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Applying for a loan requires patience, diligence, and preparation. The most popular loan terms are 15 and 30 years, so it's important that you don't rush through the preparation process for a long-term commitment like a mortgage. Know your options and compare the strengths and weaknesses of what you find on different loans, lenders, costs, and requirements which suit you.

A mortgage broker is a good place to start because they have access to the available rates from different lenders in your area and know how to read them. They will offer counsel on why certain loans are better than others and will answer all your questions.

What Are the Best Rates I Could Get?

Lower rates don't necessarily mean that they are better than higher ones. Some people prefer having a slightly higher rate that is permanently fixed, others are willing to take more of a gamble with lower initial rates that will adjust annually.

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Are Fixed Rates Better than Adjustable Ones?

It depends on your financial situation. Fixed-rate mortgages (FRMs) are known to have higher initial interest rates than those of adjustable-rate mortgages (ARMs). FRMs, however, keep their rates consistent for the entire life of the loan, which makes them easy to budget and plan for. If you know what you're going to pay 15, 20, and even 30 years down the line, you have more than enough time to prepare. The rates of ARMs do fluctuate for most of the loan term but they all have an initial adjustment period that is predetermined to keep your rates fixed for that period alone. In this way, ARMs have more custom variations to choose from that play on the length of the initial adjustment period, which can be anywhere between one month to ten years of the loan period, rendering them more applicable to more distinct financial situations. These variants are known as hybrid ARMs and a list of them is explained below.

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The first digit refers to the number of years that the rates of the mortgage are to remain fixed before the first adjustment. The second digit is how often, in years, are the rates meant to change after the first adjustment. Take your pick!

  • 3/1 ARM: Three years of fixed rates until the first adjustment. Rates adjust annually after the first adjustment.
  • 5/1 ARM: Five years of fixed rates until the first adjustment. Rates adjust annually after the first adjustment.
  • 5/5 ARM: Five years of fixed rates until the first adjustment. Rates adjust once every five years after the first adjustment.
  • 5/6 ARM: Five years of fixed rates until the first adjustment. Rates adjust once every six years after the first adjustment.
  • 7/1 ARM: Seven years of fixed rates until the first adjustment. Rates adjust annually after the first adjustment.
  • 10/1 ARM: Ten years of fixed rates until the first adjustment. Rates adjust annually after the first adjustment.
  • 15/15 ARM: Fifteen years of fixed rates until the first adjustment due in fifteen years.

Note: The longer the first adjustment period, the higher the initial rates imposed on your mortgage.

How Can I Read a Bank's Interest Rates?

Let's take a look at an example table below and explain the different components of a mortgage and how to interpret them.

Data from Bank X

  • Loan type: This is simply to the bank's mortgages and their different loan terms.
  • Interest rate: To represent the current interest rates.
  • APR: The annual percentage rate column gives you the value that, when divided by 12 (number of months in a year), the resulting number will be the percentage added to your monthly payments throughout the year. For instance, bank X's 30-year fixed-rate mortgage has an APR of 3.717%. Do the calculation yourself: 0.03717 ÷ 12 = 0.0031 , or 0.31% , which is your interest percentage that you'll be charged with on a monthly basis.
  • Points: A point is a fee on the loan. Each basis point represents 0.01% of the loan amount. 1.135 points of a $300,000 mortgage is $3,405.

I Know Now Which Mortgage Is Right for Me. How Do I Get Approved for a Loan?

Do not confuse "prequalification9quot; with "preapproval9quot;. Lenders need to assess your credit before moving on to anything serious, and preapproval does just that. The prequalification stage involves your basic information (Social Security number, driver's license, etc.) which means that nothing official will come of it. The real assessment stage is in the preapproval process which involves examining your credit-worthiness in terms of your credit score, debt, assets, proof of income (pay stubs), proof of employment, and your W-2s from the last couple of years. Even though no signatures have been put down yet, preapproval allows the lender to come up with an estimate of the loan amount that they're willing to offer. The less of a financial risk you present yourself to the lender, the better the mortgage deal that you can get. The higher your credit score, the less stringent your lender will be with your mortgage deal. Your credit score or "credit worthiness" is measured from 300 to 850 as you can see from the credit meter below.

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After the approval process commences, you will have a 30-day window to seal the deal with your lender. The interest rate on your loan will be locked in that window, giving you enough time to gather all the necessary paperwork for "closing day". What you need to bring to the closing table are the following:

Although exceptions can be made, 20% or more is ideal and gives you a good head start on building home equity which you can later finance into paying the mortgage or convert into hard cash. The lesser of a down payment you give, the higher the subsequent interest costs will be. Only a cashier's or certified check will be accepted.

  • Loan Estimate.

    This will be given to you a few after you've been approved for a loan.

  • Closing Disclosure statement.

    This will be given to you a few days before the closing procedure. It is five pages long and contains the loan estimate, any new forms of funds since the original estimate will be rolled into the finances outlined in this statement. This statement also describes how fees will be distributed among third-party affiliates such as escrows, recorders, surveyors, couriers, and attorneys.

  • Proof of flood insurance.

    Although this can be beneficial to you in the worst case scenario. Flood insurance (whose costs will be your responsibility) is really there to protect the lender's property rights in the case of flood damage done to the home.

  • Property taxes.

    This is to let the lender know of any outstanding taxes levied against the home.

  • Home appraisal.

    The official tool for lenders to derive the market value of the home. Make sure that the appraiser is a certified professional recognized by your lender.

  • My Credit Score is Poor. What Do I Do?

    VA and FHA are your only options at this point. VA loans allow veterans, active military personnel, and their families to get a mortgage for a 1-unit home (single family homes) for a zero percent down payment. FHA loans (3.5% down payment), on the other hand, have the second least stringent mortgage approval requirements. If you're a low-income mortgagor, you can attain great benefits from a VA or FHA loan.

    • Very little to no down payment necessary.
    • Credit scores of 500 and under are eligible.
    • FHA loans require mortgage insurance premiums (MIP).
    • VA loans require a VA funding fee.
    • Funding fees and MIPs can be financed into the principal loan.

    United pacific mortgage

    The Minimum Mortgage Requirements

    Snippet text: No matter your credit performance, there's a mortgage plan for you. This article briefly shows what you need to know to qualify for a mortgage.

    United pacific mortgage

    The Pros and Cons of Fixed-Rate Mortgages

    What can you stand to benefit from a fixed-rate mortgage (FRM), and what are the financial limitations placed on you as a result?

    United pacific mortgage

    The Benefits and Drawbacks of Adjustable-Rate Mortgages

    Go ahead and run down the list of pros and cons that adjustable-rate mortgages (ARMs) are known for to see if this type of loan is right for you.

    United pacific mortgage

    All you need to know about qualifying for an FHA loan and how your premiums are dispersed over the mortgage amount is explained here in simple language.

    United pacific mortgage

    One of the least stringent mortgage programs on the market, the VA loan offers our troops and their families a very real chance at owning a home.

    United pacific mortgage

    The Three Stages of Closing a Mortgage

    Closing a mortgage can be difficult and complicated. This article simplifies the closing process and splits it into three phases to make it easy to understand.

    Learn the essentials and plan for the beginning stages of loan approval, what you can afford, and what you need to consider before closing a loan.

    How to Be Approved for a Mortgage

    Whether you’re a first-time mortgagor or simply refinancing your current loan, knowing the technicalities of different loan types will put you in the driver’s seat.

    Compare the different types of refinancing, their strengths and weaknesses, and how you can make the transition from one loan plan to another with minimal losses.

    Shop around different banks and lenders and compare their mortgage deals. With so many to choose from, the comparisons have been made here upfront for you to make the right decision.

    The value of a home depends on its location, the age of construction, size, nearby amenities, insurance, renovations, remodels, and the loan obligations leveled against it.

    Buying Old Homes vs New Construction

    This section covers in greater detail the financial concepts surrounding mortgages with more advanced topics (i.e. loan amortization, home equity, loan-to-value, etc.)

    Mortgage Rates for March 2017 & Beyond

    Catch the latest predictions for 30-year mortgage rates set for March and the rest of the year. READ MORE

    Mortgage Rates Forecast for 2017. READ MORE

    2017 Mortgage Rate Forecasts for January & the Year Ahead

    2017 Mortgage Rate Forecasts for January & the Year Ahead. READ MORE

    The Brexit & U.S. Mortgage Rates. READ MORE

    Little to No Down Payment Mortgages

    Little to No Down Payment Mortgages. READ MORE

    Home Equity Loans vs Home Equity Lines of Credit

    Home Equity Loans vs Home Equity Lines of Credit. READ MORE

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