What is a Loan?
An amount that you borrow and agree to repay under specific terms.
Usually a formal agreement, loans involve two parties: the borrower and the lender.
The contract specifies the terms and conditions of the loan, and once you sign, you are legally obligated to adhere to it.
Before pursuing and taking out a loan, learn how they work and how you can borrow smartly, safely and at the lowest possible cost.
These are the essentials on how loans work:
- You take out a loan when you borrow money from a lender.
- The amount you borrow is paid back over time, plus interest and applicable fees.
- Lenders will require an application and consider your credit rating, income and other factors when determining loan approval.
- Interest rates are determined by your credit rating and other qualifying factors. They can be fixed or variable.
- Your loan's term is the amount of time you take to pay back the amount borrowed. Loan terms vary depending on loan type, lender and your credit rating
- Considering how much you need to borrow and comparing loan terms across different lenders could help you save money.
The concept of loans is simple on the surface: You borrow money and pay it back. But it's worthwhile to dig deeper. The more you understand, the better you can avoid financial trouble. Being knowledgeable can help you borrow the right amount of money, agree to an affordable payment and payoff term, and find the best interest rate you can qualify for.
There are two basic types of loans: secured and unsecured.
Secured loans are collateralize by money in a separate account, the property you purchase or other assets, such as your home or vehicle. If you don't repay as agreed, the lender can claim the collateral to pay off the debt. Because of this guarantee, the lender's level of risk is low.
Unsecured loans do not require collateral, so they are more of a gamble for the lender.
Common loan types include:
- Personal loans can be used to pay for nearly any use, though some lenders have restrictions such as no business or education use. They are often used to consolidate existing debt or finance an upcoming expense, like a wedding. Most are unsecured, though secured personal loans are available.
- Business loans are for launching or operating a business. They may be secured (with cash in deposit accounts, property, or business or personal assets) or unsecured.
- Student loans are for higher education costs. Federal student loans are offered through the U.S. Department of Education, including undergraduate, graduate and parent loans.
- Car loans are used to buy a vehicle such as a car or truck and are typically secured by the vehicle.
- Home loans, also known as mortgages,help people buy real estate. As with car loans, the property you purchase usually acts as security for the loan.
The Loan Process
Some types of loans are more involved than others. For example, you may have to submit extensive paperwork in underwriting for mortgages or business loans. But the overall process is fairly consistent with all loan types.
Applying: Some lenders offer prequalification or preapproval, but to actually obtain a loan, you'll ultimately need to fill out an application. A loan application will ask for personal information, typically your name, date of birth, Social Security number, address, phone number and email address. You'll typically need to include income and employment details. Some loan types may require details about your assets (cash in savings and investment accounts, as well as any property) and liabilities (your financial obligations).
Qualifying: Once your application is received, the lender will assess it for approval. This is also known as underwriting. With most loans, this is when a lender will check your credit report and score. At this point, the lender will decide whether you're approved for the loan and if so, what terms you qualify for, such as the loan amount and annual percentage rate. For some loans, like mortgages, loan processing and underwriting may include appraisal, inspection and other steps to gather more information about the property or your financial status.
Disbursement: If you qualify for the loan, the funds will be disbursed to you or a designated recipient, such as a title company for mortgages. Disbursement may also be referred to as loan closing. Disbursement time can vary widely depending on loan type and individual lenders. Online lenders may offer access to funds within 24 hours with an electronic deposit. Disbursement for other loans can take longer. For example, it can take two weeks to two months for a private student loan to be sent to you or your college. Whenever and wherever the money lands, it becomes your debt once it's disbursed.
Paying the balance: The payment amount and due date will be listed on the agreement you signed. A portion of your payment will go toward financing, and the rest will be applied to the principal. If the lender uses the simple interest method, interest will be calculated on the outstanding balance due. If you increase the payment, interest fees will decrease along with your debt. On the other hand, if the lender computes interest prior to, the interest for the term of the loan is already factored in, so you won't reduce interest if you pay the loan early.
The lender may report activity on the loan to the three credit reporting agencies: Experian, TransUnion and Equifax. Paying on time can improve your credit rating and save you money by avoiding late fees.
Refinancing: You might want to change your loan's terms at some point – for example, getting a lower interest rate or extending your loan's repayment term. Refinancing is essentially getting a new loan to pay off an older one, ideally with better terms.
Remember that, as a borrower, you have the power to choose which loan type works best for you. Research the best terms that you can qualify for, then borrow prudently.
Looking to purchase a home? Give Us A Call Today! (702) 696-9900 or (888) 931-9444
Buying a home can be a challenging experience for first-timers. Here are some mortgage tips to help get you started.
Start saving for a down payment early
It's quite common to put 20% down, but many lenders will now permit a much lesser percentage, and first-time buyers programs allow as little as 3% down. Putting down less than 20% could mean higher costs and paying for mortgage insurance, even a small down payment amount can still be hefty.
Explore your down payment and mortgage options
Check out the various loan programs:
- FHA Loan- These are insured by the Federal Housing Administration permit down payments as low as 3.5%
- Conventional Loans- These conform to standards set by the government-sponsored entities Fannie Mae and Freddie Mac, and requires as little as 3% down.
- VA Loans- These are guaranteed by the Department of Veteran Affairs sometimes requires 0% down payment.
- 30- year fixed
- 20-year fixed
- 15-year fixed
- Adjustable Rate
Making a much higher down payment will mean having a lower monthly mortgage payment.
Research your state and local assistance programs
Many states offer assistance programs for first-time home buyers with perks such as down payment assistance, closing cost assistance, tax credits and discounted interest rates.
Determine how much home you can afford
You will need to now what's actually within your price range. Find your debt-to-income.
Check your credit
Your credit score (FICO) will be one of the key factors in whether you're approved, and it will help determine your interest rate and loan terms. Speak to an expert about any disputes you may have on your report.
Compare mortgage rates
We recommend comparing at least 3 lenders before making a decision. This could save you more money.
- Ask if the lender allows you to buy discount points (prepay interest upfront)
Get a preapproval letter
As you get closer to buying a home, it’s smart to get a preapproval, where the lender thoroughly examines your finances and confirms in writing how much it's willing to lend you, and under what terms. Having a preapproval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.
In a competitive real estate market with limited inventory, it’s likely you’ll bid on houses that get multiple offers so having a preapproval letter will increase your purchasing power.
If you search the internet for 'home buying' you'll find an abundance of tips and tricks but they're all pretty much the same.
The end result is you purchasing your dream home so we're here to help you through the process from start to finish.
There are 4 categories:
Down Payment Tips
- 20% is a common down payment. We can go as low as 0% Down Payment on approved conditions
- Putting down less than 20% may mean higher costs for PMI (Private Mortgage Insurance)
- Explore mortgage options: 30 year fixed, 20 year or 15 year-fixed
(A) Conventional that conform to standards require as little as 3% down. 20% down no PMI required
(B) FHA (Federal Housing Administration) permit as little as 3.5% FICO Score of 580 or higher
(C) VA requires no down payment, no minimum credit score. May pay a VA funding fee.
Local Assistance Programs
- Down Payment Assistance Program- Qualify up to $20,000 towards closing costs and fees. (Call Us For More Information)
- Determine how much you can afford
- Check your credit and pause any new activity (Credit Karma, Credit Sesame or 1 free credit report a year from all 3 credit reporting)
- Avoid opening any new accounts such as credit cards or auto loans until your home loan closes.
- Compare rates from at least 3 lenders (Contact Us Today for a No Obligation Free Rate Quote)
- Getting PREAPPROVED!
- Higher the right buyer's agent
- Research nearby schools (This can affect home value)
- Look at the Local Safety and Crime Statistics
- Map the nearest hospital, pharmacy, grocery store and other amenities that are important to you.
- Take a drive through the neighborhoods on various days to get a feel for everyday living
It's All About the Budget Not The Bass
- Look at properties that cost than the amount you were approved for.
- Approval amount doesn't account for monthly expenses or problems.
- Shop with a firm budget
- Have fun going to Open Houses!
Mistakes to Avoid
- Not budgeting in closing costs which can run between 2% and 5% of your loan amount.
- Not Comparing prices for homeowners insurance, home inspections and title searches.
- Not saving enough for after move-in expenses
- Buying a home for today and not tomorrow
- Passing up the chance to negotiate
- Not knowing the limits of a home inspection
- Not buying adequate homeowners insurance
We're here to help you along the way. When you're ready to purchase let us know!
See Our Programs
See Our Team
Receiving & using a cash gift is one of the most common processes when purchasing a new home. Most forms of cash gifts are used for the 20% down payment.
We've provided a brief breakdown of the process and how to ensure you're not denied from your lender due to in proper gifting.
Down payment "gifts" can make it easier to purchase a home.
Loan programs including FHA, VA, USDA, Conventional, and Jumbo loans, allow the use of cash gifts.
First-time home buyers are most likely to receive a cash gift among all buyer types to make a 20% down payment.
You can often qualify for the lowest mortgage rates offered and with a 20% down payment, there is no requirement for PMI (Private Mortgage Insurance)
Mortgage limits are capped at $484,350 except within those high cost areas where homes exceed the national average
High Cost Areas are capped at $726,525 for single-family homes, and multi-unit homes.
Low-down-payment loans also allow cash gifts for down payment. (ie. as little as 3% down)
Down Payment Letter
There are 3 steps that should be taken in order to avoid denial from your lender:
- Correctly Written Gift Letter
- Documenting the Gift from the Giftor
- Documenting the Receipt of the Down Payment Gift
**There may be tax implications for givers of a cash gift for down payment and for the receivers. Everyone's tax situation is different. Please consult a tax advisory for more information.**
If you have questions about a "Down Payment Gift." Contact Us Today! We will be happy to walk you through the process.
Mortgage & Homebuyer Concerns
House Prices Are The Culprit
Who would have guessed we would be back to the similar movie The Day After Tomorrow? All areas of the housing market are bracing themselves.
More then half of the industry are saying the rising of interest rates have been their biggest hurdle since the World Record Jump of 2007. The industry needs to drive forward with the digitization of the mortgage application process.
And future home buyers? Well, they’re right there with them. First time home buyers don’t have a vast inventory of affordable homes available to them and 20% have credit history challenges.
We having a growing presence in the purchase market that will require continued support and customization as we continue to play a meaningful role and drive demand in the housing market.
Without one we don't have the other.
Contact Us Today! 702-696-9900 Learn More About Our Mortgage Options Today.
#mortgage #homebuyers #realtors #thestruggleisreal #valleywestmortgage
What's Affecting The Mortgage Rates Today
Conventional rates today fell considerably today but, do you know what does effect the rates to rise and fall as they do?
The most crucial clues offset each other — Return of investment (Treasury Yield) on the government's debt obligation rose while oil prices fell. Shown below are some factors you might want to consider:
- Major stock indexes opened slightly low and flat (neutral for mortgage rates)
- Gold prices fell $8 to $1,232 an ounce. (That is not-good for rates because the change is so small. In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower)
- Oil prices fell another $1 to $67 a barrel (that’s good for mortgage rates today, and nice to have dropped through the $70 threshold — an improvement long-term because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell 1 basis point (1/100th of 1 percent) to 2.86 percent. That is good for mortgage borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index (Tool that is comprised of 7 key market indicators) remains at 46 (out of a possible 100). That is still in the “neutral” range. Normally, “fearful” investors push bond prices up (and interest rates down) as they leave the stock market and move into bonds, while “greedy” investors do the opposite
Predictions indicate for the year 2018 we should only see less than four rate hikes in 2018. So if your looking to purchase soon contact us today! And keep an eye on the markets!
We're striving to make the applicate process more streamline by offering services that are more automated and user friendly.
Visit Valley West Mortgage for our Online Application and our Secure Document Uploading.
Resources: www.themortgagereports.com, www.mortgagedaily.com