Quizzle’s Mortgage Basics

Quizzle’s Mortgage Basics Guidebook

Table of Contents...

1. The Home Loan2. Mortgage Rates3. Mortgage Refinancing4. Common Mortgage Questions5. Quick Mortgage Tips

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1. The Home Loan

5 Questions Before Buying a Home

1. Can you put 20 percent down?

2. Do you have ample cash savings?

3. Do you have a stable income?

4. Do you have a good credit score?

5. Do you plan to stay in the house for 5 years?

You Found Your Dream Home… Now What?

1. What’s your living situation: renting or selling? Negotiate timing of close date

2. Get pre-approved for home loan—don’t wait to get financing in order

3. Make an offer! (Consider a real estate agent)

4. Provide documentation to mortgage lender

5. Finalize home loan after appraisal, title work, and close date

The ‘Dos and Don’ts of Home Loans

DO:

1.Have access to ALL sources of assets needed for your mortgage

2.Provide two years of tax returns to your lender

3.Keep relative income and credit info at hand

DON’T:

1.Open new credit accounts

2.Transfer large sums, deposit cash in accounts

3.Have active disputes pending on credit report

What to Look for When Selecting a Mortgage Banker

1. Find someone you can trust: ask friends, family, and co-workers who may have worked with a mortgage banker and had positive experiences.

2. Find some with expertise: look for an experienced banker—someone who answers your questions and who asks YOU questions.

Choose someone who displays an understanding of the market, and is responsive to your calls, email, and other communications.

The 3 Biggest Mortgage Mistakes

1. Failure to realize mortgage pricing changes—often rapidly, even within the span of a day

2. Working with a mortgage lender you don’t know or feel you can’t trust

3. Getting a quick quote and going with the lowest rate—a common, often costly mistake

How to Streamline the Home Loan Process

1. Know your credit status by getting free credit reports and scores through Quizzle

2. Get income records ready: 1-2 paystubs within 30 days of application and two years of W-2s, (have 2 yrs of tax returns if self-employed)

3. Have a 60-day transaction history of accounts, personal asset sales, stock/CD cash-outs, etc.

4. If refinancing, make sure construction & remodeling projects are done by appraisal time

Federal Housing AdministrationBasic Information

1. Since 1934, the FHA has helped finance over 34 million properties

2. FHA loans offer lower monthly PMI (private mortgage insurance) rates than traditional PMI payments

3. FHA purchase loans offer as little as 3% down payments which can be “gifted” by close family

4. While private loan qualifications have gone up recently, FHA loans still offer more relaxed guidelines

2. Mortgage Rates

3 Ways to Lower Your Mortgage Rate

1. Improve Debt-to-Income (DTI) Ratio: your DTI is calculated by dividing monthly debt by monthly income--keep DTI to about 30%

2. Improve Loan-to-Value (LTV) Ratio: your LTV is the loan you want to borrow divided by the value of the home—keep LTV to 80%

3. Improve credit scores: make on-time payments, use only credit you need—but keep what you have, dispute inaccuracies, and limit new applications for lines of credit

5 Ways to Take Advantage of Low Mortgage Rates

1. Get your free credit score with Quizzle

2. Get your free credit report with Quizzle: an official Experian credit report, completely free, no strings

3. Get organized: have paystubs, W2s, tax returns, employment history, bank statements, and other financial information ready for review

4. Know what you can afford: examine your debt-to-income ratio and budget—make sure you can pay for what you want

5. Start saving up for your down payment

Is Owning a Home Really Cheaper than Renting?

The short answer. Yes!

The slightly longer answer… Yes, but it’ll take a minute. Renting may be cheaper than buying at first—with down payments and closing costs—but over the long haul, your monthly mortgage payment will likely be lower than your rent.

Plus, as you pay your mortgage, you build equity—a real asset, whereas with rent, the money’s just sort of spent month-to-month with little to show for it.

3. Mortgage Refinancing

4 Reasons to Refinance

1. Lower monthly payments by converting to a longer term mortgage

2. Pay off the balance of your home loan faster

3. Consolidate high-interest debts like credit cards to lower-interest mortgage debt

4. Use equity to take cash out for other big expenditures, such as college tuition or retirement accounts

4 Considerations Before Refinancing

1. Long-term costs: you do end up owing more on your mortgage, even if it’s at a lower rate

2. Time frame: if you refinance a 15-year mortgage to a 30-year, it takes longer to pay off

3. APR: besides just the interest rate, know the annual percentage rate (APR)—the real cost

4. Other costs: in addition to closing costs, you will be on the hook to pre-pay interest on the mortgage, insurance, and taxes

4 New Types of Mortgage 1. 40-year Mortgage: a longer term than 15 or 30

years allows for a lower monthly payment

2. Hybrid: fixed interest rate to start, adjustable rate later—ideal for short-term owners

3. Modification: owners ‘underwater’ or in tough financial straits can sometimes re-negotiate terms with lenders

4. YOURgage: some lenders, like Quicken Loans, allow you to tailor-make your mortgage to fit your needs and lifestyle; a made-to-order loan

Quick Refinancing Tips (Part I)

1. Lock-in a rate for 45 days: when you start the refinancing process, your lender should offer a 45-day guaranteed interest rate; Close within that time frame so you get the rate you want

2. Re-coup costs in 2 years: you should make up for the money you spend on closing costs, attorney fees, appraisals, etc. with lower monthly payments—ideally within 2 years

3. Consider shorter terms: many people want to pay-off their loans sooner than the traditional 30-year time frame; YOURgages are popular tools to help with this

Quick Refinancing Tips (Part II)

4. “De-leverage”: while most fold closing fees into monthly payments, many now choose to pay these costs up-front

5. Appraisal problems? Try a PIW: a “Property Inspection Waiver” can allow you to forego an appraisal and go with Fannie Mae and Freddie Mac’s home value estimation

6. Want to refinance? Act soon: interest rates have never been lower, so if you want to refinance and have the credit, income, and equity—act as soon as possible!

4. Common Mortgage Questions

Q: How important is my credit score to getting a mortgage loan?

A: It’s always been crucial—but never more so than today. The housing market crisis has resulted in significantly tougher mortgage underwriting guidelines.

Q&A

Q: Is now the right time for me to buy a house?

A: While it depends on your situation, mortgage rates have never been this low since long-term mortgages came out…in the 1950s!

In the wake of the housing market crisis, your home-buying dollar has almost never bought more.

If you want to buy a house, yes, your best time is right now!

Q&A

Q: What should I do if I’ve been denied a mortgage?

A: First, ask the person handling the application why you were turned down.

Second, an appraisal may be the issue. Banks don’t accept another, so look for a new lender.

Third, your DTI (debt-to-income) ratio may be high. Community banks may understand your situation better.

Fourth, it could be your credit—the classic problem. Get free credit reports & scores with Quizzle so you know what repairs to make.

Fifth, after you’ve done these things—re-apply!

Q&A

Q: What are Discount Mortgage Points and Should I Use Them? A: These are interest points paid up-front. (1 pt = 1% of

total balance.)

Say you qualify for a mortgage with 6% interest. Or you could pay 1 point and 5.25% interest…which is better?

Divide the points by the rate difference. (1.00/0.75 = 1.33). That’s how long (in years) it takes to recoup pre-paid interest—making the points a wise choice if you stay in your home for 1 year, 4 months. After that, you’ll be saving money—regardless of the loan amount.

Q&A

Q: What is Mortgage Recasting?

A: Mortgage Recasting is one of the best-kept secrets in the home loan world. Recasting is popular among homeowners that can’t necessarily qualify for refinancing. While recasting doesn’t change your balance or interest rate, it can lower monthly payments.

In exchange for a lower payment, you typically pay a lump-sum upfront—usually starting at $5,000. You also pay a lender fee, generally around $250.

The lender then amortizes the mortgage based on existing balance.

Q&A

Q: What’s a Reverse Mortgage? A: A Reverse Mortgage allows older homeowners

age 62 or older to get cash from the equity they have in their home. Repayment isn’t required until the mortgage holder leaves the home.

You can get cash as a lump sum, a monthly payment or a line of credit that you can use at your leisure. The amount you can borrow depends on your age, appraised home value and current interest rate. 

Q&A

Q: Can Changing Jobs Hurt my Chances of Getting a Home Loan?

A: Yes, it could cost you. Don’t change jobs before you apply for a home loan.

Also, now wouldn’t be a good time to become self-employed.

The goal is to show lenders stability, which means you’ll be less likely to default on the loan. 

Q&A

5. Quick Mortgage Tips

10 Tips for Buying and Selling Your Home

For Buyers:

1. Know your credit score: Quizzle alone offers both your free credit scores and reports

2. Hold off on other big purchases: don’t apply for new lines of credit—it can lower your score

3. Get a home inspection: know all the flaws in the home you’re buying or it could cost you

4. Find the right neighborhood: the “three rules” of real estate are location, location, location!

5. Budget for insurance: make sure you’ve factored these into the cost of buying

For Sellers:

1. Evaluate the need for a real estate agent: agents can help with paperwork, closing, etc.

2. List a fair price: be reasonable or your house could be on the market longer than you want

3. Complete some improvements: finish painting or landscaping—curb appeal makes an impact

4. Offer incentives: offer to defray closing costs or possibly a higher sales commissions

5. Review mortgage options: if you’re looking to buy a new house—know your borrowing ability

10 Tips for Buying and Selling Your Home

Homeowner Tax Tips

A Short List of Common Deductions:

1. Mortgage interest

2. Property taxes

3. PMI (private mortgage insurance)

4. First-time homebuyer credit

How to Make Yourself Creditworthy

1.35% of your credit score is based on payment history, so on-time payments boost scores

2. 30% relates to balances, which have to be at manageable and reasonable amounts

3. 15% is the length of relationships with creditors

4.10% is credit types; scorers like different lines of credit--credit cards, student loans, auto loans, etc.

5.10% is about establishing new credit; apply for new credit, preferably a type you don’t have yet

15- or 30-Year Mortgage: Which is right for you?

Interest rates on 15-yr mortgages are typically lower than those on 30-yrs. Of course, that lower rate also comes with higher monthly payments.

The first half of the life of your mortgage goes mainly to paying interest. With a 30-year, you won’t be paying down principal until about 15 years in.

In the long run, 15-yr mortgages are cheaper since you pay less interest. However, you’ll have larger payments—so be sure that fits in your budget. (Missed payments can jeopardize your ability to get another home loan later in life!)