How Do Mortgage Lenders Determine Loan Limits

Mortgage Lender’s Limits

Most of the mortgage lenders calculate the limit of the loan they can lend you in a similar manner. While some lenders criteria may differ, it is similar because most of them further resell these loans in the mortgage market. Mortgage loans extended by mortgage lenders are often sold to big government organizations such as Fannie Mae and Freddie Mac. These government institutions buy the loan and insure the lender against default by the borrower. Because these government organizations and institutions implement certain guidelines on the mortgage loans that qualify to be insured by them, the lenders follow a fairly common and uniform pattern for approving home loan.

At any given point of time you should keep in mind that the lenders lending limit is not the amount that you can actually afford to borrow. Your own affordability for the home loan might be and usually is very different from what the mortgage lender is willing to lend.

A mortgage lender calculates your monthly housing expenses which according to him include the following components:

  • Mortgage payment, which includes principal plus interest.
  • Property taxes.
  • Insurance.

PITI is a common term that a mortgage lender uses to signify the total housing costs for home loan borrower. PI stands for principal and interest, T for taxes and I for insurance.

A mortgage lender usually requires that your monthly housing expense does not exceed 35% of your income before tax. So if your monthly income is $6000 the lender will not allow your expected monthly expense to exceed $2100. If you are self-employed, the mortgage lender uses your after expense, net income from the bottom line of schedule C of the form 1040 that you submit to the IRS for your income returns.

It is obvious to see that this is a very simplistic kind of a calculation on the part of the mortgage lender since it ignores any other financial goal and obligations that you might have. It has no consideration for your need to save money for major events in your life such as providing for retirement, child’s college education, marriage etc.

The only other consideration that the mortgage lender makes for additional expenses is probably for your consumer debt. Consumer debt is typically what you owe on other loans such as credit cards, personal loans, automobile loans etc. Just like a mortgage lender does not want your housing expense to exceed 35% of your pretax income, he will allow about 5% of your income to go towards payment of consumer debt. If you have a high balance on your credit card or any other form of consumer debt, it is an extremely good idea to pay off this debt before you apply for a mortgage loan.

Lenders look at this financial liability as a direct factor that affects your ability to make payments on the mortgage loan in the future. Running high consumer debt is seen as a risk factor which may result in the borrower defaulting on the home loan in the future.

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Looking For Mortgage Lenders and Deals On The Internet

In this post you will learn how to find mortgage offers on the Internet, to practice safe surfing principles and use the computer as a tool to help you find the best mortgage offers and mortgage lenders online.

Many people, especially those who have not used the computer for serious purposes before, think that the computer can solve any problem. They think all information is available on the Internet and that the Internet can be trusted implicitly to providers solution to the problem. However, the truth is that when searching for information, you need to filter the false and unimportant information to reach the right information on the Internet. If used properly the Internet can be a great tool but it can also result in various disasters. There is no lack of scam and false websites on the Internet. When it comes to matters related to finance, you need to be extra careful when using the computer and the Internet to find a certain solution because phishing sites also exist which will try and steal your sensitive financial information and misuse it. However it is equally true that the Internet is the great fountain of information. With the advancement in computer technology and the spread of Internet, all major businesses have their presence online and you can use that friendly online business models to get the information that you want. The Internet brings about the convenience of finding information when and where he needed. In this section we will discuss how to browse the net in order to find mortgage lenders and home loan offers as well as the practices to deploy for a safe surfing experience. We will also talk about the popular and trustworthy websites pertaining to mortgage and home loans.

How To Surf Online For Mortgage Loan Offers

Surfing online to discover mortgage and home loan can serve your purpose in many ways. These are some of the tips and tricks that you should follow in order to have a fruitful and safe experience when looking for mortgage lenders online.

Shopping To Find Out Current Mortgage Rates

The Internet is most helpful if you are trying to find out the interest rate that is available on various mortgage programs with different lenders all across the country. A single website and give you a complete impression of the prevailing interest rate with dozens of lenders. You can also get a direct quote from particular business as well. No direct sales pressure one of the advantages of soliciting a quote for an interest rate is that there is no direct sales pressure. Since you are browsing on your own time, and are not dealing face-to-face with a representative of the lending institution, you feel more comfortable in asking for information. However, it is common for most mortgage websites to only provide you with a personal quote after you have given sufficient information about yourself such as how to get in touch with you over the phone. But while you may be able to be with the general interest rate on many mortgage and bank websites, in order to get a quote for your own personal situation where you are looking to borrow a specified amount, you will probably have to fill in the online form with your contact information. You can expect someone from the company to get in touch with you personally in order to give you a quote. Several websites also provide a form for instant approval and disapproval for your application. When you put in certain details about the kind of loan you are looking at as well as certain personal details about yourself, your application is instantly matched or unmatched to any loan offers that they have for you.

Shop For Mortgage Whenever You Like

For many people who are busy working, adjusting calls to lenders can get difficult during a busy day’s schedule. Therefore another advantage of online mortgage shopping is that you can do it any time of day or night whenever it’s convenient to.

Beware Of Lack Of Quality Control

There are several respectable websites that give you information regarding mortgages and home loans. Not only do they provide you with a quote on the interest rate currently prevailing, they also provide you with many helpful articles and guides help you make up your mind. However, it should really be noted that there are several substandard websites as well. When it comes to discussing financial matters online, you should know that several websites exist as phishing websites that may try to steal your information and misuse it. Apart from that, several websites that do provide general and mortgage information to not exercise strict quality control. They may list mortgage lenders that pay to be listed. These websites may not check and cross check a particular lender to see whether he provides a high level of service or meets his promises and commitments or not. With these websites anybody ready to pay a fee can get listed. The

Avoided soliciting offers for where you see ads plastered across a website in big bold capital letters. This is not how major lending corporations work. You should examine each site to see how it claims to review listed lenders. Each website that provides a listing of mortgage lenders should do good job of screening the lenders upfront so that no unfair practices are used.

Do Not Trust Simple Affordability Calculators

If you’re trying to calculate the amount of mortgage loan that you can qualify for, you may find certain calculations that give you this amount based on your current income. These mortgage calculators are simplistic and use overall income figures and current loan interest to calculate the mortgage amount that a borrower can afford. This is not an actual representation of the amount that you can afford to borrow which is more important. Just because the lending institution is willing to lend you a mortgage loan for a certain amount does not mean that you can actually afford to take on a home loan for that amount. In order to calculate your own affordability for a home loan, check our ealrlier sections connected to this. Using simple calculators on the Internet ignore the larger financial picture suggested long-term financial goals, retirement plans, college education for children, marriage and the family etc. You need to take a close and hard look at your goals before deciding how much you can afford to spend on purchasing a home. You cannot trust a calculator online to make this decision for you based on crunching just a few numbers.

Do Not Reveal Sensitive Financial Information

When you do your research online regarding mortgage programs and home loans, it may not be very uncommon to discover that you find a load and a mortgage lender that you actually want to deal with. However, you might consider whether it is advisable to send your personal financial details online or not. It makes many people uncomfortable to send their financial details to a business which is remote and with whom they have had no direct contact except for some e-mails and maybe over the phone.

If you’re skeptical about sending your financial information online, it is a smart way to think. Before you share your personal information you need to verify certain information about the mortgage lender. This also applies when dealing with a mortgage lender off-line in case it is the smaller and lesser-known mortgage lender.

You should carefully review the lender security and confidentiality policies. Usually all reputable web sites have a policy and disclaimer listed which tell the borrower how they handle personal and financial information. You should only do business with those websites that do not share or sell your information to any third party organization other than for the sole purpose of verifying your credible creditworthiness needed for loan approval. Also try to make sure that the website is a secure website which begins with an https before the domain name. Secure websites that are safeguarded by 128 bit encryption are harder to hack by hackers who may attack such websites in order to gain access to sensitive financial information.

Many online websites also offer the users the ability to apply for their mortgage off-line through their local office or by loan papers sent through regular mail. They may charge a slightly higher fee for the service but if that is what you are comfortable with them it is well worth the extra expenditure.

Make It A Point To Shop Off-Line As Well

The reason why you are advised to shop for the best mortgage deal of time as well as you do not really know the competitiveness of the offers you find online till you know what is available from local and as well. Online mortgage options are not necessarily the cheapest although they tend to be. A quote from an online mortgage lender is of no use if he cannot deliver in the end or that you cannot qualify for based on your specific property, location or financial situation. Always remember that personal service and honoring commitments is highly important. Dealing with a local mortgage lender, specially with a bank with whom you’ve had personal relationship with for a long period of time ensures that you will get a better quality of service rather than dealing with the remote mortgage lender in some of the state. Online mortgage offers tend to be cheaper because online mortgage brokers tend to charge a lower fee. Because you are working on a remote basis, the mortgage broker website can deal with many customers like you and they save some time and money processing your loan via the online application process. But you should know that even with local mortgage brokers, the fees and origination charges are negotiable.

Just because you find a slightly better rate online doesn’t mean that you should choose that of a short-lived local and. As we have already mentioned, local lenders and mortgage brokers may negotiate with you to make themselves competitive. In any case, you must give them the opportunity to meet your best offer. Give them a chance to meet the most competitive rates that you have found online and see how it goes from there. You may be pleasantly surprised with the results.

Mortgage websites are best suited for researching the current marketplace rather than to actually secure a mortgage loan. The reason is that mortgage lending is still driven by several local factors and market conditions that could be well beyond his understanding of an online website which has no field on the pulse of your local area.

Beware Of Paid Advertising Masquerading As Directories.

Some websites on the Internet offer a directory of mortgage lenders. These are nothing but websites that charge lenders a fee to be listed on to gain a more visible listing. These kind of websites are similar to the kind of advertising you may find on your pages. Lenders can get higher visibility and a more prominent listing on such websites by paying a certain amount of money.

These directories can ask for a few hundred dollars to list the mortgage lender prominently for one state and additional fees for each additional state. This kind of payment gets your company listed on top of all listings in addition to which you might receive a more prominent typeface font with the chance to put the description of a listing. Therefore prospective buyers visiting these sites get drawn more towards the lenders who are not prominently listed because of the superior service or from programs that because they have paid additional money to be brought in the forefront.

If you’re considering using Internet site to shop for a mortgage, you must first investigate how the site derives and prioritizes its list of mortgage lenders. The website should be forthcoming about this information. You can also check out the various links that they offer for the purpose of soliciting lenders to join and pay for additional testing. This way you will know how the lenders who are listed on top get to be there.

Finding Mortgage Loans On Recommended Mortgage Websites

But it comes to finding mortgage and home loan websites, there are probably hundreds and thousands of the market. In order to help you find the important ones quickly, we’re going to list them out here for you.

Mortgage Shopping Websites

Government Mortgage Websites

 

6 Government Home Loan Websites You Should Read

Useful Government Websites For Getting Home Loan Help

  1. The US Department of Housing and Urban Development website is listed at www.hud.gov. This website provides information on the federal government’s FHA loan program and also lists HUD homes for sale which were brought into foreclosure by borrowers who had FHA loans of them. On this website you can find helpful information regarding the government loan programs as well as links to other useful federal government housing related websites. Various government housing programs can be a helpful option to people who are either looking for their first mortgage of or looking for a refinance option on the existing one.
     
  2. If you are a veteran if you can also check out the veteran’s owned website located at www.valoans.com operated by the US Department of Veteran Affairs. In addition information on VA loans, veterans and non-veterans alike are eligible to buy foreclosed properties with that were purchased with VA loans.
  3. Another website is the Federal Citizen information Center listed at www.pueblo.gsa.gov/housing.htm. It offers numerous free and low-cost pamphlets on house financing topics such as securing home equity loans, avoiding fraud, finding webpages and home improvement loans to make your home more energy efficient as well as qualifying for a low down payment portage.
  4. Fannie Mae located at www.FannieMae.com has many resources for mortgage borrowers and homebuyers. This website helps you to find links for home purchases, improvements as well as refinancing your existing mortgage. The site can also turn provide you with helpful worksheets and counseling agencies.
  5. Freddie Mac located at www.FreddieMac.com offers several resources.
  6. Do not fall prey to the various offers and advertisements that services solicit you by making tall promises of creating and improving your credit score with and a few days. Do not waste money on such credit repair services because they do not work. You can follow our tips and guidelines in our credit score section to understand what builds up a credit score and how you can improve each separate factor for better credit rating. To get several helpful tips on credit related matters you can visit the Federal Trade Commission’s website on www.ftc.gov.

6 Important Mortgage Shopping Websites

  1. HSH associates located at www.hsh.com is one of the country’s largest collector and publisher of mortgage information. This website has detailed graphs and up-to-date information regarding various mortgage rates and trends. SHS charges a nominal fee for anyone wishing to obtain a report from them. They charge $10-$20 for the report which can be ordered via the website or by calling them at 860-873-2837. SHS as such does not charge any fees to lenders for being included in the reports. However there is a showcase section where certain lenders can choose to showcase themselves.
  2. Other helpful websites include the loan located at www.eloan.com which is an online mortgage website. It is a good place to compare with these kinds of loans since it has interactive questionnaires, calculators which allow you to compare various different mortgage programs such as comparing a fixed rate loan to an adjustable rate loan.
    It can also help you figure out how much a fixed-rate mortgage is going to cost in terms of points and closing charges over a specified period of time. You can also apply for a mortgage directly from the website if you so desire. The websites tracking allows you to track mortgage process till closing of the loan.

    Two other prominent and well-known websites that give out information regarding mortgage loans are 

  3. www.bankrate.com and 
  4. www.realtor.com. Bank rate is an extensive website which gives you a lot of information as well as helpful guides. You can find all kinds of calculators as well as mortgage lenders from all across the country. You can use the information as well as the mortgage listing to get in touch with the mortgage lenders and see their rates at one glance.

    There are also other helpful mortgage websites that offer news and information on home loans. These websites are:

  5. www.deadlinenews.com and 
  6. www.inman.com.

How to Choose The Right Mortgage Lender

As you start meeting various mortgage lenders, you’ll get to find out more about the various loan programs, interest rates and other features that they are offering. Interviewing mortgage lenders is not only a good way to decide which mortgage lender to deal with but also to get to know what kind of options available to you as far as the mortgage loan is concerned. Interviewing mortgage lenders will help you not only get the best mortgage loan but the best mortgage lender overall as one. The following questions and points can come in handy whenever you are shopping for a mortgage broker for a mortgage lender.

What types of loan does the mortgage lender or broker specialize in

In order to meet your own personal needs regarding home loan, it is important that the mortgage lender as well as the mortgage broker has enough experience to point you towards the right resource. For example, a mortgage lender who only has experience in dealing with single-family homes might not be able to help you purchase a vacation property or cooperative apartment. Similarly, if the broker has limited experience he will have less knowledge of the various mortgage lenders and the different programs that suit your needs better. Result is that he could try and match you up to a loan program or a lender that does not offer you the best deal possible.

How does the lenders loan approval process work

You should also know whether the lender operates locally on not. Who are the people who are going to be involved in the approval process of your loan application and where are these people located? The best lenders approve loans locally and don’t send your loan application to a mammoth out-of-state corporation headquartered where a faceless committee decides on the fate of your loan application based on whether it matches with their distant and flimsy know how of your locality or not. Good lenders should try the best to get you your loan approval and be ready to work towards that direction. They will also help you analyze your loan application and warn you when possible of any advance of any possible problems and suggest solutions as well. In a nutshell, a good mortgage lenders should do his utmost to get you the best loan and comes possible.

How competitive are the lender’s rates?

Comparing various mortgage lenders will help you get an idea of whose rates are more competitive than the others. Just because a mortgage broker claims that he can offer you a certain rate of a particular deal, does not mean that he can come through with it. The final verdict on the rate will depend upon processing a lot of paperwork like your credit history, credit score, employment history, cash down payment, purchase of points etc. If you narrow down your selection to a couple of lenders or brokers do not hesitate to ask them to best match the rate of the lowest price lender you find. Low rates and charges are negotiable. You must always keep this in mind. You must also always ask for a good-faith estimate that should list out all the costs and fees associated with the loan that will help you analyze whether a given loan with a lower rate of interest does not have any hidden costs to. Getting a written estimate goes beyond than just getting a sales pitch from the lander or the broker.

Does the mortgage lenders speak simply and answer questions candidly?

Good mortgage brokers are willing to explain the technical features and the terms in simple language to the borrower. They are also open about disclosing all fees and charges associated along. A warning sign is when any pertaining question you ask doesn’t get answered by the mortgage lender or broker. This indicates that you could either be dealing with a subversive lender or one who lacks the knowledge to deal with your requirement. Good lenders also meet with deadlines which is especially critical if your loan is for home purchase. If you have made an offer on the property, missing a deadline could sabotage your purchase completely. If you’re refinancing to lower your loan rate, delays could cost you money and also to miss out on capturing the particularly low interest rate. You may also ask for customer references when you narrowed down your list of potential mortgage lenders.

How Much Commission Does A Mortgage Broker Charge

The amount that a mortgage broker is going to charge you for the lenders should be presented very clearly to the borrower write the beginning. The mortgage broker typically charges a commission in the range of .5% of the loan amount. The percentage of commission could be low on the home loan of a large amount and high on a smaller amount. Since the time given by the mortgage broker to your account is not directly proportional to the amount of borrowing, you have every right to ask how much the mortgage broker is charging for services. You also need to know if he is being compensated directly by the lender. Ask for this information in written. Remember, it’s your money. You can negotiate with mortgage brokers specially on larger loan amounts. A 1% commission comes to $750 on a loan of $75,000. But the same commission percentage on a $300,000 loan comes to $3000. It is also advisable to know how to mortgage broker is charging you as some mortgage brokers are known to push programs with super high interest rate and features that favor the lender because of a higher commission that they get for doing this. Some mortgage brokers may also try to take advantage of a borrower who has problems with his credit rating and hence cannot qualify for a mortgage loan easy.

The commission and the fee that’s the mortgage broker charges has to be revealed in the good faith estimate. This is required by the law. If a mortgage broker does not disclose her or his commission and lender paid rebates you should probably not work with them. You’re going to see the brokers cut on the loan settlement statement anyway at the loan closing.

If the mortgage broker you’re interviewing quotes a better rate than the lender you have found, you can verify the rates directly with the lender. However, most of the mortgage brokers will not reveal the source of information on the lender that they have gotten the rates from with the fear that you might decide to deal with the lender directly. They will not reveal this information for the fear of you bypassing the services until you pay them a few hundred dollars to cover the appraisal and credit report.

However, if you cannot find the rate that the broker promised from the lender, it does not mean that the broker is lying to you. In rare cases a mortgage broker may offer you a slightly better deal than you would’ve gotten on your own. However, if the broker was playing games with you to get your business, charging the brokers charges on your credit card allows you to dispute the charge and get your money back.

How To Choose The Right Mortgage Broker

As we have mentioned before, whether the decision to use a mortgage broker to find you the best home loan is a sound one or not will depend upon how good a mortgage broker you can find. In order to find the right mortgage broker you need to be able to interview him effectively and make the best choice. Making the best choice on the mortgage broker or the real estate agent will probably lead to finding the best home loan. Following are some of the questions that you should ask the mortgage broker and yourself before deciding.

How many lenders does the mortgage broker deal with and how current does he stay on their programs?

In order for a mortgage broker to give you the best possible deal, he should know many lenders in your local area and also be updated with the various programs they offer. Only when he knows many different options, will he be able to direct you to a lender who has the program tailor-made for your needs and requirements.

How knowledgeable is a broker and how patient is he in explaining the different loan programs to you?

The more lenders mortgage broker knows, the less likely he is to know about their programs in great detail. However, avoid a mortgage broker that seems to be only offering and pushing you towards a certain kind of loan. For example, if a mortgage broker insists that you take an adjustable rate mortgage in spite of what your feelings about that home loan are, he should duck for cover and find another mortgage broker. Furthermore, if the mortgage broker tries to push you towards balloon loans and negative amortization loans, you should avoid that broker at all costs. We have mentioned balloon loans and negative organization loans in a sections before and they are hazardous mortgage loans to take because they can put you in serious financial trouble in the future. Balloon loans will become fully due after a few years of taking them and require you to pay the entire amount you on your mortgage. Most of the borrowers find this an immense burden and more than a few have to take recourse to foreclosure. Negative amortization occurs when your outstanding loan balance increases every month even though you keep making regular monthly mortgage payments. This was one of the toxic mortgage plans that led to the downfall of the mortgage lending industry once the real estate prices collapsed in the late 2000s.

Do You Need A Mortgage Broker To Get You A Loan?

Mortgage brokers are intermediaries who are independent of banks or other financial institutions that are actually going to lend you the money to buy a home. Mortgage brokers do not have any money of their own to lend nor can they approve or deny your loan application. They do however, originate/process loan applications.

One usually chooses a mortgage broker because they can help you shop around, various mortgage lenders. Many mortgage brokers will tell you that they can get you the best deal possible on a home loan. Another possible benefit of using a mortgage broker is that they could explain the need the ambiguities of the multitude of loan choices that are available to you. They can also help you understand and fill out the various paperwork required to get a home loan. Sometimes these services that are mortgage broker can provide valuable. But then again there are times when these assertions of what a mortgage broker can do for you are not quite fulfilled.

Another reason why you might consider using a mortgage broker to help you get the right mortgage loan is if your credit history and credit ratings are somewhat damaged. A good mortgage broker can help you polish your loan application and segregate the few lenders that may offer you a loan based on your personal financial situation. Brokers can also help if lenders don’t want to make loans on unusual properties that you may be wanting to buy such as a corporative apartment, shared ownership housing and tenancies in common. If you have chosen a difficult loan to take such as get approved for 90% loan to value ratio, mortgage broker could direct you to such a lender who deals with high LTV loans.

Top 10 Home Loan Banks

Names Of Popular Banks That Provide Home Loans

Many home loan lenders shut shop after the real estate crisis that overtook America. What remains today are some top home loan banks that are major players in the mortgage lending industry. We will list the top home loan lending banks which have also been highlighted by the Forbes list as top businesses. These home loan banks and lending institutions have helped match people with the right home loan for several years. Some of these banks even cater to the home loan needs of people with sub-prime credit rating due to their sheer size and ability to absorb the extra risk.

1) Citigroup, an American based financial institution is perhaps the largest home loan lending bank. This home loan company is now operating in 54 countries outside the US, having current assets of about $1.3 trillion and $108 billion in revenues in year 2006. Citigroup is known for providing bad credit mortgage loans as well.

2) The Bank of America, the third largest bank in the US that offers home loan services and small loans. The Bank of America has been ranked at the second place in the Forbes list of the best home loan companies in the past.

3) Wells Fargo is another important American home loan company and bank, with 1000 branches across the US and all around the world. It has been rated third in the Forbes list of the best home loan companies.

4) Wachovia, also finds a  place in the Forbes list of the foremost home loan lending banks.

Other prominent home loan banking institutions that are able to provide mortgage to people:

BB&T, Golden West Financial, used to be the second largest savings bank in the nation ( Now acquired by Wachovia) , Marshall and Ilsley, M&T, AmSouth Bancorp ( Taken over and purchased by Regions), Popular, Synovus Financial, Zions Bancorp, Compass Bancshares and Commerce Bancorp ( acquired by TD Bank).

When to Use A Mortgage Specialist

A remortgage specialist or for refinance specialist is actually a person who will take a cut out of the loan that he or she can match you with. These individuals work on a profit basis and depending upon the sale they make, they make a subsequent profit. Because these individuals operate from a personal profit point of view, you should be careful as to who you choose and the situation under which you use of the remortgage specialist. The two common situations where every remortgage specialist may be a good option for you are as follows.

You Are Gifted a Property

When you are gifted a property it means that after paying the taxes you will take the ownership of the Home with no mortgage loan to pay on it. If you intend to use this asset to increase your liquidity by selling it then you may take the assistance of a remotely specialist who might be able to get your loan based on the value of your home depending upon how much of the equity you want to dissolve with the loan.

You Are Approaching Retirement

You may find yourself in a situation where Hugh need generate extra income through the built in equity of your home. You may find that you need to encash on this equity as you do not have enough income coming your way or have not saved enough money over the years. This might happen to people who are approaching retirement. Choosing to work with every mortgage specialist might help you convert some of your built-up equity into cash. However, you should be extra careful as certain predatory specialists are known to prey on the elderly.