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Mortgages 101, 3rd Edition

Book Description

Everything you need to know before you borrow…

Unless you’re sitting on a pile of cash, chances are you’ll need to take out a mortgage when you’re ready to buy a home. But how do you know how much house you can afford? What should you look for in a loan? What kind of paperwork is needed . . . and how do you improve your odds of getting a great rate? Mortgages 101 eliminates the confusion and stress with clear-cut answers to all your questions.

Updated to reflect the enormous changes in the mortgage market in recent years, Mortgages 101 is the all-in-one reference you’ve been looking for. Covering a wide range of topics — from negotiating the best deal to saving on closing costs — this revised third edition provides the latest information on:

  • Application procedures
  • Online lenders
  • New loan and government programs
  • Qualifying requirements
  • Credit strategies
  • Down payment assistance and zero-down options
  • Guidelines for self-employed borrowers
  • Bankruptcies and waiting periods
  • Refinancing and home equity loans
  • Consumer Financial Protection Bureau rules
  • The Ability-to-Repay mandate
  • And much more

This is THE book you need to read before you sign on the dotted line.

Table of Contents

  1. Cover
  2. Half title
  3. Title
  4. Contents
  5. Preface
  6. Section I Mortgage Fundamentals
    1. Chapter 1 Introduction to Mortgages
      1. 1.1 How has the mortgage market changed since the last edition of Mortgages 101?
      2. 1.2 What’s the difference between buying and renting?
      3. 1.3 How do I know if it’s better to buy a home or continue renting?
      4. 1.4 How should I search for a house?
      5. 1.4a Why do I need an agent, anyway?
      6. 1.4b How do I find a good real estate agent?
      7. 1.5 When is a good time to buy a home?
      8. 1.6 What’s the difference between being prequalified and preapproved?
      9. 1.7 What is the preapproval process?
      10. 1.8 What are loan conditions?
      11. 1.9 What are Automated Underwriting Systems?
      12. 1.10 Who uses Automated Underwriting Systems?
      13. 1.11 If an Automated Underwriting System approves me, does that mean I get the loan?
      14. 1.12 What are the benefits of getting preapproved?
      15. 1.13 What are all these terms?
      16. 1.14 Who are the key people in a typical loan approval process?
      17. 1.15 What is the 1003?
      18. 1.16 What are the ten sections of the 1003?
      19. 1.17 What happens if the information I put on my application is wrong?
      20. 1.18 What happens after I fill out the 1003?
      21. 1.19 Are online applications the same as the five-page 1003?
      22. 1.20 What happens after I make an offer for a house?
    2. Chapter 2 How to Know How Much Home to Buy
      1. 2.1 How do I know how much I can borrow?
      2. 2.2 What are debt ratios?
      3. 2.3 How do I calculate my debt ratios?
      4. 2.4 How much do debt ratios affect how much I can borrow?
      5. 2.5 How can lenders approve people with high debt ratios?
      6. 2.5a How to lower your debt ratios
      7. 2.6 Why do lenders use monthly tax and insurance payments in debt ratios?
      8. 2.6a What is an ability to repay?
      9. 2.7 Why is escrow a requirement for loans with less than 20 percent down?
      10. 2.8 If I have a choice, are escrows right for me?
    3. Chapter 3 Getting Your Finances Together
      1. 3.1 What will the lender look for when examining my assets?
      2. 3.1a What is a financial gift and what do I need to do?
      3. 3.2 How do I document my assets?
      4. 3.3 How do I document my income?
      5. 3.4 If I just got my first job, how can I provide a W-2 from last year?
      6. 3.5 What do you mean by “how you’re paid”?
      7. 3.6 Why do lenders ask for the most recent 30-day pay stubs?
      8. 3.7 If I get paid in cash, how do I document that?
      9. 3.8 How do I calculate hourly wages?
      10. 3.9 How do I calculate overtime?
      11. 3.10 How are bonuses used to figure my income?
      12. 3.11 How do I figure my income if it is based solely on commissions?
      13. 3.12 How do I calculate my pay if I have both a salary and a bonus or a commission?
      14. 3.13 If I can deduct a lot of expenses from my income taxes, does that help gross monthly income?
      15. 3.14 How do I show expenses on my loan application?
      16. 3.15 How do I calculate my dividend and interest income?
      17. 3.15a What is the 4506-T and why do I have to sign it?
      18. 3.16 How do I calculate my income if I own my own business?
      19. 3.17 How do lenders determine whether my business income will have a likelihood of continuance?
    4. Chapter 4 Down Payments and How They Impact Your Mortgage
      1. 4.1 What exactly is a down payment?
      2. 4.2 What are the risk elements?
      3. 4.3 How do I know how much to improve another risk element?
      4. 4.4 What kinds of accounts can I use to fund the down payment?
      5. 4.5 Can I borrow against my retirement account?
      6. 4.6 Can my family help me out with a down payment?
      7. 4.7 What do I do if I don’t have a down payment saved?
      8. 4.8 What is a “seller-assisted” DPAP?
      9. 4.9 How do I know if I qualify for a down payment assistance program?
      10. 4.10 Is there an ideal amount I should put down on a home?
      11. 4.11 How much is a mortgage insurance policy?
      12. 4.12 Can I deduct mortgage insurance from my income taxes?
      13. 4.13 Can I “borrow” my mortgage insurance?
      14. 4.14 Will PMI come off my mortgage automatically?
      15. 4.15 What about “zero-money-down” loans?
      16. 4.16 What is the Conventional 97 or HomeReady program?
      17. 4.17 How do I buy a house if I need to sell my house for my down payment?
      18. 4.18 Will I have to qualify with two mortgages?
    5. Chapter 5 Getting Your Credit Together
      1. 5.1 What exactly is credit?
      2. 5.2 How were credit bureaus established?
      3. 5.3 What’s in my credit report?
      4. 5.4 What’s not in my credit report?
      5. 5.5 What’s the difference between a Chapter 7 and a Chapter 13?
      6. 5.6 Do lenders view a Chapter 7 or a Chapter 13 more favorably when reviewing a mortgage application?
      7. 5.7 What’s the difference between “good” and “bad” credit?
      8. 5.8 How do I establish good credit?
      9. 5.9 I’ve got great credit. How do I keep it that way?
      10. 5.10 I cosigned on my brother’s car, but he’s making the payments. Will this affect my credit?
      11. 5.11 What should I do first to improve my credit?
      12. 5.12 What happens if I find a mistake on my report?
      13. 5.13 Can’t I write a letter explaining my side of the story to the credit bureaus?
      14. 5.14 Can my lender help fix mistakes in my credit history?
      15. 5.15 What do I need in order to prove something is a mistake on my credit report?
      16. 5.16 What about mortgage companies that advertise “bad credit, no credit okay”?
      17. 5.17 What about a cosigner?
      18. 5.18 Can a seller ask for a copy of my credit report?
      19. 5.19 What is alternate credit?
      20. 5.20 I have bad credit and was contacted by a credit counseling company that wants to help reestablish my credit. Can they do that?
      21. 5.21 Can I erase my old credit report completely and start all over again?
      22. 5.22 I have great credit, but my spouse has terrible credit. What do I do?
      23. 5.23 My “ex” has screwed up my credit. What do I do?
      24. 5.24 How will lenders view our credit report if we’re not married?
      25. 5.25 How long do I have to wait in order to get approved for a mortgage if I declared bankruptcy in the past?
      26. 5.26 I filed a Chapter 13 bankruptcy and I’m still making the payments. Can I get a mortgage now?
    6. Chapter 6 Credit Scores: What They Are, How They Work, and How to Improve Them
      1. 6.1 What are credit scores?
      2. 6.2 What makes up a score?
      3. 6.3 What things in my payment history affect my credit score?
      4. 6.4 What about my amounts owed? What is most important?
      5. 6.5 How do I find out what my score is?
      6. 6.6 How do I get a credit score?
      7. 6.7 What’s the minimum credit score I need to qualify for a mortgage loan?
      8. 6.8 What if my lender told me I couldn’t qualify because my credit score was too low?
      9. 6.9 How do I know how much to charge and how much to pay off?
      10. 6.10 What else affects my credit score?
      11. 6.11 How can I increase my available credit without opening up new accounts?
      12. 6.12 I’ve applied at more than one mortgage company. Will all those credit inquiries hurt my score?
      13. 6.13 How do I fix scores that are artificially low due to mistakes?
      14. 6.14 If there are several mistakes on my report, do I get them all corrected? How do I know which ones to correct?
      15. 6.15 I’m a single parent and a minority. Does this status help or hurt my credit score?
      16. 6.16 How do lenders choose which credit scores to use?
      17. 6.17 I have great credit scores, but my spouse has low credit scores. What happens?
  7. Section II The Right Mortgage
    1. Chapter 7 Finding Your Home Loan
      1. 7.1 What kinds of loans are there?
      2. 7.2 When would I want a fixed rate?
      3. 7.3 When would I want an adjustable rate?
      4. 7.4 How do adjustable-rate mortgages work?
      5. 7.5 Are ARMs only helpful in the very near term?
      6. 7.6 What exactly is a hybrid loan?
      7. 7.7 What is a buydown?
      8. 7.8 Apart from choosing fixed or adjustable rates, what types of loan programs should I consider?
      9. 7.9 How are limits on conventional loans set?
      10. 7.10 Who or what are Fannie and Freddie?
      11. 7.11 What are special commitments?
      12. 7.12 What exactly is a jumbo mortgage?
      13. 7.13 Can I prepay my mortgage or pay it off early?
      14. 7.14 What are prepayment penalties?
      15. 7.15 Why do lenders have prepayment penalties on some of their loans?
      16. 7.15a What is a Qualified Mortgage?
      17. 7.16 What are VA loans? How do I get them?
      18. 7.17 Who’s eligible for a VA loan?
      19. 7.18 What is a VA “entitlement”?
      20. 7.19 How often can I use my VA eligibility?
      21. 7.20 What is a VA streamline refinance?
      22. 7.21 Do states have VA loan programs, too?
      23. 7.22 What about FHA loans?
      24. 7.23 Who sets FHA loan limits and how much are they?
      25. 7.24 Is FHA only for first-time home buyers?
      26. 7.25 When do I choose an FHA loan instead of any other?
      27. 7.26 Can I use a coborrower to help me qualify for an FHA loan?
      28. 7.27 Does FHA help me save money on closing costs?
      29. 7.27a What is the USDA Mortgage Program?
      30. 7.28 What about first-time home buyer loans?
      31. 7.29 What does “portfolio lending” mean?
      32. 7.30 What’s the difference between second homes and rental property?
      33. 7.31 How does the lender know that a property is a second home and not a rental unit?
      34. 7.32 Can I use rental income to qualify for a mortgage?
      35. 7.33 Are loan limits for rental properties the same as for primary residences?
      36. 7.34 What about seller financing?
      37. 7.35 How can I rent-to-own or use a lease-purchase to buy a house?
      38. 7.36 What’s a wraparound mortgage?
      39. 7.37 What is a biweekly loan program?
      40. 7.38 Are subprime mortgages gone?
      41. 7.39 What are HAMP and HARP?
    2. Chapter 8 Loans for Good to Great Credit
      1. 8.1 What should I look for in a mortgage loan?
      2. 8.2 So everyone should first try for a conventional loan?
      3. 8.3 What if my loan isn’t a Fannie loan? What if it’s a jumbo or a portfolio?
      4. 8.4 Then how do I manage to find the loan that’s right for me?
      5. 8.5 Should I always try to put as much down as I can?
      6. 8.6 Do I have a choice in my loan term?
      7. 8.7 Why are payments higher on a 15-year loan even though the rate is lower?
      8. 8.8 Won’t my loan officer help me find the right mortgage?
      9. 8.9 Where are the “stated” income and “no documentation” loans?
      10. 8.10 Does the type of property affect the kind of loan I can have?
      11. 8.11 What types of property can I expect problems with?
    3. Chapter 9 Refinancing and Home Equity Loans
      1. 9.1 Why would I want to refinance my mortgage?
      2. 9.2 Should I wait until the interest rate is 2 percent lower than my current one to refinance?
      3. 9.3 What is my rescission period?
      4. 9.4 How long should I wait to recover closing costs?
      5. 9.5 Do I have to close my loan within 30 days, or can I wait to see if rates drop further?
      6. 9.6 Why are there fees on a refinance?
      7. 9.7 Should I pay points for a refinance?
      8. 9.8 What about reducing my interest rate and also reducing my loan term?
      9. 9.9 Why not just pay extra each month instead of refinancing?
      10. 9.10 What’s a cash-out mortgage?
      11. 9.11 How do I get money out of my property without refinancing?
      12. 9.12 How do I refinance if I have both a first and a second mortgage?
      13. 9.13 Which is better, a cash-out refinance or a HELOC?
      14. 9.14 Why is my loan payoff higher than my principal balance?
      15. 9.15 My credit has been damaged since I bought the house. Will that hurt me?
      16. 9.16 How do I get a note modification?
      17. 9.17 What is a “recast” of my mortgage?
      18. 9.18 What happens when my loan is sold?
      19. 9.19 What’s a reverse mortgage?
      20. 9.20 Who qualifies for a reverse mortgage?
      21. 9.21 How much can I get with a reverse mortgage?
      22. 9.22 Why not do a cash-out refinance instead of a reverse mortgage?
      23. 9.23 Are the closing costs for a reverse mortgage the same as with a regular mortgage?
      24. 9.24 What are the rates for reverse mortgages?
      25. 9.25 I have a current mortgage on my house. Do I get to keep that?
      26. 9.26 How do I know if a reverse mortgage is right for me?
    4. Chapter 10 Construction and Home Improvement Loans
      1. 10.1 Why would I want to build a home? Why can’t I just go out and buy one?
      2. 10.2 How do construction loans work?
      3. 10.3 Do I buy a home from a developer, or is it better to start from scratch?
      4. 10.4 How do I get approved for a construction loan?
      5. 10.5 How much do I need for a construction loan?
      6. 10.6 Does the lender approve my builder?
      7. 10.7 How does the mortgage lender know what the house is worth before it’s built?
      8. 10.8 What if I already own the land? Do I still include that amount in the construction loan?
      9. 10.9 What if I don’t want a permanent mortgage, but just a construction loan?
      10. 10.10 What choices do I have for construction loans?
      11. 10.11 Is a one-time close better than a two-time close?
      12. 10.12 What if rates drop during my one-time close loan?
      13. 10.13 What if my builder is financing the construction?
      14. 10.14 Do I have to use the builder’s mortgage company?
      15. 10.15 What are my options if I just want to build onto my current house?
      16. 10.16 How can I borrow enough to make major improvements on my home?
      17. 10.17 What is an FHA 203(k) loan?
      18. 10.18 I want a VA loan. Can I add in money for improvements with a VA loan?
  8. Section III The Right Lender and Rate
    1. Chapter 11 Finding the Best Lender
      1. 11.1 I’ve decided on my loan. Now what?
      2. 11.2 How do I find the best lender?
      3. 11.3 But where do I get the names of all these lenders in the first place?
      4. 11.4 How do I know if I can trust these lenders?
      5. 11.5 Should I use my real estate agent’s mortgage company?
      6. 11.6 I thought all mortgage money came from the bank. Doesn’t it?
      7. 11.7 What is a mortgage broker?
      8. 11.8 Are mortgage brokers more expensive?
      9. 11.9 Why do mortgage companies use mortgage brokers?
      10. 11.10 How do mortgage brokers get paid?
      11. 11.11 How many lenders do mortgage brokers use?
      12. 11.12 Will the broker keep my lender a secret?
      13. 11.13 Is a mortgage broker my best choice?
      14. 11.14 Should I choose a broker or a banker?
      15. 11.15 What happens if I want to change lenders in the middle of my loan process?
    2. Chapter 12 Finding the Best Loan Officer
      1. 12.1 How do I find the best loan officer?
      2. 12.2 How do I know if the loan officers my real estate agent suggests are any good?
      3. 12.3 What if my agent’s not a heavy hitter?
      4. 12.4 Do the best loan officers work with the biggest lenders?
      5. 12.5 What questions should I ask a potential loan officer?
      6. 12.6 How do loan officers get trained?
      7. 12.7 Are there requirements for being a loan officer?
      8. 12.8 How do loan officers get paid?
      9. 12.9 Do all loan officers charge 1 percent on every loan?
      10. 12.10 My loan officer isn’t any good. Can I change loan officers?
      11. 12.11 Where do I complain about my loan officer?
    3. Chapter 13 Finding the Best Interest Rate
      1. 13.1 Who sets mortgage rates?
      2. 13.2 How does my loan officer quote rates?
      3. 13.3 But doesn’t the Fed set interest rates?
      4. 13.4 Are mortgage rates tied to the 30-year treasury and the 10-year treasury?
      5. 13.5 Who invests in bonds?
      6. 13.6 Where are rates headed?
      7. 13.7 What types of economic reports should I pay attention to?
      8. 13.8 Do I follow all of the economic reports?
      9. 13.9 When is the best time to get a rate quote?
      10. 13.10 Can I trust the interest rates in the newspaper or online?
      11. 13.11 Why are some lenders so much lower than everyone else?
      12. 13.12 How do I get a good rate quote from all my competing lenders?
      13. 13.13 What do I do with my two best quotes?
      14. 13.14 How do I lock in my mortgage rate?
      15. 13.15 Does my lock mean I’m approved?
      16. 13.16 What happens if my rate lock expires and I still haven’t closed my loan?
      17. 13.17 What happens if I lock and rates go down?
      18. 13.18 Will lenders drag their feet to make a lock expire?
    4. Chapter 14 Closing Costs and How to Save on Them
      1. 14.1 What types of closing costs can I expect?
      2. 14.2 Why are there so many charges?
      3. 14.3 Why do lenders charge fees?
      4. 14.4 On which closing costs can I save and which ones can I forget about?
      5. 14.5 Are fees for purchases and refinances the same?
      6. 14.6 How can I save on my appraisal fees?
      7. 14.7 How can I save on my credit report?
      8. 14.8 How can I save on title insurance?
      9. 14.9 What exactly is the Good Faith Estimate?
      10. 14.10 How do I use a Loan Estimate to compare lenders?
      11. 14.11 What is APR, and does it really work?
      12. 14.12 How can I get the seller to pay for my closing costs?
      13. 14.13 Can a lender pay all my fees?
    5. Chapter 15 Using the Internet the Right Way
      1. 15.1 How has the Internet helped mortgage lending?
      2. 15.2 Should I apply for a mortgage online or meet with a loan officer?
      3. 15.3 How can I use the Internet to find the best mortgage rate?
      4. 15.4 What about online companies that advertise they will have lenders “bid” on my mortgage loan?
      5. 15.5 What happens if I choose an online lender but the closing papers are all wrong?
      6. 15.6 Should I avoid online-only lenders?
      7. 15.7 I keep getting emails from companies with some very competitive offers. Shouldn’t I at least explore them?
      8. 15.8 Can I get my loan approval online?
      9. 15.9 Is there any way I can check on rates without contacting a lender?
      10. 15.10 Can I track my loan approval online?
      11. 15.11 What are some good websites consumers can use to help them?
  9. Appendix Monthly Payment Schedules
  10. Glossary
  11. Index
  12. About the Author
  13. Free Sample From The Real Estate Investor’s Pocket Calculator By Michael Thomsett
  14. About Amacom Books
  15. Copyright