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J.S. Financial Mortgage Corp.
When obtaining a mortgage, the lender is required to provide a "Good Faith Estimate
of the Costs of Settlement Services" and a copy of "A HUD Guide for Home Buyers Settlement Costs."
The two documents fall under the "Truth-IN-Lending" Laws.
A Good Faith Estimate
This is a lender's best estimate of the settlement or closing costs of your loan, based on the
best information avilable to the lender when you apply for a loan. By law, the form used for this
estimate must be clear, and the estimates must bear a reasonable in relationship to the cost you will
likely have to pay at closing.
 
The Truth-In Lending Statement Also Shows These Items:
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finance charges. |
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payment schedule. |
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late payment charges |
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late payment penalty (if any) | | | |
Mortgage Basics
Here is a primer on some of the basic terms you'll encounter in the mortgage shopping process:
Down Payment:
How much of a mortgage you need depends on the cost of the house and how much you're "putting down".
As we discussed earlier, mortgage lenders want to see the borrower invest some of their cash as part of the process.
How much of a down payment is required, however, depends on the type of mortgage.
In today's world, the number one factor keeping people from buying a first home is the inability to save a down payment.
In the 1950s and 1960s, most people were required to make at least a 20 percent down payment. But today, with certain
Government
programs, people who qualify can get loans with down payments as low as 3 to 5 percent.
Points:
Two of the first things you notice about a loan are interest rate and "points". Lenders typically charge points, formally
called a loan origination fee, as a one-time expense at closing. The word "point" comes from the fact that each point is a percentage
point of the mortgage. For example, one point on a $60.000 mortgage is $600.
There is a direct relationship between number of points and interest rate. For example, if you pay three points, your rate might
be 6.875%. But if you agree to pay only one, the interest rate might be 7.500%. The general rule is the more you pay upfront, the lower
your rate.
Interest: Fixed-Rate and Adjustable-Rate Mortgage
Interest rates you pay on a loan come in two flavors: fixed or adjustable. Each has its pluses and minuses. For low-to moderate-income,
first-time home buyers, a fixed-rate is often the safest path to follow:
A fixed-interest rate may be set when you apply. In any given week, it's difficult to predict exactly what the interest rate will be,
because rates go up and down depending on certain economic factors. A fixed-rate loan, however, allows you to "lock-in" the interest rate
when you apply for specific periods, say 45 or 60 days,
With any mortgage most of your mortgage payment is applied to interest in the beginning. That means a small percentage of your payment
is applied to the principal. Toward the end, the reverse is true, as most of your payment goes toward principal.
Fixed-Rate mortgages guarantee that your monthly mortgage payment will remain the same for the life of the loan-- no matter how long
the loan is for. if rates are high and they drop, you can always refinance your home. Basically, that means you pay off your first mortgage
with another mortgage-- at a lower rate. But you're safe if rates go up.
Adjustable-Rate Mortgage (ARM)
Here, the interest rate you pay changes as national interest rates move up and down. An adjustable-rate mortgage, called an ARM, can
be great if interest rates or indexes drop. On the other hand, it's bad news if rates go up. No one can predict or control what interest rates
will do over a 30-year term; therefore, an adjustable-rate mortgage could be risky choice for many borrowers. Watch out especially for "teaser"
rates, which seem too good to be true and often are just that. These rates may go up substantially after the first adjustment interval.
Many ARMs have a rate cap that limits how much the interest rate or mortgage payments can increase in a given time period. An ARM also may
have a lifetime cap that limits the maximum amount the interest on the loan can go up over the lifetime of a mortgage.
ARMs may have a financial index and margin. The former is the specific financial index that determines an ARM's total interest rate. For
example, most ARMs are tied to the price of treasury notes. Because T-Notes are published in the paper, they are easy to tack.
"Convertible" ARMs have a conversion clause. This means the adjustable rate can be converted to a fixed-rate loan under certain
conditions. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgage. Having this conversion option may
cost extra, but could be worth it.z
Mortgages with an adjustable rate include a provision for the adjustment period--the time between interest rate changes on an ARM. Example:
A "one-year" ARM is a loan with an adjustment period of one year. That means the interest rate can only change once a year!
ARMs can present some risk. On the plus side, they typically offer a lower up-front interest rate than fixed-rate
mortgages. If you probably will be selling your home in a few years, or if you can predict--with reasonable certainty--that your income will increase
considerably, an ARM might be a good bet,
What Lenders Want to Know
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Right from the start, you can avoid many of the hassles associated with the mortgage process by being clear and honest in response to a lender's
requests in order to approve a mortgage. Two major factors hold:
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Down payment
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Your available income for paying monthly housing expenses.
While having a one-time income boost, say a bonus at work, is in your favor; it's quite different from the steady stream of income necessary to
make your monthly mortgage and other payments.
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Credit History:
When a lender considers lending you the money for a mortgage, he or she wants to know how well you've responded to debt and credit in the past.
It only makes sense, because a mortgage is a considerable amount of money.
Other Things A Lender Needs To Know
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As we said earlier, lenders want to see that you are investing in your new home. So they expect that the bulk of your down payment and closing costs
(if any) will come from your savings. You also are allowed to receive a gift from family members, provided you obtain a gift letter stating that the funds
are not borrowed.
Employment Record:
Having a regular employment history is important to a lender deciding to loan you a large sum of money. No matter what type of work you do, a record of
work you do, a record of doing the same type of job with the same employer is the best possible situation.
On the other hand, a short employment history does not automatically disqualify you from getting a loan.
In addition, a lender will contact your employer to verify that your employment history is accurate. Typically, your employer responds in the form of a
letter stating that the facts of your employment (length of service, salary, etc.) are as you stated them to the lender. If you are self-employed or have been
at your job less than two years, be prepared to give the lender more information, such as your federal income tax forms or profit and loss statement.
Rental Payment History
Finally, a lender wants to make sure that you've paid your rent on time and in full. Again, a letter from your landlord will suffice. If you've ever withheld rent
for any reason (no heat, poor maintenance, etc...), be prepared to explain the facts of the situation to the lender.
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