What is mortgage – a financing acquired to buy a land or property. It is a secured loan; against the asset’s value until the borrower make all payments. If you do not make the payments, the lender will take back your property (which will be in their ownership until you complete all payments).
The mortgage industry in US has many participants including government-sponsored enterprises, like Freddie Mac, which are incorporated to facilitate this whole mortgage system in US.
Types of mortgages – generally there are two types of mortgage financing:
Fixed rate– Fixed interest rate is charged on the principle amount
Variable rate– interest rates varies with market
Fixed rate mortgage – your interest payment/ rate will remain same for a fixed period, irrespective of interest rates in the market. If you want to break the deal pre maturely i.e. before agreed time, you will be required to pay charges for it. When this fixed interest rate period ends, you will have to renew your agreement and will move to variable rate.
- Peace of mind, knowing your expense and do budgeting accordingly
- If interest rate rises in open market, you will benefit
- Rate is comparatively higher
- If interest rates fall in open market, you will not get the benefit
Variable rate mortgage
The interest rate changes any time with the changes in market and economy. Variable rate mortgage is available in different forms/types. Like Standard variable rate known as SVR, discounted mortgage, tracker mortgage, capped rate mortgages and many more.
Every type has own advantages and disadvantages, we will precisely mention few in variable rate mortgage.
- in discounted mortgages the starting rates are low and this will make your repayments convenient
- SVR allows you to pay more or break the deal anytime
- Capped rate mortgages have higher rate compared to other variable rate mortgages
- In discount mortgage, you will be charged if you are leaving the deal
In US, you will have to deal with an underwriter when you apply for mortgage financing. These underwriters are mostly working with banks or brokerage firms/ houses. Brokerage houses, commonly called as brokers, have their own pool of lenders and they lend you money from that pool of available funds.
Mortgage process mostly comprises of paper work, which includes documentary proofs. These documents are required as evidence to prove your earnings, your address, monthly debts if any and account balances. Based on your situation, you might be asked to provide additional information and or documents.
Documents Required for Mortgage approval
- Bank statement or any asset statement
- Property information (showing your wealth)
- Past two years 1-9 or W2 forms
- Salary statement/ stubs for last 1 month
- Agreement copy of sale and purchase
There are low documents or no documents mortgage options available, in which you are not required to provide all this information or very less. These are expensive loans but are quick ones and convenient. In this case, the lenders provide you pre-authorization letter, which you can submit to the seller, before placing your purchase offer. This assures the seller that you are serious about the deal and will proceed in no time.
Pr-equalification Information Required
Pre-qualification is an assessment of the borrower whether he will be able to make the repayments and is a serious buyer of the property he is aiming at through mortgage.
- Borrowers’ name
- Co-borrowers name if any
- Borrowers’ Current address
- Co-borrowers’ current address, if any
- Approximate annual income – debt to income ratio will be assessed
- Approximate monthly expenses
Down Payment Requirement
A significant down payment in required in most mortgages. Usually 20% down payment is required but whole game depends on your current financial situation. As you can get low documents or less documents required option, same you can get 100% mortgage financing if you meet all the requirements.
Refinancing helps to pay off your current mortgage and get a new mortgage on new terms. You may benefit from the lower interest rates in market, or you might have other reasons like your credit score has improved and now you are eligible for low-rate mortgage.
When you decide to refinance, you will have to pay off your current mortgage and get a new. You have the option to continue with both as a primary mortgage and a secondary mortgage. In refinancing, you will be experienced as you know now what you been through in order to get your previous mortgage, as you will have to go through same process and costs.
Read Also: 4 Types of Insurance Everyone Needs
US Mortgage Industry
In US, the mortgage industry is extremely competitive. Interest rates varies between different banks and brokers. Therefore, it is highly recommended to do an in depth market research, before you proceed to finalize an agreement.
Brokers have a pool of lenders available; therefore, they can find you best rates. However, the fee charged and costs involved are comparatively high.
The quickest and usually an easy option is to consider your existing bank first. In this case, you will have an existing relationship with the same bank and they will have your financial status details available, which will make the mortgage pre-qualification and application process painless.
Be mindful, may be your bank is not providing you the best rate. In addition to mortgage rates, various costs are involved like initial fees, closing costs or fees, you will have to consider and compare them as well.