if the money is used to consolidate your debt it is still considered a cash out refinance transaction.
Utilizing cash out refinancing allows an existing homeowner to access some of that equity to use for beneficial purposes. Borrowing against the equity in your home is almost always cheaper than other types of financing and the mortgage interest in most cases is tax deductible. In a favorable mortgage rate market, the cash out refinance may actually lower your monthly mortgage payment. If mortgage rates now are lower than when you first took out your mortgage, the payment may go down; in addition, since you are most likely extending the length of time for repayment, this may bring about a lower payment as well. Refinancing with new loan terms and possibly a lower mortgage rate can add value to an individual’s budget and personal balance sheet. Of course, even with a lower mortgage rate or monthly payment the full costs and benefits of cash out refinance should be reviewed. The process of comparing mortgage costs, mortgage rates, the loan amount and the costs and benefits of the mortgage refinance is easy to quantify with the use of a mortgage calculator.
After your previous mortgage is paid off with the cash out refinance home loan, the balance can be used for anything you choose to use it for. Debt payments, tuition, investing, home improvement, anything that you need a large sum of money for. If your interest rate on your cash out refinancing is lower than the original mortgage you had, the monthly rise in payments may be partly offset. If the interest rate is higher make sure you understand the implications on your financial position of extracting the cash out. Cash out refinance for conspicuous consumption can lead to budget problems down the road when refinancing no longer becomes an option.
Evaluating the costs and benefits of a refinance can include more than just how much money you save per month. Remember, if you pay off a four year auto loan with a 30 year mortgage, there better be a payment savings. In these cases you must factor in the total cost of interest and whether you will repay the mortgage faster with the additional cash flow. Evaluating inflation and the direction of interest rates should also be measured. Granted, this is almost impossible. But it hard to ignore the value of borrowing money at 5.75% fixed for 30 years in 2008 and discovering that inflation will be running over 5% in the ensuing years. Very little is paid to the terms of home equity lines of credit. These loans are almost always adjustable mortgage rates. The reason is that no financial institution provides a line of credit good for 15 or 20 years at a fixed rate giving the borrower to access the funds when market rates rise and the value of that line of credit at a low fixed rate skyrockets. Interest rates move based on various market forces. The most significant impact on rates is inflation.
There are clearly many factors to consider should you want a cash out refinance. The following considerations are the ones to address as you start to evaluate your individual needs.
Compare the mortgage rate and closing costs for the new home loan.
Compare those terms to your existing mortgage loan and its remaining term to avoid refinancing the existing balance at a higher overall cost.
The amount of cash you need including the amount to pay off the existing mortgage.
The purpose for the cash (This one has led many a borrower astray).
The amount of time you expect to be in the home or have this mortgage for.
Consider your tax bracket, other opportunities, and the overall direction of interest rates as well as your financial balance sheet.
In order to secure the loan request, cash out refinances are approved or rejected just like any other mortgage loan. Banks and mortgage lenders will sometimes allow you to finance up to one hundred percent of your homes value, provided that your credit is excellent. More often, the loan amount will have to be 95% or lower than properties appraised value. If income or credit situations tighten the restrictions you may be reduced even further on the amount of equity you can draw out. Depending on the amount of money that you owe on your first mortgage, the lender will often require private mortgage insurance in high loan to value requests. And as the amount financed becomes a higher percentage of your home’s value, the mortgage rate you are offered will increase as well.
Consider your needs, your existing financial health and what the future may hold. Research all loan types to see which best fits your needs. Be a proactive, be an educated mortgage shopper by reviewing all terms, the mortgage rates available and close on the new mortgage refinance that best fits your needs.
Fair Lending Protection in Home Mortgages
When you apply for a mortgage loan to purchase a house, refinance, or for a second mortgage, there are two federal statues that protect you rights and curb abusive lending pertaining to discrimination. These two acts or statutes are the Equal Credit Opportunity Act and the Fair Housing Act. Many aspects of the rules and regulations of the two acts overlap. Congress intended to provide sufficient protection to homeowners and borrowers when cases of potential discriminatory practices arise.
The Fair Housing Act prohibits discrimination in housing based on race, national origin, religion, sex, familial status and handicap. Much of the act covers action in housing as it pertains to rentals and sales. The act also covers several aspects of discriminatory practices in mortgage lending. The main components covering prohibited lending practices based on race, color, national origin, sex, familial status, or handicap are:
Refusal to make a mortgage loan.
Refusal to provide information regarding available home loans.
Enforce different terms and lending conditions.
Discriminating regarding the appraisal of the property.
Refusal to purchase a home loan or set different terms for purchasing a home loan.
Advertise or make statements that indicate limitations or preferences based the protected classes.
Interfering with those who are exercising a fair housing right.
FHA prohibits discrimination in these specific cases but is also designed to cover almost all aspects of mortgage lending. Mortgage origination’s and mortgage lenders are covered under FHA as is appraising residential properties, the buying and selling of mortgages irregardless if the loan is to purchase, build, repair or make improvements to the residential property.
ECOA is primarily designed to cover credit transactions. ECOA bars discrimination in credit dealings based on race, religion, national origin, sex, marital status, age, income derived from public assistance, or a borrowers ability to exercise their rights under the Consumer Credit Protection Act.
If you apply for a bank mortgage and are turned down, remember that not all institutions have the same lending standards. Shop around for another mortgage lender or bank. If a lender does deny a mortgage loan or place an applicant in a high mortgage rate and high cost loan, it does not mean they have broken any federal laws. These companies are just predators exploiting the weakness of borrowers in need. But if the way you were treated suggests the possibility of unlawful discrimination, you may want to check with a local fair housing group, the state enforcement agency, the local branch of a federal enforcement agency or contact the Department of Housing and Urban Development at:
Office of Fair Housing & Equal Opportunity
Dept. of Housing and Urban Development
Washington, DC 20410-2000
1-800-424-8590
What’s in a Mortgage Loan Payment
A monthly mortgage payment is made up of many different elements. When you write your monthly mortgage check, you aren’t just paying toward the principal of your loan. The monthly mortgage payment is also paying interest, taxes, insurance, and possibly other fees. Before we look at the components of a mortgage loan payment let us review the components of the home loan first.
The home loan starts with the principal amount of the loan. The sum of money you initially borrow is the principal balance. Now you look at how long you will have to repay the loan, this is the term. The term of the loan is its duration or the length of time for repayment. Which brings us to the next key term, interest. The interest rate is the mortgage rate at which the lending institution charges you for borrowing the money. Once we have the basics of the interest rate charged, principal balance borrowed and the length or term of the loan we can calculate the monthly mortgage payments.
Amortization is a lending term used to define the repayment of a debt over time. In the early stages of a loan most of the payment will go towards paying the interest on the home loan. In the later life of the loan the monthly payment goes more towards reducing the principal balance. A mortgage’s amortization schedule can provide a detailed look at precisely what portion of each monthly mortgage payment is dedicated to each component of principal and interest.
Let’s take a look at the components of a house payment, and see where your money goes each month.
Principal and Interest Payment - This payment goes towards paying off the loan amount, or principal, and the interest that has accrued over the time period of the loan. You can use a mortgage loan calculator to help you determine possible P&I payment amounts as you consider a loan. You an also look at how much interest and principal repayment you will have over the life of the loan.
Real Estate Taxes - Your mortgage payment will also include one twelfth of the annual real estate taxes each month. Real estate taxes are calculated by the local government taxing authority, not the mortgage company, the lender collects the payments and holds them until the taxes are due to be paid. Lenders pass these taxes on to you monthly, because if they are not paid, the government can have a lien placed against the house. If the owner of the home fails to pay real estate taxes, the government can sell the property in order to collect back taxes. Escrowing these taxes ensures the mortgage lender that they will be paid.
Homeowners’ Insurance - Most mortgage lenders require a homeowners insurance policy for at least the amount of the home itself. The mortgage company often require that the first year of homeowner’s insurance be paid in full at closing. The mortgage company then continually stays ahead on the premium by escrowing 1/12 of the insurance payment with the monthly mortgage payment, which eliminates lapses in coverage on the part of the homeowner. Note that having only enough coverage to cover the value of the mortgage only protects the lender’s interests should the home burn or fall to some other catastrophe.
Private Mortgage Insurance Escrow - If the loan has a loan to value ratio of over 80%, this mortgage insurance covers the lender in case the mortgage holder defaults on the loan. If a down payment of 20% or more is put down, then this is not required. PMI coverage may be dropped once the value of the loan is at or under 80% loan to value. The mortgage insurance costs can be paid in a variety of methods including lender paid insurance in which there is an increase in the interest rate to cover the mortgage lenders cost. The lower the down payment, the greater the loan risk and the more expensive the mortgage insurance will be.
Homeowner’s Association Fees - If homeowner’s association fees are mandatory, than one twelfth of these fees may be added to the monthly mortgage payment. The process of adding homeowner’s association fees to the monthly payment is becoming very uncommon and the responsibility for the payment rests solely with the homeowner.
While principal, interest, taxes and insurance comprise a typical mortgage payment, some borrowers opt for mortgages that do not include taxes or insurance as part of the monthly payment. With this type of loan payment, referred to as waiving escrows, borrowers have a lower monthly payment, but must pay the taxes and insurance on their own.
Avoid Over Paying Mortgage Junk Fees
Additional fees for obtaining a home mortgage that serve no useful purpose are called junk fees. Most fees associated with originating your loan are third party fees necessary to obtain a loan approval, examples are appraisal fee, credit report fee and flood certification fee. Fees that are not necessary and are paid directly to the originating mortgage company are junk fees. Most junk fees do have one main purpose – increase the profits of the firm arranging the loan in addition to the money that make on the mortgage rate.
In order to ascertain which fees are junk and potentially profiting the originator at your expense, you have to compare the costs of the loan. One of the biggest obstacles in obtaining the least expensive loan is being able to accurately compare loan quotes. A mortgage rate quote by itself is of little value. You need the interest rate, term, costs and loan program. Clearly there is no point in comparing the rate and cost of an adjustable rate loan to a fixed rate loan with different terms. Before you attack the junk fees and question the loan officer, evaluate the different loan products and then get a mortgage rate quote with a complete break down of costs.
When you’re going through the process of applying for the loan, you will be given a variety of documents. Mandatory disclosure documents that are given out with every mortgage application make the evaluation exercise much simpler. One such document is the Good Faith Estimate that covers all the costs associated with obtaining the home loan. Federal law requires all mortgage lending institutions to provide a good faith estimate of closing costs within 3 days of the borrower filling out an application. With the Good Faith Estimate you should also receive a truth in lending notice. This is another federally mandated disclosure that spells out the mortgage interest rate over the life of the loan. These two disclosure documents, combined, are the key to evaluating the home loan fees and costs.
On the Good Faith Estimate form the costs of the loan will be itemized by category. Some lenders will charge more than others in various categories. The category of the fee is often not as important as the total amount of the fees. As an example, if lender A charges a $400.00 processing fee and lender B does not, lender A is not necessarily the better deal if lender A charges a $1000.00 origination fee and lender B charges no origination fee. Compare total costs and groups of costs as opposed to focusing on any particular fee that jumps out as being a junk fee.
The first group of fees on a Good Faith Estimate is the fees to cover the lender or originating mortgage lender for their services. This group is the category of fees with the greatest amount of room for negotiation. Here you find the charges for origination fee, discount points, appraisal fee, credit report fee, processing fee, document preparation fee, underwriting fee and perhaps other related charges. Junk fees are almost always thrown into this group. The key is compare similar loans with more than one mortgage lender. The total fees are more important than how any lender breaks them apart.
The second group is the prepaid charges. There is really no room to overcharge here, so negotiating should be irrelevant. On a purchase, the homeowners insurance may go here and the interim interest for the time you have the loan until the start of the first payment cycle would be disclosed here.
The third group is reserve or escrow deposits. These deposits are dictated by the taxing authorities and the time of the closing. Escrow are fairly well regulated, it would be difficult to find abuse in this section.
The fourth section is the title and closing charges. It is not often you will find a mortgage company that will negotiate the title charges. The primary reason being that the title company or closing company is not related to the mortgage company in most cases. If the title company is related, negotiate this fee as low as possible. Even if they are unrelated, it never hurts to complain about the amount of the charges for title insurance and closing fees.
Even though negotiating and asking questions about the closing costs can be time-consuming, you may be able to save hundreds, or even thousands of dollars at closing. Get another rate quote if necessary from a competing mortgage company. Compare the figures. Ask if the fees can be reduced. Don’t be intimidated; there are an abundance of mortgage companies looking for your business. If the loan officer won’t help you, move on and find one that will. Asking for the best mortgage rate and best terms at the lowest cost is your right.
When you get to the closing make sure the fees that were explained to you at the time of the application and placed in writing on the good faith estimate are equivalent. The purpose of the good faith document is to let you know what loan fees that you may be paying at closing. At the closing you will receive a HUD-1 settlement statement to review and sign, be sure the fees on this document are the same as the fees in the good faith estimate. If you want to question any of the fees on the HUD-1 settlement statement, do it without delay. You may feel as if you shouldn’t question these fees, but you have a right to do so and you should understand all aspects of this process with its cost.
Shop wise. Don’t accept the first offer that comes your way. Closing costs are necessary evils of closing a mortgage for either a home purchase or refinance. However, at times, they are used to increase the income of the mortgage originator or lender in a deceptive manner. It’s the job of a good loan officer to explain all of the costs to you and expect that you may shop around. A good loan officer who does his or her job right should expect that of educated borrower and accept the competition. Any amount of money that you can save at closing will be worth it.
What Is PMI or Mortgage Insurance
PMI or private mortgage insurance is an insurance policy and premium payment that mortgage lenders require from most home buyers who obtain home loans that are more than 80 percent of their home’s value. In other words, buyers with less than a 20 percent down payment are normally required to pay mortgage insurance or PMI. PMI protects a portion of the mortgage lenders loss in case the borrower defaults on the mortgage. Should a default occur, the lender sells the property to liquidate the debt, and is reimbursed by the PMI company for any remaining amount up to the policy value.
A borrower may need to pay up to a year’s worth of premium for this coverage at closing, which can amount to as much as several hundred dollars. PMI is protection only for the lender but its advantage is that by displacing part of the risk, a lender accepts mortgage loans with less than 20% down payment. One obvious way to avoid this extra cost is to make a 20% down payment. There are also other ways to eliminate PMI such as piggy back loans such as; 80-10-10 financing. With a piggy back loan, the borrower takes out a first mortgage for 80% of the properties value and a second mortgage for 10% with 10% of the their own funds. If possible, a piggy back loan can be a first mortgage of 80% LTV and a second for 20%, for a total 100% financing.
Costs vary from mortgage insurer to mortgage insurer, as well as from plan to plan, depending on the loan-to-value ratio, and the particular mortgage loan program involved. For example, a highly leveraged adjustable rate mortgage would require the borrower to pay a higher premium to obtain coverage. Buyers with 5% down payment can expect to pay a higher premium than a borrower with a 10% down payment. Buyers on adjustable rate mortgage generally pay higher premiums than fixed rate mortgages.
The Homeowners Protection Act of 1998 establishes rules for automatic termination and borrower cancellation of PMI on home mortgages. These protections apply to certain home mortgages signed on or after July 29, 1999 for the purchase, initial construction, or refinance of a single-family home. The protections do not apply to government-insured FHA or VA loans or to loans with lender-paid PMI. For home mortgages signed on or after July 29, 1999, your PMI must, with certain exceptions, must be terminated automatically when you reach 22 percent equity in your home based on the original property value, if your mortgage payments are current. Your PMI also can be canceled, when you request, with certain exceptions, when you reach 20 percent home equity in your home based on the original property value, if your mortgage payments are current.
PMI fees can be paid in several ways, depending on the mortgage lender and mortgage insurance company used. Home loan borrowers can choose to pay the first-year premium at closing; then an annual renewal premium is collected monthly as part of the house payment. Or the borrower can choose to pay no premium at closing, but add on a slightly higher premium monthly to the principal, interest, tax, and insurance payment. Buyers who want to sidestep paying PMI as a separate payment can use lender paid PMI. In this case the lender raises the interest rate on the loan to absorb the cost of the PMI and no separate payment is passed to the borrower.
Either way it is paid, mortgage insurance is an added cost for obtaining a home loan when the loan amount is greater than 80% of the value of the home. The mortgage insurance is a cost that can adversely impact the budget to buy a home or the budget for mortgage refinancing if not measured and evaluated in advance. To understand all the costs of obtaining a new home and home loan with less than 20% down payment or a refinance above 80% loan to value it is imperative to know what and how mortgage insurance functions.