10 Commandments For Home Buyers

So you’ve decided to buy a house. Congratulations! Buying a new home and securing a mortgage can seem intimidating, but this handy overview will assure you of your decision and how to proceed.

New Home

The key to skillfully navigating the process of buying a home is proper preparation. These Ten Commandments will help first-time homebuyers prepare to take on this challenge. Finding a house and applying for a mortgage will take some time and attention. Buying a house is a large purchase, so don’t rush it.

Pay special attention to each of these commandments to avoid some of the most common missteps that befall first-time homebuyers. If you need assistance, be sure to consult with your real estate agent or mortgage representative. 

1. Be Committed To Purchasing A House

Get your figurative house in order before you start searching for your literal house. Make sure that you can answer these questions:

  • Can I afford to buy a house? Consider what’s available in your area and look at what you can safely spend on housing. Remember that you’ll be responsible for repairs, taxes, and homeowner fees.
  • Am I ready to maintain a home? Homeownership comes with plenty of perks, but it’s also a lot of work. Are you willing to mow the lawn? Replace the roof?
  • Am I ready to settle down in one area? Buying and selling a house costs money and you can protect your investment by staying in your home. Homes appreciate over time, so you might lose money if you need to move around.

If your answers to any of these questions is a no or weak, yes, you’re probably not ready to buy a home. It may be better for you to consider renting until you find yourself in a more secure, permanent situation. 

But if your answers are a resounding yes, you’re ready to take the plunge into homeownership. Keep reading to learn how to pick the right house and secure the best mortgage. 

2. Verify Your Financial Plan

Decide housing expenses budget. The widely-accepted view is that your housing expenses should account for roughly 30% of your income. Take the time to consider how buying a home will affect your finances and make room for it in your budget.

Budget accordingly. When you buy a new house, you’ll also take on several additional expenses, like repairs, property taxes, homeowner’s insurance, etc. in addition to the mortgage. On the other hand, you’ll also be looking at some tax benefits. Do the math to make sure that these numbers work for you. 

Plan for your down payment. There are programs that let you put down as little as 3% of your home loan value, but a 20% down payment is highly recommended. Determine how much you need to put down, and then set that amount aside. You don’t want to scramble to conjure up a down payment at the last moment.

Get your insurance in order. In an ideal world, you’ll also want to make sure that your health, disability, and life insurance are in good order. Covering these expenses makes sure that you’re protected from any catastrophic situations that could cause you to lose your new home.

Prepare your paperwork. Since mortgage loan officers are going to need copies of your bank statements, pay stubs, and two years of W-2s and tax returns (at least), now is an excellent time to put them together so that they’re readily accessible.

3. Have At Least One Earning Family Member

Especially since the mortgage crisis of 2008, mortgage lenders are looking closely to make sure that applicants can handle the monthly payment on their mortgage. Make sure that you have at least one steady source of income to make that consistent monthly payment.

4. Check Your Credit Score Before Applying For A Mortgage

Loan officers will check your credit score to determine your individual credit risk. This information will dictate what mortgage terms and rates a lender can offer you. 

Tricks To Saving On Your Mortgage

The higher your score, the more favorable your terms and monthly mortgage payments will be. By checking your credit score beforehand, you’ll be able to dispute erroneous items and potentially raise your score. 

5. Understand What You’re Qualified For

Get pre-approved. Pre-approval means you have conditional approval from a mortgage underwriter, pending a property selection. Pre-qualified means that a loan officer has reviewed your information, so having pre-approval means that you are in a better position to secure your housing.

mortgage rates going up and down

When you’re pre-approved for a mortgage, you’ll likely have a few options to consider. The interest rates, APRs, and associated costs may vary slightly from lender to lender. Thanks to the Truth in Lending Act, everything will be presented in a straightforward fashion.

It’s helpful to reflect on all the information that you’ve gathered in this process so far. Make sure that you can safely handle this mortgage payment for as long as you’ll have one. 

6. Make A List Of What You’re Looking For In A House

How many bedrooms, floors, or bathrooms do you want in your new home? Is a backyard optional or requisite? How many square feet of living space do you need?

Get as specific as you’d like to about your needs and wants in a home. Decide what you can and can’t live without to save time once you and your realtor are looking at houses.  

7. Avoid Large Bank Transactions

You’ve already learned how important it is to go into the mortgage qualification process with the highest score that you can.  Avoid doing anything—especially making any large purchases—that might affect your credit score. While it may be tempting to buy new furniture or appliances for your new home after you’ve selected a mortgage offer, resist. 

Most mortgages take an average of 30 days to process. Right before you close, your loan officer will pull your credit score again. If there’s any significant deviation from the original score, you may lose your mortgage offer at the last moment. 

8. Maintain Your Emergency Funds

If you don’t have an emergency fund, you’re not ready for a mortgage. As a homeowner, you’ll need a rainy-day fund more than ever. After all, you never know when you’ll need to spend money for the necessary upkeep of your house.

Fund

Don’t deplete your emergency funds to fund a down payment. Doing so would be a recipe for disaster and puts you at a severe disadvantage straight out of the gate. Take your time to prepare for this large purchase. Especially in the early stages of a mortgage, expenses like unemployment or a medical emergency can snowball quickly, so don’t take on this process unless you’re sure that you can handle it.

9. Research The Market And Neighborhood

Research the neighborhoods and local school districts you’re considering to familiarize yourself with what’s available. You can use real estate websites like Redfin or Zillow to get an idea of the local demographics even before you choose a real estate agent. 

As you comb through available listings, check the price-rent ratios of potential neighborhoods for signs of a market bubble. Every new home buyer wants their property to appreciate. 

10. Avoid Spending The Money You’ve Saved For Your Down Payment

A 20% down payment is highly recommended. Statistically, this amount down provides the most secure footing. While you may qualify for a smaller down payment, beware that these mortgages suffer from a slightly higher rate of default than if you were to put down the full 20%.

If you’re ready for a mortgage, don’t touch the money that you’ve set aside for your down payment. Just don’t do it! You do not want to get to the end of this process and wonder how you will raise the money for your down payment at the last moment. 

Conclusion

Buying a house is most likely one of the most significant purchases that you’ll ever make, so be confident that you’re ready to give this process the time and energy that it deserves. Surround yourself with a realtor and mortgage broker whom you trust to walk you through the mortgage process. 

One of the recurring themes in these ten commandments is financial discipline. Hopefully, if you’re on the verge of buying a home, this is something that you’ve worked on. That foundation will make the home buying process go more smoothly. If you haven’t practiced much financial discipline up until this point, start now so that you can take ownership of this process. 

This list encourages you to take proactive measures at every stage in this cycle so that you come out ahead, with the best home and the best deal for you. If you have any more questions about home buying or the mortgage process in the Chicago area, please reach out to A and N Mortgage. 

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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APR vs. Interest Rate: Understanding The Difference

As you consider your mortgage options, you need to know the difference between two key figures: the interest rate and the annual percentage rate (APR). These two numbers, both expressed as percentages, appear on the paperwork and truth-in-lending documentation that you receive when you qualify for a mortgage. Having a solid grasp of these two numbers will help you to understand how much your mortgage will cost so that you can determine which mortgage to choose.

The interest rate represents the cost of borrowing the principal loan amount of your mortgage. It can be a fixed or variable rate, depending on what you qualify for. The APR, however, is the bigger picture of the actual cost of your mortgage. It includes not only your interest rate but the other expenses from the lender that you’ll need to cover to satisfy the loan. As you shop, you’ll want to compare apples to apples, so pay close attention to both interest rates and the APR to arrive at the best decision.

APR Vs. Interest Rate

The differences between the interest rates and APRs you’re quoted will affect the price you pay each month as well as the costs to pay off the mortgage entirely. Understanding these two sets of numbers will help you make an informed decision between different mortgage products.

What Are Interest Rates?

Simply put, your mortgage interest rate is how much it costs every year to borrow money from your lender. Your interest rate will be expressed as a percentage of your total loan balance. Every month, expect to pay the interest cost in addition to the payment of your principal.

What Factors Determine Interest Rates?

The interest rate of your loan will be determined by two main factors: prevailing market rates and your credit risk. Prevailing interest rates work with current market dynamics. Mortgage rates are tied to the basic rules of supply and demand. Factors such as inflation, economic growth, the Federal Reserve System’s monetary policy, and the state of the bond and housing markets all affect mortgage rates in the United States.

Apart from the prevailing market rates, your individual financial situation, or credit risk, will also have an impact on the rates that you’ll be offered.

These elements of your personal financial situation are all used to determine your interest rate:

  • Credit score
  • Credit history
  • Debt
  • Income
  • Employment history
  • Cash reserves
  • Down payment
  • Term and size of your loan

Fixed Rate vs. Variable Rate

Most loans have either a fixed or variable interest rate. Fixed-rate mortgage costs will remain constant. For instance, if you select a mortgage with a 5% fixed interest rate, each year you will pay 5% of your loan balance as interest. As time passes, more of your payment goes toward principal reduction.

Another available option is an adjustable-rate mortgage. Interest rates on adjustable or variable-rate mortgages are usually set for a certain number of months or years from the commencement of the loan. After that, the interest rate will either rise or fall. This depends on the market index that your interest rate is tied to and the margin that your lender adds to that. This type of loan makes sense in a situation where you can benefit from the lower initial fixed period (for example, if the initial interest rate is fixed for five years and you expect to move before that period is over) or you’re not overly concerned with interest rates.

What Is The APR?

The APR (annual percentage rate) offers the big-picture view of the total costs of a mortgage. It is a more comprehensive way to compare loans and includes the interest rate as well as the other fees and costs you’ll incur to secure your loan.

For a typical mortgage, the APR may include:

  • Closing costs
  • Loan origination fees
  • Underwriter fees
  • Mortgage insurance
  • Broker fees
  • Discount points (you can pay these at closing to secure a better interest rate on your mortgage and save money over the long term)
  • Rebates

Since the APR covers more than the interest that you’ll be paying on the loan, this percentage is almost always higher than the nominal interest rate. The only exception to this rule is if your lender is offering a rebate on a portion of your interest cost.

How To Calculate The APR

Just like the interest rate, the APR is usually presented as a percentage. Here’s an example calculation: you qualify for a fixed-rate $200,000 mortgage with a 6% nominal interest rate. All told, your closing costs, broker fees, mortgage insurance, loan origination fees, discount points, and underwriter fees add up to $5,000. This addition brings your new total loan amount up to $205,000. When you apply that 6% interest rate to this new loan value, your resulting annual mortgage interest payment becomes $12,300.

To solve for the APR, divide this annual payment by the original loan amount. In this case, the APR is 6.15.%

The exact formula for calculating your APR will depend on the terms of your loan (length, fixed or variable, etc.). A mortgage lender or broker can help you with these calculations.

How To Compare Interest Rates To APR

Should I use the APR or interest rate?

Now that you understand what interest rates and APR represent, it’s helpful to know when to prioritize each number to find the best solution for you. Make sure to consider the following:

  1. Consider the length of time you plan to remain in your home.
    a) If you’ll complete your mortgage term and have no plans to move in the near future, the APR will be helpful in providing a comprehensive view of your anticipated costs.
    b) If you might sell your home or plan to refinance your mortgage at any point during the life of your loan, consider that these will add additional costs to your loan. The APR cannot account for costs outside of what is explicitly covered when you sign the loan paperwork.
    c) If you move or sell your home, determine the breakeven point in your mortgage and adjust your plans accordingly. Depending on your mortgage, a loan with a lower APR might cost less over the course of the entire loan but more in the first few years.
  2. Consider the type of mortgage you’ll get
    a) For fixed-rate mortgages, the APR is a helpful indicator of what you can expect to pay. Make sure that you consider all applicable fees since a few might not be included in the APR provided by your lender—especially appraisals, title insurance examinations, or property surveys.
    b) For adjustable-rate mortgages, the APR is really anyone’s guess outside of the initial term.
  3. Consider how much you want to pay each month
    a) For a lower monthly payment, focus on the interest rate.
    b) For lower overall costs of the loan, focus on the APR.

How do I compare rates among lenders?

Here’s what to look for to make sure that you’re comparing apples to apples.

  1. Make sure that the principal is for the same amount—that the rates, terms, down payment, etc. are consistent.
  2. Compare the APR of one lender to the APR of another.

Conclusion

Choosing a mortgage can be difficult. Thankfully, there are a lot of options, and brokers or lenders have to be up-front in showing you what costs you can anticipate. The interest rate and APR are both helpful gauges to use to compare the terms and rates of each mortgage product.

As you carefully consider each factor that goes into determining how much you’ll need to pay off your mortgage, understand that these two figures, the interest rate and APR, give you important snapshots of what you need to know. Spend time with your broker or lender to seek clarity and ask questions as needed. After all, you don’t secure a mortgage every day!

First of all, make sure that you compare apples to apples—that is, that terms, rates, down payments, etc., are consistent. Then, all other things being equal, consider the implications of the interest rates and overall costs to procure the loans. Depending on your circumstances, prioritize the interest rate or the APR in your initial search. Make sure to thoroughly compare the inclusions within the quoted APR to see which product best suits you.

If you have any other questions about interest rates, APRs, or mortgages in the Chicago area, feel free to contact us at A and N Mortgage. We’re happy to help!

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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A Comprehensive Guide To Home Equity Loans

A home equity loan—also known as a “second mortgage”—can be an affordable way to borrow money against the equity you’ve built up in your home. Home equity loans allow homeowners to use their properties as collateral to secure large lump sums for a variety of reasons. This article will explain the ins and outs of home equity loans and important things to keep in mind as you decide whether a home equity loan or home equity line of credit is right for you. 

What Is Equity?

To begin with, you need to understand what equity is. Essentially, it’s the difference in value between what you’ve paid towards your mortgage and what your home is worth. 

You can build equity in two ways. First, pay down your mortgage. After several years of timely payments, you’ll begin to make a dent in the principal value of the loan. If your home is worth $250,000 and you only owe $200,000 on the mortgage, you’ve got $50,000 of equity in your home. 

The second way to increase equity is by appreciation. If home values in your neighborhood go up, and your home is worth more than it was when you purchased it, your equity increases. In a second scenario, if you purchased your home for $250,000 and it’s now worth $300,000 thanks to new development, you’ve gained $50,000 in equity.

What Are Home Equity Loans?

Home equity loans allow you to borrow against the equity that you have in your home. A lender will use your home as collateral to secure the loan and provide you with a lump sum. You can use the loan proceeds to fund home renovation projects, your kid’s college tuition, or whatever you want. Thanks to the fact that your lender has security in your collateral, home equity loan rates tend to be more favorable.

Determining Your Home Equity

The first thing you need to do is figure out how much of your home you actually own. If your home is worth $250,000 and you’ve paid $50,000 towards your mortgage loan, then you have $50,000 in equity. You own, effectively, 20% of your house. 

Equity is usually described in terms of a loan-to-value ratio. This ratio compares the portion that you owe to the total value of the property. For the $250,000 house on which you owe $200,000, that ratio would be 80%. 

The second thing you can do to quickly assess the value of your home is to look at similar listings in your neighborhood. An appraiser will determine how much your home is worth when you apply, but this is a good way to get a basic idea of whether or not your property has appreciated significantly.  

Keep in mind that lenders will not generally issue home equity loans for amounts less than $10,000. Most lenders won’t consider granting a home equity loan when you own less than 20% of your home, so you’ll need to build up a substantial amount of equity before you can apply. Also, note that lenders usually offer to loan a fraction of the total equity. If you have $100,000 in equity, for example, don’t expect to receive a loan offer for that amount.

Applying For A Home Equity Loan

Once you’ve got enough equity in your home to consider applying, the home equity loan approval process looks pretty similar to getting your first mortgage. 

Your lender will pull your credit report and check your credit score, as this determines how much of a credit risk you are. The higher the score, the more likely your chance of approval and the better your interest rate should be. If a home equity loan is in your future, do what you can to improve your score before you apply. 

Licensed Mortgage Broker In Illinois

You may also need to provide your deed, pay stubs, tax returns, etc.just as you did when securing your original home loan. Lenders want to verify that you can handle the monthly payment on your home equity loan in addition to your mortgage. They generally don’t want to see your total debt payments (including this and your mortgage payment) add up to more than 43% of your monthly income. Otherwise, it may be difficult to keep up with both payments. 

Make sure that you look into different banks and lending institutions before you apply. There are many different products with different rates, terms, fees, and qualifications. Use a home equity loan calculator to see what you can expect. If you’re a good candidate for a home equity loan, your banking institution will probably offer preferential terms.

Benefits Of A Home Equity Loan

1. You’ll receive a large lump-sum payment. You can use the loan proceeds for any purpose, and you’ll have access to all of your loaned amount once you close. 

2. If you decide to use your home equity loan to improve your property, like remodeling your kitchen, you may be able to deduct up to $100,000 of mortgage interest. Check with your tax adviser first. 

3. Since your home secures your loan, interest rates on home equity loans may be lower than unsecured loan products, like personal loans or credit cards.

 4. It may be easier for you to qualify for a home equity loan than other credit types since your house secures it.

5. Home equity loans are usually fixed-rate loan products so that you can budget for a consistent monthly payment.

Disadvantages Of A Home Equity Loan

1. Your home secures your home equity loan. This can be an issue if you default on the loan because the lender can foreclose to recoup its principal. If you sell the home, you have to pay the home equity loan back in full. Also, if your home loses value before you sell, you might wind up in a tight spot where you owe more than the house is worth.

2. Home equity loan rates may be higher than rates for a full mortgage. 

3. Depending on the lender, you may be responsible for closing costs and fees that can add up pretty quickly. 

Who Should Consider A Home Equity Loan?

You’ll benefit most from a home equity loan if you’re a responsible borrower with a consistent, reliable income. This type of loan can make sense to a lot of different people for a lot of different purposes. 

Alternatives To A Home Equity Loan

Home equity loans are often used interchangeably with Home Equity Line of Credit (HELOC). Your home also secures a HELOC, but instead of the large lump-sum payment that you get when you close a home equity loan, you only draw down the line of credit as you need it, for as much as you need.

For example, suppose you have a $50,000 HELOC but only spend $20,000 for your planned kitchen remodel. You’ll only pay back the $20,000 that you borrowed. 

A HELOC is a good option if you want to cover expenses that come up over time. These loans usually have adjustable rates, however, so you can’t count on a fixed monthly payment.

The other alternative to a straight home equity loan is a cash-out refinance. Here you’ll refinance your current mortgage into a new mortgage with a higher balance than you currently owe. At closing, you’ll receive the difference as a single payment. 

With a cash-out refinance, you’ll get a single monthly payment. If your credit is in good shape, you might land a better interest rate than your original mortgage had. Because of lender fees and closing costs, though, this type of loan may be prohibitively expensive. As with any other type of loan, make sure you know what expenses you’ll have to cover or are rolled into the loan.

Conclusion

Home equity loans are a viable way to leverage the equity you’ve built up in your home. Because your house is held as collateral in such loans, interest rates are usually competitive. 

If you have a steady, reliable income can handle the added expense of the home equity loans and need access to a large lump sum, a home equity loan may be right for you. You can use the loan proceeds to renovate your home (and you can deduct some interest payments on your taxes!) or pay off costlier types of debt.

Expect to go about securing your “second mortgage” much like you did your first. Sweep out your financial house before applying for a home equity loan. That way you’ll either continue to reap the rewards of fiscal responsibility, or you’ll start reaping them for the first time. 

Since home equity loans offer lenders plenty of security, they’re obtainable and usually affordable. Keep in mind that your home is your collateral, though, and defaulting on second mortgage payments can lead to foreclosure. 

If a home equity loan is right for you, know that A and N Mortgage is here to help you find the best option to help you accomplish your financial goals.

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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10 Things You Can Expect When Working With Brad Boden

If you are looking for a mortgage lender with an exceptional reputation behind them, you’d be hard-pressed to find one better than Brad Boden. Brad has been a Top 1% mortgage lender with A and N Mortgage Services for the last twelve years. 

We know that when it comes to hiring a mortgage professional, the plethora of choices can be overwhelming. Here, we are going to show you how and why Brad Boden sets himself apart from the crowd. 

As you will learn, Brad is proud of his client-first approach, which saves you time and money when it comes to your home loan or refinances package. 

If you already know about the brand and his incredible reputation and would like to personally work with Brad Boden so he can help you through the complicated home loan process, please visit BodenBoden.com

Top 10 Things To Expect When Working With Brad Boden

1) Always Available – Twenty-four-hour availability is a hard-to-find asset amongst most mortgage lenders. Brad prides himself on offering both his mortgage knowledge and his time. Whether you call at 11 pm or deep into a Sunday afternoon, Brad gives every one of his clients the peace of mind knowing that he’ll always be around when he’s most needed.

2) Competitive Rates – When it comes to rates, Brad Boden has you covered. As a mortgage lender, he is competitive by nature and will easily be able to beat the rates of most of the large banks you will come across. Brad will shop your loan with more than 20 banks to ensure you are getting the best deal possible.

3) Full Support – It doesn’t matter to Brad Boden whether you are a first-time home-buyer or somebody who is looking to expand their property portfolio, he will be right where you need him to offer complete support throughout the entire process. Brad Boden’s wealth of experience has armed him with the ability to answer any questions you may have for him, and what’s more, he is happy to do so.

4) Dedicated Team – While most lenders work alone on behalf of their clients, a successful mortgage lender also has a skilled team at their disposal. Brad Boden’s team of enthusiastic and experienced mortgage experts help to ensure that every single detail of your loan application is well-managed from pre-approval to closing on your home.

5) Personal Relationship – Unlike most mortgage lenders, you are more than just a number to Brad Boden. His ethos is all about making his clients feel comfortable at every stage of the process. He is truly invested in helping you attain the home of your dreams. 

If you’d like to personally work with Brad Boden so he can help you through the complicated loan process, please visit BradBoden.com

6) Experienced – When it comes to mortgages, Brad Boden is an expert. Brad Boden has closed thousands of deals and encountered any scenario you can think of.  He has ranked among the country’s top 1% of mortgage loan officers for the last 5 consecutive years. With experience like this, Brad Boden is qualified to deal with the many unexpected issues that could arise throughout the process of securing your loan.

7) One on One Communication – Whether you call, text or email, Brad Boden is one of the few lenders that you will come across that is more than happy to answer everything personally. Brad Boden’s clients never have to worry about getting stuck playing phone tag with an office assistant. 

8) Tools To Get Your Loan Done Right – One of the most important parts of the loan process is ensuring that it’s closed on time. Having Brad on your side is a sure-fire way to accomplish this. Brad 12+ years of experience has equipped him with all the tools, including in house processing and underwriting, that is required to make sure your loan is closed on time. 

9) Critically Acclaimed – Brad was humbled and honored to be awarded as being in the top 1% of loan originators since 2012. This distinction means that when you choose Brad Boden, you will not only get the service you need, you will also get the service that you deserve.

10) Genuine – Last but by no means least, Brad loves what he does, and this gives him the motivation he needs to provide you with the best possible home-buying experience the industry has to offer. 

If you are seeking a Chicago mortgage lender with a difference, then you should consider getting in touch with Brad Boden. If you’d like to personally work with Brad so he can help you through the complicated loan process, please visit BradBoden.com.

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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How To Become A Licensed Mortgage Broker In Illinois

A and N Mortgage is Chicago’s premier mortgage banking firm. We employ some of the most renowned mortgage officers in Chicago and are ready to help new mortgage brokers navigate the mortgage lender license requirements in Illinois. This guide will walk you through the main steps required to obtain your license and will point out ways we can help.

Motgage broker license | ANMTG

First things first: what does a mortgage broker do?  Mortgage brokers serve as intermediaries between borrowers and lenders. Brokers will counsel a prospective buyer and complete and process their clients’ application to match them with a lender. But brokers won’t actually lend you money.  A mortgage lender, then, is the individual or institution (like a bank or credit union) that loans you the money to buy real estate.

Mortgage brokers and lenders work together to match buyers with the best mortgage product available for their situation. Mortgage brokers are also responsible for making sure that their clients will be able to pay back the mortgages that they take out. In light of the housing crisis of 2008, the role of mortgage brokers has become increasingly important, especially with regards to reducing the risk of default. 

 What Does It Take To Become A Mortgage Broker In Chicago?

Documents for Mortgage broker licenseThe process of becoming a licensed mortgage broker is pretty straightforward. There are five main components of the mortgage banking license process: pre-license training, NMLS exam, bond issuance, registration, and annual renewal.

Although there are differences in bond amounts, fees, and specific registration criteria, the process of becoming a mortgage broker is largely the same in each state. To service clients in additional states, you’ll have to complete and adhere to the licensing requirements of that state. Since Chicago is what we know best, here’s what you need to do to obtain your mortgage broker license in Illinois:

  • Pre-licensing Education: Every mortgage broker must have a high school diploma or GED and three years of field experience or 20+ hours of pre-licensure training at an approved institution.

 This mortgage broker training devotes time to federal law (three hours), ethics (three hours), non-traditional mortgage lending (two hours) and relevant electives, like financial regulations surrounding mortgages, loan officer ethics, mortgage origination, etc. (12 hours).

While it isn’t mandatory to have some fluency in finance, economics, or accounting, those skills help a great deal when it comes to examining product options and guiding your client. It is also a good idea to gain experience from a firm before striking out on your own as this can be a pretty aggressive business.

It’s important that you begin to build your network of clients and lending institutions. After all, your success relies heavily on your ability to connect both parties through the mortgage brokering process. Many new brokers choose to start out with established firms that have existing client and lender relationships.

To continue to provide the best loan product options to your customers, you need to stay on top of the available offerings. It also helps to have some general knowledge of relevant laws and legal procedures.

  • The NMLS Exam: The NMLS (National Mortgage Licensure System) offers a test called the SAFE Mortgage Originator exam. You must pass this nationwide exam, and, if the state that you plan to register in requires it, the state-specific component, too. 

Passing means completing one or both tests with scores above 75%. The national test is $110, and the state-specific component is an additional $69. Keep in mind that applying for licensing in additional states will mean that you need to prepare to take additional state-specific tests.

The exams will test your knowledge and understanding of the rules and regulations that concern mortgages in your area. You can take this test at any time and must pass it before you can broker any mortgages.

  • Apply for your License: The NMLS is an online platform that regulatory agencies use to streamline processing of licensing applications for various industries like mortgage brokering and mortgage lending.

Once you obtain the proper registration with the Secretary of State in Illinois, you’ll submit that information and relevant documents, like your background check and credit report, to the NMLS system for processing. From there, regulators will review your submissions and contact you directly if necessary.

The role of the NMLS is to coordinate, among other things, the mortgage lender licensing process. To do this, the NMLS serves as the central hub of information between agencies that regulate different financial services. In addition to mortgage lenders, money transmitters, check cashing establishments and currency exchange businesses use the NMLS as well. 

The NMLS is responsible for cross-checking all of the information in your application. As a mortgage broker, you will also use the NMLS to maintain your compliance documents and renew or update your license in any way. If you elect to practice in another state, you’ll use the NMLS to apply in that different state. The NMLS maintains checklists of the various state-specific requirements and facilitates and organizes the entire process.

  • Issue Your Bond: Each mortgage broker must have a surety bond in place to operate. The amount varies by state, but here in Illinois, you need a $25,000 bond. 

You usually pay for this like insurance by paying for an annual premium based on your credit score and financials. This bond functions like insurance in a way—but for your clients, not for you. If you’re found guilty of any type of fraud, for example, or your clients suffer any type of financial hardship due to your mistake, this bond is their recourse.

  • Pay your Fees: In Illinois, the mortgage broker licensing fees total $2800, which includes the NMLS processing fee. 

Once that’s done, you’re good to go – at least for a year. Mortgage lenders and brokers are required to renew their licenses annually and undergo constant training regarding new regulations, etc. Expect ongoing professional development to keep abreast of changes in the mortgage lending industry. 

Perks Of Becoming A Mortgage Broker

Being a mortgage broker can be an incredibly fulfilling career. Many brokers enjoy the positive, personal impact that they get to make on their clients each day. Navigating the mortgage process can be complicated for first-time homebuyers. As a mortgage provider, this is a unique opportunity to provide service on such an important and fundamental level.

Ultimately, the best mortgage bankers and brokers are willing to go above and beyond, like our own Kiki Calumet, recipient of The Forbes Real Estate and Mortgage Market Leaders 2019 award. Kiki believes that “it’s about developing a relationship with clients naturally” and that “customer well-being is a priority.” Year after year, relationship after relationship, Kiki continues to excel in a field that she loves. 

Being a mortgage broker is personally rewarding, but the money isn’t bad, either! The PayScale website reports that mortgage brokers earn between $52,000 (average pay ) to $197,489 per year  These figures can vary due to a number of factors such as location and experience. As an independent broker, you’ll most likely earn a commission from each loan that you broker. If you join a brokerage firm, you might command a salary and benefits on top of your commission. 

 How A and N Mortgage Can Help You

As some of the most renowned mortgage officers in Chicago, we thoroughly understand the licensing process here in Illinois and are happy to guide you through the process. We can help make the understanding the mortgage lender licensing requirements and licensing process as smooth and worry-free as possible.

We’ll help you set up the necessary pre-licensing education courses and coordinate your background checks and fingerprinting as you work to complete the requirements for your NMLS application. When you’re ready, we can also help you schedule testing appointments.

 Conclusion

Becoming a mortgage broker can be an incredibly fulfilling career. There are few feelings that can match the satisfaction that comes along with helping a family purchase a home. At A and N Mortgage, we have worked hard to earn a reputation for being the best mortgage company in Chicago. Our team, from President Neena Vlamis on down, works hard to know the ins and outs of the mortgage business here in Illinois and the surrounding areas and offer the best products and solutions to our own clients.

From coordinating pre-licensing education to helping you schedule the exam and prepare other elements of your application, to advice on securing your mortgage broker bond, we’re here to help new mortgage reps fulfill their mortgage lender licensing requirements. The process is straightforward, but includes necessary safeguards, like constant training and stringent NMLS application details, to ensure that new reps are confident in their abilities to provide sound mortgage guidance to their customers.

Now that you know what the process entails, what are you waiting for? Get in touch with A and N Mortgage to set yourself on the right path to your mortgage broker career!

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Is A Multifamily Home And Mortgage Right For You?

The number of loan origination for multifamily units has continued to increase in recent years and it’s easy to see why. This growth trend is due in part to low interest rates as well as the strong demand for rental properties by millenials.  The Mortgage Bankers Association expects 2019 to be another record-breaking year with similar expectations projected for 2020.

Multifamily Home

Given this favorable environment, it makes sense to better understand if investing in a multifamily property is a smart move for you.  There could be significant financial benefits from this type of investment, especially if you decide to live in the property while renting out the other units.  The arrangement could be a real win/win all around! 

Is it Easy to get a Mortgage for Multifamily Home?

In cities such as Chicago, a number of large condo buildings are being converted to apartment complexes that are then rented by those looking for this type of housing.   Multifamily properties with five or more units are considered commercial real estate. For lending purposes, commercial financing is more difficult to get and often requires larger down payments and shorter repayment schedules than residential mortgages. Developers, brokers and investors tend to participate in these types of projects.  

Multifamily properties with 2-4 units are considered to be a residential building. Sometimes known as duplexes, triplexes, and fourplexes, 2-4 unit properties are essentially mini apartment buildings. With separate dwellings contained within one property, a 2-4 unit can be occupied by different tenants.  Although they may resemble mini apartment complexes, they are still considered residential properties. This is extremely important when it comes to financing options. 

Long-term loans, such as mortgages, typically have different rates and regulations depending on whether you want to buy a commercial or residential property. Buying a residential property usually means the mortgage will have a lower interest rate than what is offered for  a commercial loan This means that taking out a multifamily mortgage on a 2-4 unit allows you to take advantage of the lower rate that a residential mortgage offers and still make a rental income if you decide to lease out the extra space to tenants. 

Furthermore, the projected rental income from the additional units can often be taken into account when applying to a mortgage lender. Although you’ll need a deposit to qualify for a loan, the rental income from the 2-4 unit property can form part or all of your income in relation to the terms of the mortgage. 

This makes purchasing a 2-4 unit building a more realistic option, particularly for millennials who may be in the early stages of their careers. If you choose to live in your new building, you may even find that the rental income the property produces covers the cost of your own mortgage repayments, essentially minimizing your monthly costs. 

How To Finance A Duplex Or Multi-Unit Home?

There are numerous ways to finance a duplex or multi-unit home and the right option for you will depend on your personal circumstances. Before you make any decisions regarding property purchases or investments, it’s important to seek advice from a mortgage expert. By consulting an experienced mortgage advisor, for example, you can determine which options are available to you and what type of multi-unit mortgage would suit you best.

When buying a multi-unit property, you may decide to opt for a conventional mortgage. This is the same type of mortgage you would obtain if you were buying a single-family residence. If you want to buy a multifamily dwelling and live in one of the units, you may want to consider an FHA or VA loan.  Investors are limited to conventional mortgage loans.  

FHA loans are ideal for first-time homebuyers, individuals who don’t have a perfect credit score and/or buyers who may not have a large down payment. While the terms of FHA loans are relatively generous, you’ll need to ensure you meet the criteria to determine whether you’ll qualify for an FHA loan. 

When assessing the suitability of an FHA or conventional mortgage for a multi-unit property, you’ll need to consider three main factors; your credit score, loan limits and down payment requirements.

What Credit Score Is Required To Get An FHA Loan?

FHA loans typically have lower credit score requirements than other conventional mortgage programs. Furthermore, there is some flexibility in relation to the minimum credit score required to qualify for a loan, depending on the down payment you have. 

If you have a down payment of 10% of the property price, you can obtain an FHA loan with a credit score of 500-579. If you have a credit score of 580 or higher, however, you could be eligible for an FHA loan with a down payment of just 3.5% of the property price. 

What Are The Loan Limits For A Multi-unit Home?

When evaluating whether or not a multifamily mortgage is right for you, it’s important to look at the loan limits. These essentially state how much funding you can borrow from a mortgage lender. 

Generally, a conventional mortgage loan is capped at $484,350 throughout the U.S. in 2019. However, if you buy a multifamily property, the conforming loan limits increase. For a two-unit home, the limit in 2019 was $620,200 for two-unit homes, while the limits for three- and four-unit properties were $749,650 and $931,600 respectively. In addition to this, some areas with high housing costs increase these limits even further.

For FHA loans, the standard loan limits are as follows:

  • 1-unit home : $314,827
  • 2-unit home : $403,125
  • 3-unit home : $487,250
  • 4-unit home : $605,525

In high cost areas, the FHA loan limits are:

  • 1-unit home : $726,525
  • 2-unit home : $930,300
  • 3-unit home : $1,124,475
  • 4-unit home : $1,397,400

High-cost FHA loan limits are the maximum insurable FHA loan size although there are special exceptions for certain parts of areas in Hawaii, Alaska and other locations.

Your Chicago mortgage banker or broker can help clarify the loan limits for multifamily mortgages in the city and surrounding areas.

How Much Down Payment Is Required for An FHA Multi -Unit Mortgage?

Conventional mortgages usually require a down payment of 5 to 20% of the property price, with private mortgage insurance being required if under 20%. Investors may be expected to put down a deposit of 25 to 30%. As conventional mortgages require such a high down payment, it can take years for first-time buyers to save enough to qualify for this type of lending. 

With an FHA multi-unit mortgage, however, you can put down a much smaller down payment and still obtain the funding you need. If you have a credit score of 500-579, for example, you’ll need a down payment of at least 10%. 

Other Factors To Consider When Obtaining A Multifamily Home Mortgage

When you’re buying any type of property, it’s important to consider all of the relevant factors. This is why it’s important to consult a professional, mortgage advisor before you make any decisions. 

Although FHA loans can be a fantastic way to get on the property ladder, own your own home and invest in your future, they aren’t necessarily the right option for everyone. Furthermore, there are other long-term loans and providers which may be more suited to your needs. 

The United States Department of Veterans’ Affairs (VA) offers government-based home loans to military service members, veterans and their families. Similarly, Fannie Mae and Freddie Mac offer home loan programs designed for people with low to moderate incomes. 

One of the major advantages of obtaining an FHA loan is the ability to generate rental income from your property. In most cases, the rental income the property can be taken into account when your eligibility is assessed. However, the full rental amount is not usually considered for these calculations. Instead, 75% of the rental income the property generates may be counted as income when you apply to qualify for a loan. 

If your monthly mortgage repayments are estimated to be $5,000, for example, and the property is expected to generate $3,000 in rent, only 75% of this $3,000 will be taken into account when assessing your repayments. Essentially, the calculation would use the figure of $2,250, rather than $3,000. In this example, you would need to show that you could comfortably afford the remaining repayment of $2,750 per month in order to qualify for the loan. 

Despite this, many people still find that FHA loans offer a unique opportunity to enter the property market and invest in their future. 

Conclusion

In cities like Chicago, where property prices are high, purchasing a multi-unit home and taking out a government-backed FHA loan can be a wise financial decision. Currently, many people are being priced out of the property market in the area but obtaining a multifamily unit loan Chicago could enable you to purchase your own property. 

Furthermore, Chicago is a thriving city and has a high number of people looking for rental opportunities. If you plan on renting out your units to tenants, they’re unlikely to be empty for long. This gives you the scope to make a significant rental income from a 2-4 unit property and maximize the return from your investment. 

With extensive experience in the industry and in-depth local knowledge, we’re well-placed to help you find the right mortgage. If you’re interested in taking out a multifamily home mortgage, talk to our team today. Simply contact A and N Mortgage at 773-305-LOAN and we’ll be happy to help.

To learn more, read how one of our mortgage lenders successfully renovated his multifamily unit, paid for his rent, covered expenses and made a large profit along the way.  

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

 

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Do Biweekly Mortgage Payments Make Sense For You?

As anyone on the housing market knows, mortgages come in all different shapes and sizes. There are fixed and variable choices, differing mortgage rates, and a whole lot for homeowners to consider. And, just when you thought you had gotten your head around the options, payments rear their ugly heads.

biweekly mortgage

Repayments, of course, are at the heart of any mortgage. Higher repayments generally mean a shorter-term loan and less paid in interest. That’s something most borrowers understand, however, few homeowners realize that there’s more than one way to pay a mortgage.

Simple monthly mortgage payments are the most commonplace.  Another alternative is to pay more than the minimum monthly payment necessary. However, the extra money will go toward your next monthly payment instead of the mortgage principal unless specified. For this reason, it’s worth considering biweekly mortgage payments. This type of payment structure can be extremely beneficial for many borrowers, and it’s something that surprisingly few of us realize is an option.

What Are Biweekly Payments?

Biweekly mortgage payments are repayments that homeowners make every two weeks. A biweekly mortgage is in itself no different from a standard mortgage agreement. The main difference is that homeowners will make one extra monthly mortgage payment a year. 

Even better, this payment arrangement is a pretty painless repayment option, allowing families to shorten the repayment of their loan by four to six years, and reduce their interest costs in accordance. 

How Do Biweekly Payments Work?

To understand precisely how biweekly payments work, it’s essential to make sense of the function of a standard mortgage repayment schedule. 

When homeowners make twelve yearly repayments, a portion of that payment will go towards the mortgage interest and the rest will go towards the principal. As your mortgage progresses and your debt decreases, you pay less interest, and thus more money towards principal repayment. This process is referred to as amortization, and mortgages typically take around thirty years to clear this way.

With biweekly payments, homeowners can shorten the amortization cycle by making 26 payments in a year. In other words, biweekly mortgages mean paying thirteen months off your mortgage in twelve. This extra payment goes solely towards lowering overall mortgage amounts and thus reducing interest further without pushing homeowners towards higher monthly payments they may not be able to afford. 

Does Paying Your Mortgage Every Two Weeks Help?

In large part, the benefits of payments every two weeks depends on your circumstances.  By reducing total interest costs by around 25 to 30%, biweekly mortgage payments can undoubtedly help some homeowners.  As an example, a homeowner who owes a total value of $300,000 with an interest rate of 4.0% could save a borrower nearly $30,000 in interest charges and result in the loan being paid off 5 years earlier.

With a biweekly mortgage payment, homeowners will also need to consider setup fees and potential late payment costs before deciding for sure whether a mortgage like this makes sense. Even so, some homeowners are able to shave thousands off their mortgages this way. 

A biweekly mortgage calculator is the best way to arrive at exact amounts or ask your mortgage lender to help determine the savings. 

Making Biweekly Payments Through Your Lender

If biweekly payments have caught your eye, then you may be wondering how you can arrange these with your lender. Most lenders will be able to transfer to the biweekly payments with minimal effort. Make sure to check with your mortgage servicer to see if they charge a fee for biweekly payments as some do and some don’t. It’s important to read the fine print whether you are making payment changes to an existing mortgage or taking out a new mortgage.  

The main thing to bear in mind is timing when setting the biweekly payment up. If you’ve already paid your mortgage for the month, you may end up having to pay a month and a half, thereby stretching your budget more than you can manage. As such, always make this switch before your mortgage date so that you don’t land yourself in financial trouble.

Be sure to ask your lender crucial information regarding value, including: 

  1. How your payments will be credited
  2. Whether your extra payment will be applied directly
  3. How much you stand to save over your mortgage term

By answering each of these, you can guarantee that a biweekly plan really is your best option.

The Benefits Of Scheduling Payments This Way

The main advantage is the option to save money on total interest rates over your mortgage term. Given that most homeowners pay substantial amounts of interest on even small mortgages, reductions here are always worth making. In turn, these savings result in shorter mortgage terms, which can lead to further benefits that include:

  • A faster way to build equity
  • Budgeting that’s easier to manage
  • Less stress when it comes to your mortgage

When A Biweekly Mortgage Plan May Not Make Sense

As much as biweekly plans can be beneficial, there are also times when homeowners would be better off avoiding them. After all, a higher number of yearly repayments isn’t going to suit everyone, and it may not mathematically calculate as the best way to save. 

Some mortgage lenders charge a fee from $400 to $1,000 for biweekly switch overs, so homeowners should weigh their options before committing. Also, remember that a biweekly mortgage payment is a permanent agreement and with the risk of added late fees, homeowners need to consider every potential pitfall beforehand.

Would A Shorter Term Loan Be A Better Way To Go?

Homeowners who can afford to cover the costs of shorter term, higher monthly payment loan will see more benefits from this type of mortgage than they would a biweekly option. While biweekly payments can drastically reduce interest rates, shorter term rates will typically be lower in the first place if you agree to a term of 15 to 20 years instead of a 30-year biweekly option. In fact, you could save substantial amounts of money if this is an option you could feasibly afford when you originally take out the mortgage.

Let Your Mortgage Lender Help You Decide Your Best Financial Option

Whether or not you should consider a biweekly plan comes down to the advice of your mortgage banker. Trained mortgage lenders in Illinois and the rest of the U.S. know precisely what mortgage solutions are available, and which would best suit each person who comes to them. With access to mortgage calculators and the best tools on the market, they’ll be able to guide you on whether a biweekly payment option is worth your while.

Remember that a mortgage lender has no incentive to trick you into payments you can’t afford. If they’re directing you away from a biweekly mortgage, then you would do best to listen. Equally, if they’re encouraging you towards this plan, then it’s well worth your consideration.

Setting Up A Biweekly Mortgage Plan

If you do decide that a biweekly mortgage is the way to go, you’ll want to know how you can set up your biweekly mortgage plan. In reality, the best option here again depends upon your financial requirements.

As mentioned, most mortgage lenders will be able to provide a biweekly option, but some now include fairly expensive start-up fees to go along with it. So you will want to check first to see if your lender charges low or no fees.  Also, be wary of scams where they claim to set up a biweekly payment for you. That said, a professional touch can take a great deal of effort and concern out of this payment set-up. 

If you’re feeling brave, you could always embark on what is commonly termed as the ‘do it yourself biweekly mortgage.’ To achieve this goal, you simply need to take your routine monthly mortgage amount and divide it by twelve, then make one principal-only extra mortgage payment for the resulting amount each month. You should also check to make sure that you don’t get penalized for paying off your mortgage early.  Most do not carry a penalty anymore, but it is worth checking. 

Conclusion

There is no one-size-fits-all mortgage solution for every homeowner in the country, but knowing your choices is important for finding the ideal mortgage.  A biweekly mortgage might not be for everyone, but it could be a smart move for you. 

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Understanding The Different Types Of Mortgages

Buying a home is arguably the most important purchase that you’ll ever make, which is why it’s important to make the right decision. Given the high costs of a housing purchase, the odds are that you will need to take out a home mortgage loan.

mortgage

While the basic premise of all mortgages is the same (you’ll be using your new property as collateral for a loan that enables you to purchase the property), there are many different options at your disposal. Here’s all you need to know about the different types of mortgages.

The Importance Of Understanding The Types Of Mortgages

No two people are the same, especially when it comes to buying a home. As such, banks and lenders offer various mortgage products in order to serve the different needs of a diverse market. Understanding the finer details of the contrasting mortgage types ultimately enables you to select the most suitable route for buying your property.

Some of the variables that could influence your decision include:

  • Down payment size – Some mortgages provide a 0% down payment option while others are better suited to a 10% or 20% down payment.
  • Property price – The right mortgage for a $100,000 loan might not be the best choice for a $1,000,000 home loan.
  • Loan-to-Value ratio – When the down payment is a significant percentage (over 50%) of the property price, a specific mortgage type may be better.
  • Debt-to-Income ratio – Banks factor in your other debts against your earnings to ensure that you are capable of making repayments and your situation can influence which option is best.
  • Solo or joint application – Depending on whether you’re buying the property alone or with your spouse, different home loans may be more suitable.
  • Credit historyCredit scores are another influential factor that can impact the overall repayment structure.

Other factors, such as the duration of the mortgage loan, will also influence the situation. By understanding the different mortgage loans, it’s possible to find a solution that suits your budget and situation to produce the lowest overall repayment.

Types Of Mortgages Explained

When analyzing mortgage options, there will be a number of additional factors to consider in your bid to find the best mortgage. After all, the contrasts between one lender and the next can be huge. Nevertheless, the mortgage type will always provide the foundation for making the right decision.

While there are other mortgage types available, especially if you’re looking to become an investor or landlord, home loans are broken into seven main categories.

types of mortgage

 Fixed-Rate Mortgages

A fixed-rate mortgage is the most common mortgage option by far. It is an agreement in which your payments and interest rates are set at a guaranteed level throughout the duration of the loan. This makes the financial management aspects of the mortgage loan far easier to control.

The term of the agreement can be personalized to suit individual requirements based on financial status and personal preference. Most applicants will apply for a mortgage length of 15 or 30 years. Older applicants should know that most lenders will only offer a term up to the month that you reach retirement age.

Interest rates are lower on a shorter agreement because it poses less of a risk to the bank or lender. So, even though a 15-year mortgage means that you have half the time of a 30-year one, the monthly premiums will not be double the price.

Adjustable-Rate Mortgages (ARM): Fluctuating Interest Rate

ARMs are also a popular mortgage option, even if they are a little less common. Several mortgage products fall under the category of ARMs, but they all focus on the idea of using a fluctuating interest rate that moves up and down to reflect the economic environment.

So homeowners with an ARM get the added benefit of knowing that an economy that results in lower interest rates will bring savings.  The most common ARM is the Variable Rate Mortgage, which has fluctuating interest rates that run alongside a third-party index. Rates may change every 6 or 12 months, as set out by the agreement. 

Another option is the hybrid ARM, which starts the agreement on a fixed rate for a set period of time (often set as 3 or 5 years) before switching to the variable rate. Option ARMs can get complicated but are a good option for people wanting to borrow more than traditional lending would offer.

Home Equity Loans

Otherwise known as a second mortgage, home equity loans allow you to take out a secondary loan based upon the equity you’ve built up. While you can only borrow against the equity you’ve already built, they can be a good option for financing home upgrades or accessing money in emergency situations.

Home equity loans tend to have a larger interest rate, although the smaller sums involved open the door to shorter-term agreements. It runs alongside the standard home loan agreement, though, meaning the payments throughout the duration will feel higher than normal.

Equity lines of credit are also available. They work in a very similar manner to other lines of credit agreements but are made against the equity of the property.

What is a Reverse Mortgage?

A reverse mortgage is a concept built exclusively for senior citizens and serves to offer access to equity in the home via a loan. This can be facilitated as a set lump payment or monthly repayments, as well as via a line of credit.

Reverse mortgages do not normally require the homeowner to make payments while still living in the property.  The loan does not have to be paid back until the last borrower passes away or moves from the home for one whole year.

Interest Only Loans for Hybrid Type of Mortgage

An interest-only loan can be thought of as a type of hybrid mortgage. It works on the principle of simply paying off the interest for the opening period of the mortgage (often 1-3 years) before then switching to your traditional fixed-rate or variable repayments.

This is a good option if you are worried about meeting repayments through the transitional phase due to home repair costs as well as the fact you’ll have recently made a down payment. However, the short-term cushion will mean that the future repayments are larger because you’ll have to make up for the lost time. 

After all, a 20-year mortgage on a 3-year interest only plan is practically a 17-year mortgage as you won’t have knocked anything off the loan agreement until the start of the fourth year. Weighing up the pros and cons is largely a matter of personal preference for individual circumstances.

What Is a Balloon Loan?

If you are familiar with balloon car loans, the payment structure works in a very similar manner when dealing with balloon mortgages. Essentially, you pay a low fee (perhaps even an interest-only repayment) for the duration of the mortgage agreement before clearing the full balance on the final payment.

This type of mortgage is usually a lot shorter, with 10 years being the most common duration. As such, the fact that you’ll have to clear a substantial balance at the end of the agreement makes it an unsuitable solution for many. However, those that are set to quickly reach and sustain a position of greater revenue may opt for this route. 

How Does Refinancing a Loan Work?

Refinance loans are another option that is open to homeowners that are already several years into their mortgage. They can be used to reduce interest payments and change the duration of the agreement. This is because it is an entirely new home loan agreement that is used to replace the existing one.

The new loan is used to pay off the original mortgage, essentially closing that deal before opening the new term agreement. This can be used to update your homeownership status to reflect changing life situations, or to change the lender.

Refinancing can be very useful in times of economic hardship, but homeowners need to do their research to see the full picture as it can be damaging in many situations. If it was always the right option, every homeowner would choose it.

Conclusion

Finding the right mortgage is one of the most important financial challenges that you’ll face, and it’s a process that starts with selecting the right type of mortgage for your situation. While you may think that the variances between different mortgage products are small, the impact that they can have on your future is huge. If you find that the home loan process is intimidating and complicated, seek out advice from a lender like A and N Mortgage. The team of professionals at A and N Mortgage, one of the best mortgage lenders in Chicago, will help you apply for a home loan and find an arrangement that works best for you. 

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Why Mortgage Applications Get Rejected And What To Do Next

mortgage application rejected

 

Finding out that your mortgage application has been rejected is one of those heart-sinking moments. You may feel frustrated and upset. You may assume that your property dreams are over for now. You may also be feeling completely perplexed. These feelings are natural. 

Understanding why your mortgage application was denied is important.  By doing so, you can then make the required changes to make sure it does not get rejected the second time around.  Below, we are going to take a look at some of the reasons why your mortgage application may have been denied as well as provide some tips on how to make sure this does not happen.  

Possible Reasons Why Mortgage Applications Are Denied

Here are some of the main reasons why mortgage applications are denied.

Poor Credit History

There are a number of different reasons why you may have a poor credit rating and this can often be the most worrying reason why your application was denied. A low credit score could be the result of:

  1.  History of late payments – Late payments usually show on your account for seven years. Some mortgage lenders will be willing to lend if you can explain the late payments and prove that you won’t be late on your mortgage repayments. 
  2. Too much debt – Paying this off before you submit your next mortgage application comes highly recommended. 
  3. New credit account – This could be from opening a new credit card account to buy new furniture, clothing or some other reason. This new credit account will show up on your credit report for six months, so it’s a good idea to wait for six months before applying again. 
  4. Too many credit applications – Repeatedly applying for credit indicates that you are relying on credit and that you are desperate to open credit accounts. It is preferable to do soft searches for credit. Hard searches, which show on your credit report, have a negative impact and stay on your credit report for six months.

Debt-To-Income Ratio

Another reason why your mortgage application may have been denied is if you have too much debt. Ensuring your debt is at a manageable level is necessary when it comes to building the foundations of good financial health. To assess your debt level, you should consider your debt-to-income (DTI) ratio. What is this? Well, this compares your monthly gross income and your monthly debt expenses. 

To work this out, you should add up all of the debt payments you make per month. This includes housing expenses, car loans, credit card payments, and any other debts, for example, loan payments. You also need to add up any homeowner association fees, property taxes and insurance, and interest. This then needs to be divided by your monthly gross income. Your monthly gross income relates to your income before you have deducted your tax. This will give you your debt to income ratio. Most people will then multiply this by 100 so that it is shown as a percentage. debtFor example, let’s say you make debt payments of $3,000 per month, and your gross income is $5,000, your debt-to-income ratio is 60%. The maximum debt-to-income ratio a lender is willing to accept will, of course, differ from lender-to-lender. However, in most cases, it tends to be around 36%.

How To Avoid Mortgage Application Errors?

You may have also received notification that your mortgage application has been denied due to the fact that there were errors on your application. Whether the errors were intentional or not, they can really hinder your chances of securing a loan. Leaving information out or failing to complete your mortgage application in full will result in your application being denied. 

One thing you should never do is lie on your application. Some people do this because they think that a little white lie will not matter. However, lenders will check the information that you provided and they will often require evidence.  If they find out you have lied, your application will be declined.

Depending on the nature of the misstatement, you could even find yourself being prosecuted for fraud. Some of the common lies people make include stating you will live in the house yourself but really you intend to rent it out, saying you have a full-time job when you do not, saying you earn more than you really do or claiming to have a larger deposit than you actually have. 

 

How To Avoid Mortgage Application Errors_

 

You also need to be very careful in terms of your mortgage application and the number of expenses you have per month. For example, looking after children can be expensive, and so lenders will also consider the cost of this, as well as how much you earn and your other expenses. Make sure your mortgage application is filled in carefully. This is especially important if you complete an application online. Some people have had their applications rejected because of the auto-complete feature on their browser, which led to the wrong information being inputted. 

You also need to make sure you do not miss anything from your application, as this could mean your application is rejected, or at best, it could delay your house purchase. Things you should not forget to include are:

  • Where your deposit came from, for example, if it was a gift or you saved it yourself
  • If you need to make regular childcare payments
  • If you moved within the last three years, the lender will need your old address
  • If you have a second job, as extra income can help your likelihood of securing the loan

Change In Job Status Affect Mortgage Application

Last but not least, stability is important when it comes to mortgage applications. If you have recently changed your job or lost your job, this could make your lender nervous. This is especially the case if you change your job on a regular basis. Instead, working for the same employer for the past two years or longer can assist with your loan application. 

If you have just started a new job, you may boost your chances of being accepted for a mortgage if you submit a number of pay stubs or you ask your current employer to submit your offer letter. If you work as a freelancer or contract worker, you may find it harder to find a mortgage. This does not mean it is impossible. It is all about proving that you have a stable income, so you need to show that you have a consistent amount of money coming in on a monthly basis. 

What Are The Next Steps?

  •  Find out why your application was denied – Get in touch with your lender and find out exactly why your mortgage application was denied. You won’t be able to rectify the issue if you do not know what it was, to begin with. 
  • Improve your DTI ratio – By now, you should have figured out what your debt-to-income ratio is. You should work on improving this so that you can improve your odds of qualification. There are two ways to reduce your DTI ratio. The first is to improve the income you have coming in every month. The second is to lower the expenses you have going out every month. Some options include paying off loans and credit cards, getting student loans deferred, asking for lower rates from your credit card companies, and refinancing high-interest debt.
  • Speak to other lenders – There are many different mortgage lenders. Just because this lender refused your application does not mean another lender is going to do the same. This does not mean you should dive right in and make applications everywhere, though. Speak to lenders to evaluate your choices before taking any steps forward.
  • Consult a Mortgage Banker or Mortgage Broker –Finally, a mortgage broker can assist because they will be able to point you in the direction of loans that are right for you. For example, if you are a freelancer, they may know lenders who are more accepting of freelancers and contractors. 

Most Trusted Mortgage Bank In Chicago: A and N Mortgage

A and N Mortgage has a reputation as being one of the most trusted mortgage banks in Chicago. If you would like to discuss your options if your first mortgage application is denied, please do not hesitate to get in touch with us today for more information. You can even apply online here and browse the helpful mortgage tools on our website. 

 

A and N Mortgage Services Inc provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Answering The Age-Old Riddle: “The news says rates are going down, should I wait to purchase my home?”

A and N Mortgage Senior Mortgage Consultant

I have been a mortgage originator for just shy of two decades and have been asked this question thousands of times by my clients, probably more actually. It’s a smart question and one I would ask myself.

mortgage rates going up and down

If you’ve turned on the television, glanced at any social media, or have had conversations with your friends or coworkers recently there’s no doubt you’ve heard that interest rates have been on the decline. This is true and based on the state of the world economy there is a good chance that this trend will continue.

The 10-year Treasury yield is down 30% in the last 6 months. This is typically the product most correlated with mortgage interest rates. Mortgage rates are also significantly down during this time, although not to the extent of the 10-year treasury.

You might be asking yourself:

  • Will mortgage rates continue to go down thereby “catching up” to the decline in the 10-year treasury?  
  • Are we at a time in history where money will soon be close to “interest-free” to borrow? 
  • Would it be a huge mistake for me to buy now?

These are all very important questions to ask and keeping an eye on this is what a smart, financially responsible person should do.

My answer is that I don’t know if mortgage rates will go down. I hope they do, but it shouldn’t affect what you decide; whether it’s purchasing or refinancing your home.

Your response is undoubtedly something like, “Of course you would say that you make money  selling loans.” Yes, it’s true. I do make a living originating loans, but let me explain and I think you’ll agree.

Real-Life Example Of A Client

Just under a year ago, my client Steve was deciding whether or not to purchase his first home. Steve was being told by his father that interest rates were about to go down. Steve’s father didn’t work in the home finance industry in any way so how he would have known anything about interest rates is beyond me.

The 30-year fixed mortgage rate was around 4.75% at the time. Currently, the prevailing interest rates on 30-year fixed-rate mortgage are right around 3.75%. Steve’s father took a guess on a 50/50 scenario and guessed right. Based on this presumption, it would appear that it would have been in Steve’s best interest to rent another year at $1,900 a month, and then buy when interest rates went down. 

Is This Correct? Yes, It Is! Here Is Why

Steve was looking for a single-family home in Chicago with a $325,000 price point. He found one he liked and suited his needs nicely.  At 4.75% interest rate his overall monthly housing expense would be $1975. Typically, real estate appreciates at around 3% based on historical averages.  Despite his father’s recommendations, he went ahead with buying a home. He’s very thankful he did and here’s why:

  • Steve’s home went up in the value of 5% in the last year. 
  • He has an additional $16,000 in equity which translates into $16,000 of wealth he would not have had.
  • Steve paid down the balance on the mortgage of an additional $8,000 and now he is $24,000 wealthier.  

Additionally, there were huge tax benefits because his mortgage interest and some other housing expenses were tax-deductible. This put him another $4,000 ahead so now he has created $28,000 of wealth in that year period which he wouldn’t have had otherwise.  This doesn’t factor in that the home he bought was much nicer than his rental so his quality of living improved, nor does it factor in that by buying real estate he diversified his assets and is very proud to be a homeowner.

Perhaps your thought is “Great, but if he would have waited a year to buy the same thing would have happened.  It would have taken an additional year, but because he would be in a lower interest rate overall, he would still be better off in the end.” Keep in mind that we are making a huge assumption he knew rates were going down a full percentage point in the next year (which no one could possibly know).

What Made All This Possible?

Last month I helped Steve refinance, with no costs, and his payments went down $165. Yes! NO COSTS, meaning that no equity was depleted because lender and title fees were covered by the lender (i.e. me). 

You might be thinking something sceptical to the effect of, “No one does anything for free!” and you’d be right.

The title, appraisal, and lender fees for Steve’s refinance loan totalled around $2,000. In a “typical refinance” the closing fees would be added into the new loan amount, but with a NO COST mortgage, the lender covers these fees.

The reason this is possible is that Steve decided to take an interest rate of .125% higher (3.875% instead of 3.75%). Because of his decision, there is more profit on the loan when it is bought on the secondary market. This extra profit was passed on directly to Steve for $2,000. Yes, payments were $14 higher because he took the 3.875% interest rate. But when all is said and done, Steve didn’t have to spend a penny out of pocket nor did his mortgage balance increase. Plus, he is saving $1,980 a year! 

Seek Expert Advice From Mortgage Officers

If Steve would have waited to purchase the same home a year later (assuming the home was still for sale), the purchase price would have gone up 5% to $341,250. He would have paid rent for the entire year and not paid down any principal nor acquired $12,000 in tax benefits. Steve would be $30,000 poorer than he would have been by purchasing the home a year earlier and here’s the kicker: He would be in the same interest rate either way.

This may seem a bit counter-intuitive at first glance, but the numbers speak for themselves.  

Now imagine if rates would have gone up 1% point and he bought a house. He would have lost $30,000 and his mortgage payments would be a few hundred dollars higher for the life of the loan. That’s 30 years! Interesting how things turn out, right?

 

If you have any questions, please contact me today. A and N Mortgage Services Inc provides you with high-quality home loan programs tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, we will help you use your new mortgage as a smart financial tool.

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