Mortgage Loans

A mortgage loan refers to money that is lent specifically for the purchase of real estate while simultaneously being secured by that purchased real estate. These financing tools are also called home loans, property loans, or shortened to simply "mortgages."

To apply for a mortgage loan, fill out the form to the left. If approved, you will be notified and a lender will be in touch with you soon. Regardless of whether our lenders accept your application, we will do our best to find you other mortgage loan offers (with their approximate interest rates) that you can click on to learn more about.

Different types of home loans

There are several different types of mortgages. Some are meant for home purchases, some are meant for reducing your interest rate on an existing property loan, and some are designed to extract equity from the real estate you already own.

The different types of home loans include:

  • Home purchase loans
    • Conventional mortgage loans
    • FHA loans
    • VA loans
    • USDA loans
  • Home refinance loans
  • Home equity loans (HELOCs)
  • Reverse mortgages
  • Home construction loans
  • Commercial mortgage loans

The most common of these are conventional, FHA, VA, and home refinance loans.

Conventional mortgage loans are usually low-interest options that are reserved for borrowers with a substantial down payment. FHA home loans are backed by the government, but come with a mandatory mortgage insurance requirement. VA home loans are only available to servicemembers, veterans, and their spouses, but come with a variety of benefits.

Home loan refinances are a little different from the three above-mentioned mortgage types. Refinance loans are designed to reduce the interest rate on an existing mortgage. The way they work is by having a borrower taking out a brand new home loan (at a lower rate) that’s equal to or greater than the value of his or her existing mortgage. Then that existing mortgage is paid off with the proceeds acquired from the refinance and the borrower is left with a new home loan but at lower interest rate.

Mortgage refinances enable borrowers to score lower monthly payments, shorter or longer terms, or liquid equity from their homes, but borrowers should discuss their personal goals with a lender upon submitting an application.

Home Loan Modifications

While not actually “loans,” home loan modifications are services and programs that help struggling borrowers with their hard-to-manage property financing.

Mortgage modifications are usually sought by those who are “upside-down” on their home loan (which is synonymous with the phrase “underwater”). Being upside-down or underwater on a mortgage refers to the situation of owing more money on your loan than your home is worth.

Imagine owing $300,000 on a house that’s only worth $200,000. That means even if you do sell your house, you’ll still be responsible for paying a home loan. Home loan modifications seek to remedy situations like these, and are usually hosted and provided by the government.

What do mortgage loans cost?

Taking out a home loan comes with a variety of costs outside of the balance borrowed. Be prepared to pay the following when you get approved and actually borrow  a mortgage loan:

  • Downpayment
  • Property Mortgage Insurance (PMI)
  • Interest
  • Closing costs
Downpayment

Downpayments are used as an additional security measure on mortgage loans. They let lenders know that a borrower is serious about borrowing and repaying money since downpayments essentially allow the borrower to put “skin in the game.”

Since downpayments enable borrowers to have a vested interest in repaying their loan, lenders tend to award better interest rates to those who are willing to put more money down.

There are different downpayment requirements for different types of mortgage loans:

  • Conventional mortgages require a downpayment of 20 percent or greater.
  • FHA mortgages have a minimum downpayment requirement of 3.5 percent.
  • VA home loans do not require any downpayment.

For those looking to go the conventional mortgage route, but who do not have enough money to put 20 percent down, you can still apply for the loan. If you’re approved, the lender will simply require you to take out Private Mortgage Insurance.

Private Mortgage Insurance

Private mortgage insurance, which is often referred to as PMI, is insurance for lenders that protects against losses on the money they lend.

If a borrower defaults on their home loan, the PMI company will pay the mortgage lender the difference in the money they lose.

PMI costs anywhere from 0.5 to 1 percent of a property’s total value each year. On a $200,000 home, the typical PMI payment is about $1,000 to $2,000 a year, but that’s broken down into smaller monthly payments.

Lenders require PMI from borrowers who have less than an 80 percent loan-to-value ratio in their home. That requirement is satisfied when an applicant has a 20 percent downpayment to put towards their home loan, so those looking to avoid PMI should make sure they have a large downpayment ready for their mortgage loan origination.

Interest Payments

While interest payments will not be collected immediately, they will be collected on a monthly basis for the lifetime of your home loan. As a result, it’s important to not only consider the actual interest rate that’s offered to you, but also the interest rate type.

There are two types of interest rates on home loans:

  • Fixed interest rates
  • Adjustable interest rates
Fixed Interest Rates

Fixed rate mortgages have a static interest rate that remains “fixed” for the entire term of the loan. So if you agree to a fixed rate of 4 percent, you can rest assured that your interest rate will not ever change (unless, of course, you refinance your home loan).

The benefit of fixed rate mortgages is that a borrower’s monthly payment will be the exact same on the first month as it will be on the last month. There are no unexpected increases in your monthly payment, so if you can afford a mortgage at a particular fixed rate, then you should be able to continue affording that mortgage if your income stream remains the same throughout your home loan’s lifetime.

Adjustable Interest Rates

Adjustable rate mortgages (often called ARMs for short) have interest rates that can fluctuate throughout a loan’s lifetime.

They’re levels tied to an index — which is often United States’ Treasury Notes — and rise or fall as the value of the their associated index changes.

ARMs are structured to have a period of fixed interest, but after that agreed-upon period, the rates begin to adjust on a yearly basis. The most common ARMs have a fixed interest rate for five years (represented in rate reports and offers as a “5/1 Adjustable rate mortgage”). However there are also 7/1 ARMs and 3/1 ARMs, which have seven and three years of fixed interest, respectively.

How are Interest Rates Determined?

After deciding on whether you want a fixed or adjustable rate mortgage, you can begin browsing current interest rates. While the interest rates in these reports are national and state averages, they will give you a general feel for what lenders are currently offering home loans for.

As far as your personal interest rate offer goes, a variety of factors influence those calculations. Some of the most important deciding metrics include your:

  • Credit Score
  • Debt-to-Income Ratio
  • Location
Credit Score

An applicant’s credit score and credit history are amongst the most important factors in determining what sort of interest rate he or she will qualify for.

Those with excellent credit (which is classified as 760+) will have an easier time qualifying for the lowest of interest rates whereas poor credit score applicants (those with scores below 640) will likely get quoted rates higher than the reported averages.

Debt-to-Income Ratio

An applicant’s debt-to-income ratio, or DTI for short, is the current percentage of their monthly income that is going towards outstanding debts.

The formula for calculating DTI is:

( Minimum monthly payments / Gross monthly income ) * 100

For instance, if you made a total of $4,000 a month and the only outstanding debt you were responsible for was a $300 auto loan payment, your DTI would be calculated as such:

( 300 / 4000 ) * 100

= 7.5 percent

There are two types of DTI: front-end and back-end.

Front-end DTI refers only to the percentage of income that goes towards housing costs, such as mortgage payments (including interest), mortgage insurance, property taxes, homeowner’s association (HOA) fees, rental payments, and/or renter’s insurance.

Back-end DTI refers to the percentage of income that goes towards all outstanding, recurring debts, including those covered by front-end DTI.

Home mortgage lenders have strict DTI requirements. Those requirements are expressed as fraction, with the first number referring to one’s front-end ratio, and the second number referring to one’s back-end ratio.

For instance, if you see a DTI requirement of 28/36, that means your front-end DTI must be 28 percent or less, and your back-end DTI must be 36 percent or less.

Currently, most home loan lenders have the following DTI requirements:

  • 28/36 for conventional home loans
  • 31/43 for FHA home loans
  • 41/41 for VA home loans
  • 29/41 for USDA home loans

As a general rule of thumb, the better one’s DTI, the better interest rate he or she will qualify for.

Location

The final primary factor that goes into one’s offered interest rate is their location.

Interest rates vary state-by-state, so certain areas of the country will see higher averages than others. We track interest rates by state, so you can view, learn about, and monitor your desired state’s interest rates.

How to find the best interest rates

Since you will be paying interest on your home loan for the entire time you have a mortgage, it’s a good idea to find the best interest rate possible.

While some things are beyond your control (i.e. what your state’s average interest rates are), there are a few steps that all prudent borrowers can take.

First, when preparing to apply for a property financing, calculate your DTI and figure out what you can afford. There are numerous online tools to help you with these calculations. Our mortgage calculators are a great place to start.

Next, compare multiple offers. First-time homebuyers often make the mistake of visiting one lender and subjecting themselves to mercy of that one lender’s offer. But if prospective homeowners visit multiple lenders and receive multiple interest quotes, then they can have a pool of offers to choose from themselves. This diligence changes the terrain of the traditional borrower/lender relationship, and forces lenders to fight for the borrower’s business — not the other way around.

And with today’s technology, you don’t even need to visit multiple lender offices to get their interest rate offers. With a little help from the internet, you can instantly compare multiple lender’s offers, and get a quick summary of multiple interest rate offers on a single webpage.

Closing Costs

Closing costs consist of all costs that are outside of a mortgage’s balance and interest payments. While the components of closing cost charges vary in price, borrower’s should expect to pay between 3 and 5 percent of their entire mortgage’s worth in closing costs. The most common fees associated with closing costs are:

  • Credit report fees
  • Appraisal fees
  • Origination fees
  • Title insurance fees
Credit report fees

Credit reports are relatively inexpensive, and are often covered by a mortgage lender — but not always.

They’re necessary for determining how qualified an applicant is, which ultimately plays into the interest rate offered to that applicant.

Fortunately, the law says that credit reporting companies cannot charge more than $11.50 for a credit report, so if your lender does not cover the charges, the cost burden should be relatively light.

Appraisal fees

Since the housing collapse of 2008, federal and state laws have been greatly enhanced to ensure lenders are only lending amounts of money that is equal to or less than a property’s appraised worth.

Consequently, it’s required for buyer’s to pay for an appraisal of their property before a home mortgage lender will finalize a loan.

Appraisal fees typically range between $250 and $400.

Origination fees

Origination fees refer to the handling and processing of a loan. They’re the “labor” charges, if you will, and can range anywhere from 0.5 percent to 2 percent of a mortgage’s total amount.

To get a grasp of what that would be, on a $200,000 loan, the origination fees could cost anywhere from $1,000 to $4,000.

Unfortunately, origination fees are an industry standard, so even on the very best mortgage loan offers, borrowers will be expected to pay origination fees.

Title insurance fees

Title insurance is a protection taken out against certain legal problems that may be connected to the title of the property you wish to finance. This protection is required by mortgage lenders, so all borrowers should be prepared to pay for title insurance.

There are two types of title insurance policies to be aware of:

  • Lender’s title insurance
  • Buyer’s title insurance

Of these two policies, lender’s title insurance is required by virtually all mortgage lenders, but buyer’s title insurance is optional. The lender’s policy protects the lender who is financing your mortgage loan, while a buyer’s title insurance protects you, the borrower.

As a general rule of thumb, title insurance costs around $2.50 per $1,000 for a lender’s policy and $3.50 per $1,000 for a borrower’s policy.

That means on a mortgage loan of $200,000, a lender’s policy will cost around $500 and a borrower’s policy will cost around $700.

Mortgage Loan Qualifications

So you’re interested in obtaining a mortgage loan, but you’re not sure if you’ll qualify for one. Some of the following questions may be floating around your head:

  • I have bad credit, can I still get a mortgage?
  • Am I old enough to borrow a home loan?
  • Will student loan debt hinder my ability to get a home loan?
  • Can I take out a property loan alone, without considering my spouse’s credit?
  • If I don’t have a downpayment, can I still qualify for a mortgage?

While answers to these questions and most others you may have can be found in our frequently asked questions, the subject of credit scores and credit history is one of the most popular of applicant concerns.

Bad credit mortgage loans are certainly available, but lenders will take each application on a case-by-case basis. We welcome applicants with any credit score, even if that credit score is low, and we will do our best to match them up with a lender who can accommodate them.

Outside of credit, here are some other basic home loan requirements. You must:

  • Be 18-years-old or older
  • Have a steady flow of income (either from a job, benefits, subsidiary, or aid)
  • Afford monthly payments given any and all outstanding debts
The Application Process

Applying for a home loan has become an easy process. Much more so now that the internet has become a safe and secure means of obtaining money and sensitive information.

You can now fill out online forms and get a response from a lender within seconds. To fill out these online applications, be prepared to have the following information:

  • Personal information
  • Contact information
  • Employment information
  • Bank account information
  • Information on the type of property you hope to purchase

Once your application has been accepted, a lender will reach out to you. If you agree with the terms that lender presents, then you will move on to the next phase of your mortgage application, at which point you will need to provide the lender with more detailed information, such as bank statements and paycheck or direct deposit receipts.

 

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