If there’s one rule that dominates in the home mortgage industry it is this: That you never go solely according to the mortgage interest rate. Instead, it makes good sense to take a close look at the jargon surrounding a mortgage program. You could even check back with lenders or a mortgage broker or shop on the Web for comparative rates. While you shop around, be armed to ask your mortgage lender a few key questions given here. The answers that you get will help you decide which loan is best for you.
How soon can I expect my mortgage loan application to take?
Typically, a loan application for a home mortgage takes about 45-60 days to come through. Of course, there have been times when they’ve taken just 30 days too! But really the time taken depends on how soon the lender can get the property appraised, a credit report and employment details and bank accounts verified.
Which documents will I have to furnish?
A certificate proving your income and assets will be necessary to get a home mortgage loan. However, lenders ask for different documents, so it depends on whom you meet.
What would qualify me for a home mortgage loan?
Your lender will look at your credit history, income, employment status, assets and debts before granting you a home mortgage loan. If you’re a first time home buyer, you stand a better chance of being granted a loan.
How much would I have to pay as a minimum down payment?
First, finalize the down payment amount on your home mortgage loan. Based on this your lender can offer you a range of interest rates, loan terms and perhaps even refuse to consider private mortgage insurance. While some loans demand a 20 percent down payment; others are lower than that.
How much mortgage interest would I have to pay annually?
To compare well against different lenders’ rates on your home mortgage loan, ask them for their annual percentage rate or APR of the mortgage interest.
How much would I have to pay by way of origination fees on the loan?
Origination fees are usually paid as prepaid mortgage interest on your entire home mortgage loan. Your lender might ask you to pay this in points at closing time just so that you get a lower interest rate on your home mortgage loan.
Can the interest rate also be locked in?
The interest rate of your home mortgage loan is variable, so it could rise or fall before you closing time. So, it would be wiser to lock in the rates for a specified time period rather than have a floating rate till closing. Ask your lender for any fee for locking in a rate and if you could lock in points.
What is meant by the “good faith estimate” of closing costs?
Mortgages, including home mortgage loans, are accompanied by a whole litany of fees. So, ask your lender to show you the whole list of estimated closing costs before you actually apply for the loan. And bear in mind that certain fees must be paid upfront, for instance the credit report, property appraisal and loan application fee.
Will I also be asked to pay a prepayment penalty on the loan?
This is a matter for mortgage home loan shoppers to consider. You would need to know the duration of the penalty period and how the fee will be calculated. While some penalties stand at one percent of the loan amount, others aren’t that simply calculated.
Can I expect any setbacks in my home mortgage loan being approved?
Everything on your home mortgage loan can go like clockwork if you provide the lender with complete and accurate information about your financial status. However, there could be a delay if the lender finds credit problems in your financial statement. To avoid such an eventuality, notify your lender on your personal or financial status if there is a sudden change after you have sent in your application. For instance, if you have changed jobs suddenly, got an increase or decrease in your salary, have had a windfall, or if you have a change in your marital status, inform your lender.
Tuesday, April 11, 2006
APR, FICO, HELOC – The FAQ's on these Little Initials and More
APR, FICO and HELOC are terms that are used for interest and loans within different areas of living. While each has certain rules and regulations, they all are important ideals to pay attention to with credit, loans or interest.
APR stands for the Annual Percentage Rate. It includes the yearly cost of a loan calculated in a fee as a percentage. It will include interest and insurance in the calculation of costs. The APR is most likely to be included in mortgages, credit cards and car financing. By knowing what the APR is of a certain loan or credit card that you are about to get, you will be able to see the best loan or finance to invest in.
For credit cards, there are a couple of different types of APRs. The first is for purchases. These APRs should generally be lower than any other type of rate that you would receive. The second type of APR in credit cards is for cash advances. If you have to take a loan out of your credit card, or go over your limit, the APR will automatically increase. Balance transfers are the third type of APR that will affect your credit. By making a balance transfer from one credit card to another, your APR will also increase. There are also tiered APRs where different rates will apply to certain levels of outstanding balance that you may have on any type of credit or loan. A penalty APR may also apply. If the credit card or loan is paid late one or more times within a given amount of time, the APR will also include a penalty rate.
If you already have an APR, you can always try to get it lowered. There are several ways to do this. If you are looking at an APR for a mortgage, you can negotiate the closing costs and keep your mortgage for a longer period of time. This will automatically drop the APR to fit with the time period and annual rate which you must pay.
FICO is an acronym for Fair Isaac Credit Organization. The Fair Isaac Corporation is a company that provides several financial services of several different kinds. This includes mortgages, insurance and healthcare. One of their branches is FICO. Through this company, you can be given your credit scoring and advice on how to have good credit. If you are applying for a new loan or credit card, lenders will most often go to FICO to find the score of your credit.
There are three parts to this score, including your interest rate, your monthly payment, and a number which is your FICO score. The higher your number is, the less you will have to pay on your loans or credit cards for interest rates and monthly payments. These estimates are based on how many credit cards you have, the history of your loans and credit cards and the balance on these different types of credit cards or loans. By estimating your score, you will know how much you will have to pay in a new loan or how much will be available for a new credit card which you are applying to.
HELOC is an abbreviation for home equity line of credit. HELOC is mainly used for taking out a mortgage or a loan for your home. By using this type of credit, you will be able to have a larger amount of credit available with a lower interest rate. This type of credit line is usually based around a variable interest rate, as opposed to a fixed rate. This means that the interest rate will change according to the public margin. Because of this, it is advised that you look into the index and margin that each lender uses so that you can have the best fixed rate. There is also a cap, or fixed amount with the variable rate plan, allowing the interest rate to only go a minimum or maximum amount.
The first step into getting a home equity line of credit is to be approved for a certain amount that is given by a credit company. This is usually taken on a percentage that is appraised from the value of your home. Your ability to repay the loan will then be looked at. Things such as your income, debts and credit history are looked into to see how much you can qualify for. Once approved for a certain amount, you are then able to draw from these funds as you would a bank account. Depending on the type of credit line you have, there may be limitations on how much you can draw from at one time. If you decide to sell your home, you will most likely be required to pay back the home equity line in full.
No matter which type of credit or loan aspect you are looking into, knowing what they mean and what applies to each area will help to lower your costs.
APR stands for the Annual Percentage Rate. It includes the yearly cost of a loan calculated in a fee as a percentage. It will include interest and insurance in the calculation of costs. The APR is most likely to be included in mortgages, credit cards and car financing. By knowing what the APR is of a certain loan or credit card that you are about to get, you will be able to see the best loan or finance to invest in.
For credit cards, there are a couple of different types of APRs. The first is for purchases. These APRs should generally be lower than any other type of rate that you would receive. The second type of APR in credit cards is for cash advances. If you have to take a loan out of your credit card, or go over your limit, the APR will automatically increase. Balance transfers are the third type of APR that will affect your credit. By making a balance transfer from one credit card to another, your APR will also increase. There are also tiered APRs where different rates will apply to certain levels of outstanding balance that you may have on any type of credit or loan. A penalty APR may also apply. If the credit card or loan is paid late one or more times within a given amount of time, the APR will also include a penalty rate.
If you already have an APR, you can always try to get it lowered. There are several ways to do this. If you are looking at an APR for a mortgage, you can negotiate the closing costs and keep your mortgage for a longer period of time. This will automatically drop the APR to fit with the time period and annual rate which you must pay.
FICO is an acronym for Fair Isaac Credit Organization. The Fair Isaac Corporation is a company that provides several financial services of several different kinds. This includes mortgages, insurance and healthcare. One of their branches is FICO. Through this company, you can be given your credit scoring and advice on how to have good credit. If you are applying for a new loan or credit card, lenders will most often go to FICO to find the score of your credit.
There are three parts to this score, including your interest rate, your monthly payment, and a number which is your FICO score. The higher your number is, the less you will have to pay on your loans or credit cards for interest rates and monthly payments. These estimates are based on how many credit cards you have, the history of your loans and credit cards and the balance on these different types of credit cards or loans. By estimating your score, you will know how much you will have to pay in a new loan or how much will be available for a new credit card which you are applying to.
HELOC is an abbreviation for home equity line of credit. HELOC is mainly used for taking out a mortgage or a loan for your home. By using this type of credit, you will be able to have a larger amount of credit available with a lower interest rate. This type of credit line is usually based around a variable interest rate, as opposed to a fixed rate. This means that the interest rate will change according to the public margin. Because of this, it is advised that you look into the index and margin that each lender uses so that you can have the best fixed rate. There is also a cap, or fixed amount with the variable rate plan, allowing the interest rate to only go a minimum or maximum amount.
The first step into getting a home equity line of credit is to be approved for a certain amount that is given by a credit company. This is usually taken on a percentage that is appraised from the value of your home. Your ability to repay the loan will then be looked at. Things such as your income, debts and credit history are looked into to see how much you can qualify for. Once approved for a certain amount, you are then able to draw from these funds as you would a bank account. Depending on the type of credit line you have, there may be limitations on how much you can draw from at one time. If you decide to sell your home, you will most likely be required to pay back the home equity line in full.
No matter which type of credit or loan aspect you are looking into, knowing what they mean and what applies to each area will help to lower your costs.
A Risky Proposition – How You Score Matters
Ever wonder just how far-reaching your credit score really is? The short answer: very. Your FICO credit score affects nearly all of your financial dealings, from the annual percentage rate that you pay on your credit card to whether you are able to purchase a cell phone.
Your credit score is of particular interest to lending institutions. Nearly 75 percent of all lenders assess your credit score when determining whether to grant a loan. If you plan on ever buying a house and car, or purchasing car or homeowner’s insurance, expect lenders to examine your credit score very carefully. A bad credit score will make most lenders think twice—they don’t want to lend to individuals who appear to be a risky proposition. A bad credit score could keep you from getting that dream house or purchasing a new car, and could even threaten the possibility of getting a job. So what’s the easiest way to ensure that you’ll be approved for a loan? Become familiar with your credit report and score. The more you learn about your credit score, the less likely you’ll be of becoming a risky proposition.
Why all the fuss over a simple three-digit number? Examining how your FICO credit score is calculated may provide insight into why some lenders may choose to deny your loan application. Your FICO score (FICO, by the way, stands for Fair Isaac Company—the institution that created and compiles the score) is calculated using several data pulled from your financial records. These include: the number and types of credit cards you use, your payment history, the amount of money you owe, the number of years you’ve had a history on file, and whether you have any new credit.
Which of these things carries the most weight in determining your credit score? Approximately 35% of your credit score is determined by your payment history. Your payment history refers to a number of factors, including the different types of payments you regularly make (examples of payments include standard major credit cards, department store credit cards, mortgages, and car loans), and whether you have missed or paid late on any payments. Included in your payment history is information regarding any bankruptcies, liens, judgments, foreclosures, wage garnishments, or law suits that have been recorded. If your payment history reflects that you don’t have much debt and usually pay your bills on time, you can expect your credit score to reach into the upper brackets. Conversely, if your payment history reflects a pattern of missed or late payments, and you have a significant amount of outstanding debt, you can expect your credit score to be much lower.
Another large chunk of your credit score is determined by the total amount of debt you carry. This includes all the amounts you owe on different credit card accounts, as well as installment payments such as car or student loans. Also of importance is the different kind of debt you carry, such as credit card debt versus mortgage and car loan payments. If you carry a lot of debt on a high-interest, long-standing credit card account, you can expect this scenario to hurt your credit score significantly. Another scenario, however, could have a much different effect on your credit score. For instance, an individual who pays a lot, mostly due to their mortgage payment, will likely have a higher credit score than a person who pays a lot because of debt on their credit card.
Now that you have a better idea of how your credit score is calculated, you can understand why lending institutions may be wary in lending to individuals or small business with a low credit score. Lenders can interpret a low credit score to mean that you have a high amount of outstanding debt and a history of missing payments (or both). Unfortunately, even if you are approved for a loan, chances are that a low credit score will saddle you with very high interest rates. Before you approach a lender, be certain you know your credit score. This gives you the opportunity to clear up any discrepancies or inaccuracies that may be on your credit report before your score is scrutinized by lenders.
Your credit score is of particular interest to lending institutions. Nearly 75 percent of all lenders assess your credit score when determining whether to grant a loan. If you plan on ever buying a house and car, or purchasing car or homeowner’s insurance, expect lenders to examine your credit score very carefully. A bad credit score will make most lenders think twice—they don’t want to lend to individuals who appear to be a risky proposition. A bad credit score could keep you from getting that dream house or purchasing a new car, and could even threaten the possibility of getting a job. So what’s the easiest way to ensure that you’ll be approved for a loan? Become familiar with your credit report and score. The more you learn about your credit score, the less likely you’ll be of becoming a risky proposition.
Why all the fuss over a simple three-digit number? Examining how your FICO credit score is calculated may provide insight into why some lenders may choose to deny your loan application. Your FICO score (FICO, by the way, stands for Fair Isaac Company—the institution that created and compiles the score) is calculated using several data pulled from your financial records. These include: the number and types of credit cards you use, your payment history, the amount of money you owe, the number of years you’ve had a history on file, and whether you have any new credit.
Which of these things carries the most weight in determining your credit score? Approximately 35% of your credit score is determined by your payment history. Your payment history refers to a number of factors, including the different types of payments you regularly make (examples of payments include standard major credit cards, department store credit cards, mortgages, and car loans), and whether you have missed or paid late on any payments. Included in your payment history is information regarding any bankruptcies, liens, judgments, foreclosures, wage garnishments, or law suits that have been recorded. If your payment history reflects that you don’t have much debt and usually pay your bills on time, you can expect your credit score to reach into the upper brackets. Conversely, if your payment history reflects a pattern of missed or late payments, and you have a significant amount of outstanding debt, you can expect your credit score to be much lower.
Another large chunk of your credit score is determined by the total amount of debt you carry. This includes all the amounts you owe on different credit card accounts, as well as installment payments such as car or student loans. Also of importance is the different kind of debt you carry, such as credit card debt versus mortgage and car loan payments. If you carry a lot of debt on a high-interest, long-standing credit card account, you can expect this scenario to hurt your credit score significantly. Another scenario, however, could have a much different effect on your credit score. For instance, an individual who pays a lot, mostly due to their mortgage payment, will likely have a higher credit score than a person who pays a lot because of debt on their credit card.
Now that you have a better idea of how your credit score is calculated, you can understand why lending institutions may be wary in lending to individuals or small business with a low credit score. Lenders can interpret a low credit score to mean that you have a high amount of outstanding debt and a history of missing payments (or both). Unfortunately, even if you are approved for a loan, chances are that a low credit score will saddle you with very high interest rates. Before you approach a lender, be certain you know your credit score. This gives you the opportunity to clear up any discrepancies or inaccuracies that may be on your credit report before your score is scrutinized by lenders.
A Lending Hand – Only Good Credit Need Apply
5 Facts about Credit Scoring
Are you thinking of buying a house or a new car? If you’re like most people, you’ll probably have to secure a bank loan. When it comes to money lending, most financial institutions strive to live by maxim of ‘only good credit need apply.’ Yes, there are lending institutions that will lend to individuals or businesses with very low credit scores (known as ‘bad credit loans’), but these loans often come at a high price. These types of loans frequently come with very high interest rates and exorbitant fees that can end up costing consumers much more than the original purchase. Even if your credit score is not necessarily bad, but just ‘so-so’, chances are you’ll end up paying a lot more than a person with very good credit.
So what exactly do lending institutions consider good credit? Good credit is based on your credit report and the accompanying three-digit FICO credit score.
Your FICO credit score is based on a number of factors, including:
Now that you have an idea of what good credit looks like, how can you improve your chances of getting a loan if your credit is less than stellar? First, obtain a copy of your credit report. Your report is available from any of the three major credit reporting bureaus—Experian, Equifax, and TransUnion. By law, you can obtain a free copy of your credit report once a year, but additional copies will cost you approximately $13. Review your credit report carefully and contact the credit bureau if you spot any errors or omissions (be prepared to provide documentation).
Remember that so much of your credit score depends on your payment history. The importance of paying your bills on time, every month, cannot be stressed enough. Many banks offer you the option of scheduling automatic payments each month. Make use of these, if your financial situation allows. Also, don’t open new credit accounts if you don’t intend to use them, and don’t open and close accounts frequently. Instead, focus on using responsibly the accounts you already have. This alone will raise your credit score, and make you much more likely to get best loans from lending institutions.
Find more about Credit Scoring
Are you thinking of buying a house or a new car? If you’re like most people, you’ll probably have to secure a bank loan. When it comes to money lending, most financial institutions strive to live by maxim of ‘only good credit need apply.’ Yes, there are lending institutions that will lend to individuals or businesses with very low credit scores (known as ‘bad credit loans’), but these loans often come at a high price. These types of loans frequently come with very high interest rates and exorbitant fees that can end up costing consumers much more than the original purchase. Even if your credit score is not necessarily bad, but just ‘so-so’, chances are you’ll end up paying a lot more than a person with very good credit.
So what exactly do lending institutions consider good credit? Good credit is based on your credit report and the accompanying three-digit FICO credit score.
Your FICO credit score is based on a number of factors, including:
- Your payment history. This includes whether you have missed any payments, or paid late. Payment history also involves the different types of payments (car, house, different credit cards, etc…) you make each month. Roughly 35% of your credit score is determined by your payment history. A person with good credit probably has a consistent record of paying on time each month over a long period of time, with little or no missed payments.
- The amount you owe on all your different accounts. Do you have dozens of accounts carrying high balances? Are most of your credit card accounts maxed out? Or can most of your debt be traced to one or two accounts, such as your mortgage and car payments? Good credit is hard to attain if you carry balances on many different accounts. A person with good credit probably only carries balances on one or two accounts.
- The length of your credit history. This refers to whether you have established sufficient history to provide an accurate portrait of how you manage your finances. Lending institutions want to know whether you have a history of paying on time. Keep in mind that even if you have managed your credit perfectly, if your account is only a year old, it probably won’t raise your credit score immediately. Keep it up for a few years, however, and watch your credit score soar.
- Types of credit. Another factor used in calculating your credit score involves the types of credit you use. Different kinds of credit include credit cards, mortgages, and installment loans such as car and student loan payments. If the type of credit you most commonly use weighs heavily on credit cards and other high-interest credit sources, your credit score will probably suffer.
- New or recent credit history. The last factor used to calculate your credit score has to do with your recent credit history. This includes any new credit accounts you may have opened, whether you’ve made requests for new credit, and how you’ve recently managed all of your credit. If you decide to open several new accounts at once, be warned that this may hurt your credit score. A person with good credit most likely does not open new accounts frequently, but rather has a long history with a few accounts that are in good standing.
Now that you have an idea of what good credit looks like, how can you improve your chances of getting a loan if your credit is less than stellar? First, obtain a copy of your credit report. Your report is available from any of the three major credit reporting bureaus—Experian, Equifax, and TransUnion. By law, you can obtain a free copy of your credit report once a year, but additional copies will cost you approximately $13. Review your credit report carefully and contact the credit bureau if you spot any errors or omissions (be prepared to provide documentation).
Remember that so much of your credit score depends on your payment history. The importance of paying your bills on time, every month, cannot be stressed enough. Many banks offer you the option of scheduling automatic payments each month. Make use of these, if your financial situation allows. Also, don’t open new credit accounts if you don’t intend to use them, and don’t open and close accounts frequently. Instead, focus on using responsibly the accounts you already have. This alone will raise your credit score, and make you much more likely to get best loans from lending institutions.
Find more about Credit Scoring
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