A good credit score is critical when it comes to obtaining the best interest rates and terms on a mortgage. Here are some Credit Dos and Don’ts when looking for a mortgage.
♦ Do Stay Current on All Existing Accounts. One 30 day notice can hurt you.
♦ Do Continue to Use Your Existing Credit As Normal. If it appears your are changing your pattern, it will raise a red flag and your score could go down.
♦ Don’t Apply for New Credit. Every time you have your credit report pulled by a potential creditor or lender, you can lose ponts on your credit score. This includes co-signing for a loan.
♦ Don’t Pay-Off Old Collection Accounts or Charge-Offs. Talk to your loan officer first. Yes, you are liable for these debts, but now might not be the time. If you must pay-off these old debts, do it through the closing process of your mortgage. Be sure to request a “letter of deletion” from the creditor.
♦ Don’t Close Credit Card Accounts. When you close an inactive credit card account, it may appear that your debt ratio has gone up. Closing a card will affect other factors in the score, including credit history.
♦ Don’t Max Out or Over Charge Credit Card Accounts. Don’t make any large purchases. Keep your credit card balances at 30% of your credit limit before and during the application process. If you do pay down balances, do it equally across the board.
♦ Don’t Consolidate Your Debt. When you combine all your balances into one or two credit cards, it will appear that you have “maxed out” on that card and you will be penalized.
♦ Do Call Your Loan Officer. Talk to you Loan Officer before taking any action that may possibly affect your credit score.
At some point during the mortgage application process, the borrower must exercise their agreement with the lender to lock in the rate for their final mortgage.
What is a Mortgage Rate Lock?
A Mortgage Rate Lock protects the borrower from the risk that interest rates will increase during the rate lock period. It guarantees that the lender will offer the borrower a specific combination of interest rate, points or interest rate credit at the closing of their loan.
If market rates rise after the rate is locked, the borrower will still get the lower rate, to the lender’s detriment. But there’s a downside: If rates fall after the rate is locked, the borrower might not be able to take advantage of that opportunity.
When Can a Mortgage Rate be Locked?
Buyers typically must wait until a seller has accepted their purchase offer for a specific property before they can lock in an interest rate for their mortgage. In addition, the lender must have certain information about the borrower and the details about the transaction before a rate can be locked. This includes receipt of all signed legal disclosures, the borrower’s credit score, anticipated loan-to-value ratio, property type and the borrower’s signed intent to proceed with the transaction. Until all pieces of the puzzle are in place, the lender can not accurately commit to any final interest rate, cost and terms.
How Long Can a Mortgage Rate be Floated?
When a mortgage rate is locked depends on the borrower’s tolerance for risk. The purchase and sales contract dictates when the loan must close. The borrower may opt to let the final mortgage rate ride or “float” with the market until they feel they can get the best deal. Of course they run the risk that the market will turn in their time period and rates will rise from current conditions.
A good mortgage loan officer may have, in good faith, projected a final mortgage rate for processing purposes, but the mortgage application cannot be approved until the final rate has been locked in.
In today’s mortgage processing environment, a mortgage rate could be floated until about 14 days prior to the prescribed closing date. This should give the lender to deliver the final disclosures, the underwriter time for a final review of the application and to issue a “clear to close,” and time for the closing deportment time to deliver closing package to the closing agent.
Should You Choose a Longer Rate Lock Period?
Borrowers are well advised to choose a 45 to 60 day rate lock period to ensure they can get the agreed upon rate even if there is a delay in processing their mortgage application. If a loan fails to close within the rate lock period, the borrower will charged the higher of the original lock and the current interest rate. If rates are higher, the borrower may be offered the opportunity to extend the original rate at a cost of 0.25 points for each 7 day period. (A point equals 1.00% of the base loan amount)
How Much Does a Rate Lock cost?
Most lenders will not charge for a Mortgage Rate Lock. . But a rate lock isn’t free. Rather, a longer rate lock typically involves a higher interest rate, which is more expensive for the borrower. The interest rate or “pricing” difference between a 15-day rate lock and 60-day rate lock might be as little as one-eighth or could be as much as half of a percentage point. The longer period protects the lender from potential market deterioration. The shorter the rate lock period, the more risk the borrower is taking on, but they should be getting a better price.”
No Mortgage Loan officer is an interest guru. But he does understand the lender’s commitment to you and will do his best to honor the rate lock obligation. However, the complexity of your application and issues like: failure to provide additional documentation in a timely manner, appraisal concerns, possible title problems all add time to the process.
There is rarely a reason not to lock a loan as soon as you can. Interest rates change daily, sometimes hourly. To protect yourself against the volatility of the marketplace, it’s a good idea to lock your rate once you are satisfied with the rate. The reason some buyers dislike loan locks is because they want to grind every dime out of a transaction that is humanely possible. Just remember that if the rate was acceptable when it was locked three weeks ago, a drop of an 1/8 of a point or so isn’t the end of the world. You don’t need to be that kind of borrower to get a good deal.
Read more: http://www.bankrate.com/finance/mortgages/questions-rate-lock-answered.aspx#ixzz3cy8lb29i
The Mortgage Underwriter is one of the most important people in the Mortgage Application process. Without the approval of an underwriter, no lender will fund or close on a loan. It is the job of the underwriter to ensure a borrower can repay the loan they are applying for and to determine that the sales price is supported by the appraisal value before granting lending approval.
Approval of a Mortgage Application is based on several things: income, credit history, debt ratios, and savings.
♦ A borrower must be able to prove a stable income and job history needed to repay the loan.
♦ They also must have a credit history that reflects a stable record of repaying obligations and a balanced debt to income ratio. Additionally, a borrower’s monthly debt must fall within acceptable limits determined by the loan product’s guidelines.
♦ Lastly the borrower must show that they have enough money saved for their down payment and closing costs. It is also smart to have a few months of mortgage payments saved away in case of an emergency.
It is the Mortgage Underwriter’s job to make sure all of these factors meet particular loan guidelines. The underwriter will evaluate all of this information and sometimes ask for more information or explanations from a borrower to clarify and support their decision on the Mortgage Application.