All mortgages have one simple thing in common. They all require certain documentation for them to take place. It can be hard to find all the documentation necessary, but making a list is a good way to start. Let’s have a look at the different documents you are going to need to begin this process.

-          Tax returns from the previous year are one of the first things you need. Most of us keep these documents for several years so going one year back shouldn’t be difficult.

-          Pay stubs, retirement income, or home business financials are also important to your lender and will need to be provided. If you have a steady day job 3 months of pay stubs will be needed. If you are retired you will need your 401k or IRA statements as well as pension or social security statements. For those who own their own business or work on a contract basis, you may be required to provide your businesses financials for up to a year prior.

-          Bank account statements for the last 3 months are also necessary. If you have more than one bank account, like a checking and savings account, both statements should be provided.

-          Your current mortgage, a copy of the current mortgage and note are usually asked for. Mortgages and sometimes the note are filed as public record. If you are having trouble accessing your note, ask your previous lender. They will have it, I am sure.

-          Homeowners insurance (with agent name and phone and policy number)

-          Copy of drivers’ license / identification card

-          Documents for special cases if applicable (eg. copy of executed divorce decree, a copy of discharge paperwork)

-          Employment verification forms may also be requested by your lender. If you are asked to provide this you will be given a form to give to your employer and they will complete it and sign it.

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Like most business sectors, mortgage and refinance officers have their own lingo that can be hard to understand. Acronyms and jargon make it easy for those who work in the industry to communicate, but these terms can be easily misunderstood if you aren’t careful. I thought it would be a good idea to cover some of these terms so that we are all on the same page.

LTV is an acronym for Loan-to-Value. More specifically, it describes the ratio between the loan you want and the appraised value of the home in question. A lender wants to know how much you are borrowing against the appraised value of the home. If your current loan of your home ends up being grossly more than appraised value, chances are you will have more trouble qualifying for a loan.

DTI is another acronym which stands for Debt-to-Income. This figure is described as the ratio of your monthly debt to your monthly income. This calculation can be represented in two fashions. It can either include all debt or just the monthly debt of the mortgage. To give you an example if your monthly income is $3,000 and your mortgage is $1000 your DTI ratio would be 33% for the mortgage alone. If you have another $500 in monthly bills your total DTI would be 50%. Savings, assets, good employment history, or a high credit score can offset a high DTI. 

APR is yet another commonly used acronym. It simply means Annual Percentage Rate. This rate takes into account your annual interest rate, usually a number between 5-7%, and augments it to reflect any closing or hidden costs in your loan. These other costs are factored over the term of the loan and then once again expressed as an annual percentage. Because APR is one of the most confusing and often misunderstood aspects of a mortgage, I recommend you talk with our resident Mortgage Professor, Jack Guttentag, to get the full picture of how APR works.

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It’s a scary fact of life that Americans around the country have lost their jobs. The crash of the housing market affected more than home owners. Building supply companies, those in construction, real estate personnel, and even those in the financial sector took stunning blows. Obviously many of these now jobless workers, both white and blue collar, were mortgage holders.  The Obama administration isn’t turning a blind eye to this problem and in late March announced that they have a plan. The plan isn’t going to be enacted until later this year, but let’s have a look at how it will work.

To qualify for the program the homeowner must be living in the home as the principle residence and be currently receiving unemployment benefits. They must request the assistance while their loan is current or in the first 3 months of its delinquency. They must also make loan payments of up-to 31% of their unemployment income and they must owe less than $729,000 on their home.

While this program will be a life line for those who suffer a period of joblessness, it is not an overall solution. As well those who were self employed will not qualify as they cannot receive unemployment insurance.  For those who are unable to find new work or cannot afford payments on their mortgage with their new job can turn to the Home Affordable Modification Program (HAMP). These programs will basically work together to help keep more Americans in their homes.

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As the housing market gets back on its feet and sales numbers start to increase, consumers are asking themselves, which mortgage is right for me? In the past, many consumers steered away from fixed rate mortgages because the interest rates were higher than those of adjustable rate mortgages. In today’s market however, adjustable rate mortgages, or ARMs, may not be the way to go.

If you are looking to get into a mortgage or refinance your current one, chances are you will save money regardless of the option you choose. In fact, ARMs still have an edge over fixed rate mortgages when you look at short term prospects. Over the long term however, this is not the case. When interest rates begin to go up, and they will, those with adjustable rate mortgages will end up paying more than those who opted to go with a fixed rate over a longer term.

Currently, the Federal Reserve is keeping interest rates down, but they are not going to continue to do so. Many speculate that the first jump in rates could take place as soon as June. By the end of the year, adjustable rate mortgages could have a higher interest rate those of the fixed rate, even though they are now quite in-expensive. Consumers looking to get the most out of current rates would be wise to look at locking in to a fixed mortgage over a longer term.

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March saw a steep increase in the sale of new homes. Sales were up almost 27% around the country. While this figure is promising for home owners and those in the construction industry, it isn’t a trend we are likely to see continue as the spring and summer progresses. There are several factors which contribute to my lack of excitement.

First off, it’s important for Americans to understand that not all facts are as reliable as you might think. The government’s margin of error for March is just over 20% meaning that at best we are seeing a small increase. We won’t know how much of an increase we’ve actually seen for up to 5 months. One promising stat is that the trend for the last 5 months is also positive. In fact, they are the best numbers we’ve seen since the market crashed several years ago.

The reason most economists attribute to this rise is the lucrative and soon ending tax credit the governments has offered those who purchased homes within this time frame. Basically, those looking to get the credit have to sign the sales contract before the end of April. They must also close on the home by the end of June, making March an excellent time to start the process. You can see how this affects buyers and promotes sales now, rather than later on in the year.

I think it’s important to understand that this increase is probably going to be matched by a slow period as we enter summer. This is the usual effect of a sales bubble like the one the tax credit creates. For those that capitalized on this credit, they also received exceptional interest rates which may not be seen again for some time.

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Your credit score is based upon a calculation. When your score is being tabulated, various aspects of your credit history, both past and present, are assessed and a final number is given. There are 5 categories on which your credit is measured and each category has a weight on the overall score. No single area or event will determine you score, though dramatic payments or debts can have a large effect. Let’s look at the 5 areas involved and their respective weights:

-          Payment History: This is an overall look at past payments. Late or unmade payments will negatively affect this area while on-time payments or debts that you have paid off will improve this portion. Payment history accounts for 35% or 1/3 of your overall credit score.

-          Debt Owed: Any current bills or unpaid debt is another large part of your overall credit score. Any owed debt counts as 30% of the overall credit score.

-          Credit History Length: 15% of your overall credit score is based on the length of its history. The longer you have had credit, the better your score in this category.

-          Credit Types: The more types of credit you hold, the better it is for your credit score. This category is only about 10% of the overall score.

-          New Credit: The last section of your credit used to factor your overall credit score is any new credit. Depending on the type, and size of the credit, this could have a positive or negative effect on your score. The overall weight of new credit to your overall score is only about 10%.

As you can see there are many aspects of your credit history both current and past that factor into your overall credit score. One mistake isn’t going to ruin your score; however, one un-made payment that you were not aware of could have lasting ramifications to your score if not dealt with. Since free credit checks can be done personally every year, it makes sense to have your credit checked regularly.

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Most Americans understand that a large part of the mortgage or refinancing process is a credit check or credit inquiry. Something that a lot of Americans don’t know is that there are two ways in which the credit check can take place. It can either be a hard-pull or a soft-pull.

So, what’s the difference?

Well, hard-pulls result in a note on your credit report and may include a 5 point deduction to your credit score each time it happens. A soft-pull on the other hand, will not affect your credit score. In fact, there is no mention of it on your credit report. When a company does a soft-pull on your credit, they are simply asking for an overall estimate of your credit worthiness, not delving into every aspect of your payment history. This is why there is no need to note this inquiry on your credit report.

As a consumer and a financial advisor, I know the importance of guarding your credit score. Whenever you are filing out credit history forms, be sure to ask which type of credit check is being done. There is no point in getting that Department store credit card to save 15% on every purchase if the application includes a hard-pull credit inquiry. The long term negative effect on your credit score will hinder you more than the $30 in savings will ever help.

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With housing prices rising and falling like the ocean’s tide, many Americans are asking the same question. They want to know how much their homes are actually worth today. Regardless of what type of loan, refinance, or mortgage modification you’d like to make, knowing how much your home is worth is an important step. There are several ways you can go about finding out exactly what your home is worth.

Based on your home’s location there are many internet websites that will give you a generalized appraisal of your home, including www.refinance.com. These estimates are free, but you cannot use them if you are going to approach a lender for a loan. Home owners who are simply looking to get an idea of the current value in their home without spending any money can benefit from this process. If you are looking to refinance, having your home appraised online is a waste of time since you will have to have an appraiser do the job anyways.

Appraisers provide professional estimates. An appraiser provides a more in depth look at your home and can offer the most accurate assessment. If you have the time and money, I would recommend an appraisal by an appraiser. You will gain piece of mind knowing that your home was thoroughly looked at and you can be more confident in the price that you are quoted.

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With my friend Stephanie beginning her journey towards home ownership, it’s a great time to talk about closing a loan or refinance. There are final decisions to make, dates and appointments to set, and paperwork to review. If you haven’t gone through the process before, it can be easy to miss a step. Let’s have a look at what you can do to get ready for your close.

Once your loan is approved and you agreed to the commitment letter between you and your lender, you must set the date for closing with the seller, lender, and closing agent. The first pitfall of new borrowers is that they don’t realize the closing date must be before the expiration date on their commitment agreement.

Before you are ready to close it is important that you review and understand all terms and conditions of your agreement. This includes your Good Faith Estimate (GFE) and Truth in Lending statements. As a buyer you should have received these in the first week of your application. If you’d like more information on GFEs our resident Mortgage Professor, Jack Guttentag  http://www.home-account.com/homelibrary/the-new-gfe-will-help-borrowers/ should be able to help. You will also receive a HUD-1 Statement or closing statement. This is a document prepared by the closing agent and has all the relevant details about the transaction. If you have any questions, now is the time to ask.

The last thing needed in most home sales is a survey of the property or other home inspections. These should be scheduled well in advance and must be completed prior to the closing date. If you know that a survey needs to be done, but haven’t heard anything, check with your closing agent. Other inspections like a termite certification may be required. It is important to know and make sure that these are done before your closing date.

The day before your closing date can be stressful and exciting. Inspecting your home-to-be one last time by conducting a final walkthrough is a great way to put your concerns at rest. To make your closing day go smoothly, I also recommend going to get a cashier’s check to cover closing costs.

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The world of mortgages, loans, and refinancing is filled with acronyms and jargon that can be hard to understand. One term that I hear a lot of people toss around is FHA loans. Simply put, an FHA loan is a loan insured by the federal government through the Federal Housing Administration. These loans, which originally came about in the great depression of the 1930’s, are for Americans who can’t afford a down payment on their home. Before FHA loans existed, lenders would not be able to lend to these low income borrowers.

The government insures FHA type loans which gives the lender security. If a borrower has FHA insurance on their loan, lenders can be confident that they will not lose out, even if the borrower defaults. Having this type of insurance available to Americans is a big part of the recovery process for the housing market. When lenders are able to safely grant more loans, more houses are bought and sold. New construction also thrives when there are more qualified lenders.

So, what does that mean for the everyday American? In a nut shell, it means more possibilities. In many cases where a lender would have to turn down an applicant, they can offer them the option of applying for FHA insurance on their loan. Once approved, the lender now has the security they need to grant the loan. In 2007, when the housing market took a turn for the worst, FHA-secure loans program was introduced. This program has helped millions of home owners with non-FHA adjustable rate mortgages, refinance to FHA loans. Today FHA loans are a staple in helping Americans stay in their homes.  www.Refinance.com has many lenders that are able to offer FHA loans.

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