How To Apply For A Mortgage Loan

When do I apply for a mortgage loan?

The issue of when to apply for a mortgage loan is two-fold. One is if you're looking to purchase a home; usually about 3 days before you start to go out and look for that new home you want to purchase. Two is if it's a refinance, at any point in time, when you feel that you might be able to get yourself a better rate if the rates are lower at that period of time.

Who can help me apply for a mortgage loan?

Definitely a mortgage broker, because as a mortgage broker, we are set up to get you the best deal that's out there. We shop a mortgage loan to over a hundred different institutions. If you walk into a large bank, you're going to be limited to their products, their guidelines, and you might not fit their criteria. However, as a mortgage broker, we will be able to place your loan with the best bank, with the best price, and with the best service that fits your needs.

What is collateral?

Collateral, I really call that equity; how much equity you have in your home. Take for example, you have a property that's worth a million dollars, your first mortgage loan amount is $500,000 therefore you have $500,000 of equity sitting in your home.

What is a Loan to Value Ratio (LTV) and how does it impact my loan prospects?

The Loan to Value Ratio impacts you in that the more money you put down, the better interest rate you are going to be able to get. Nowadays, you can put no money down and have a 100% financing. However, with 100% financing you are going to be more of a credit risk. Why? It is because you are not putting any of your own money into the home, and if something goes wrong; if you have health issues, or you lose your job, you will just walk away from the house. However, if you bought a million dollar home, and put five hundred thousand into a down payment and your mortgage is now five hundred thousand, you are not going walk away from a half million dollars if something goes wrong. You are going to figure out a way to either sell the house or get things fixed up.

What is a down payment?

A down payment is where you are going to put money down to purchase a home. For example, say the purchase price is $500,00 you have $100,000 of your own money sitting in your own bank account, and now you're also going to be getting a mortgage for $400,000. That money will go towards the down payment to purchase your new home at $500,000.

What is a rate sheet?

I see a lot of rate sheets on a daily basis because I'm a mortgage broker, and therefore, of course, I go out to all the lending institutions that are out there. In its simplest terms, a rate sheet is the lending firms' pricing for that particular day. They have all their different types of mortgage programmes that are on there, their risk add-ons. These actual rate sheets change on a daily basis. It's just like the stock market. They change every day.

What does prime rate mean?

The prime rate really focuses on second mortgages, student loans, credit cards. Indeed based on your risk factors such as your income, your credit, your assets, down payments and all that fun stuff, you can either get a below prime rate deal, or above prime rate. But once again, its all based on your risk factors.

What is a Good Faith Estimate?

A Good Faith Estimate is breaking down all the closing costs for the mortgage that you want to obtain. It will have on there escrow fees, title fees, bank fees, processing fees; it talks about pre-paid interest, homeowner's insurance, taxes, and just really breaks down the whole loan. It's really there to protect the consumer. Before you sign all the final legal documents, you're going to know what you're paying to obtain this mortgage loan.

What does "rate lock" mean and do I want to lock in a rate?

To look at the rate lock, let's take the example of purchase. Let's say you're going to close in the next thirty days, and we're starting a loan process. However, at this particular time, since you are now in escrow, we can lock your rate up until a couple of days before we have to close your loan. Look at it like a stock. The stocks move every day; so do my interest rates, and it's really a gamble. Do you want to want to play with the market on a daily basis, or do you want to get something locked in; knowing what you're going to get? I can quote you a rate today at six percent, but tomorrow it could go to six and a quarter, or it could go to 5.75. However, once you lock in, that bank is now expecting your loan to be closed at that particular rate that we locked initially. It's really a judgment call. It depends on where the market's at when you are actually are buying the house with me. At that particular time, I'll educate you on the market, how the ball market works, the mortgage-back security market and what kind of economic indicators are coming out that week. Then, we can make our determination, whether we lock or float.

What is the difference between a "secured" and an "unsecured" loan?

Secured and unsecured loans. I will only do secured loans. It means, in its simplest terms, that it's a mortgage lien that is attached to the property. With an unsecured loan, you have no recourse in case the borrower stops making their mortgage payment. For example, say you have a $500,000 purchase and you've got a loan amount for $400,000 and it's secured. Therefore, if they stop making payments on the loan, you can actually start the foreclosure process with them. However, if that $400,000 is not secured against the property, you have no recourse. You can try to sue them in court but good luck with that. You really should only be looking at secured lending.