The first thing people will consider after immigrating to the United States is buying their own home. Financing is an important issue that most people will encounter when purchasing real estate.

In order to chose the best loan program with your professional loan officer, it is necessary for everyone to have some basic knowledge of how to find a professional and experienced loan team and choose the right loan program.

Note:  Please consult your experienced loan officer to discuss your scenario and determine the optimal solution for your mortgage application.

Loan Pre-Qualification Letters

The first step before you consider buying a home is that you need to know how much home loan you can qualify for so that your loan officer and real estate professionals can target the best property for you. When a buyer makes an offer to a seller, the seller often requires the buyer to provide a loan Pre-Qualification letter to prove their ability and secure a mortgage for the property.

What is a Loan Pre-Qualification Letter?

 A loan Pre-Qualification letter involves direct communication with a professional loan officer regarding your basic information, including income, debts, assets, and credit score. Based on your overall situation, the loan officer can provide an initial estimate of the potential mortgage amount that you may qualify for. If you are familiar with your credit score, you may not necessarily need to pull your credit report.

What is the difference between Pre-Qualification and Pre-Approval?

The key difference between a Pre-Qualification and a Pre-Approval is that a Pre-Approval typically involves a credit report inquiry and the submission of supporting documents related to income and funds. Based on credit score, income, debt, and financial conditions, a written document is then issued, demonstrating how much the borrower is roughly eligible to borrow.

Does consulting different loan institutions affect your credit scores?

It does not impact your credit score if credit reports are not pulled.

According to MyFICO.com, if credit scores are pulled continuously within 30 days, they are typically counted as a single hard pull. Additionally, depending on the FICO credit scoring model version used by the lender, borrowers can shop around for pre-approval with multiple banks or brokers within 14 to 45 days without affecting their credit scores. This allows for easy comparison of interest rates, repayment terms, loan fees, etc., helping you choose the most suitable mortgage program.

Types of U.S. Mortgages

Click arrows to learn more about Year Fixed Rate and ARM mortgages.

Click last arrow for a quick comparison.

Note: Please consult your experienced loan officer to discuss your scenario and determine the optimal solution for your mortgage application.

  • A 30-year fixed-rate loan is the preferred choice for many people because the stable interest rate provides peace of mind. The 30-year amortization allows lower monthly payments, which allows you to afford a higher home price and loan amount with the same down payment and income.  The term "30 years" has two meanings: 1) a fixed interest rate remains the same for 30 years; 2) the principal of the loan is amortized to 360 months. The same principle applies to 20, 15, and 10-year fixed-rate mortgages.

  • ARM stands for Adjustable-Rate Mortgage, where the interest rate can adjust. For example, a 7/1 ARM has a repayment period of 30 years, with the interest rate locked for the first 7 years, and then adjusted annually thereafter based on market conditions. Similarly, 5/1 ARM and 10/1 ARM lock the interest rate for the first 5 and 10 years, respectively. ARMs typically have a maximum limit on interest rate adjustments.

  • In general, if interest rates are relatively low and are likely to rise significantly in the future, choosing a fixed interest rate is a better choice. If interest rates currently are high and are likely to decrease in the future, considering an ARM might be a good option. Whether you choose fixed or ARM, you can always do refinancing in the future.

Understanding Loans

A brief guide to grasp loan processes and mortgages effortlessly.

Principal and Interest

The principal is the amount that you borrow from a lender. The interest is the cost of borrowing that money.

Interest Rate

The interest amount for a particular principal amount of money at some rate of interest

Annual Percentage Rate (APR)

Annual Percentage Rate (APR) APR reflects the cost of a loan on a yearly basis. It may be higher than the note rate because it includes interest, loan origination fees, loan discount points, and other credit costs paid to the lender.

Discount Points

Discount Points are one-time fees paid at the time of closing to lower the mortgage interest rate. The decision on how many points to pay determines the extent to which the interest rate is reduced. "Buying down the rate" is a common phrase used to describe this. For example, if you have enough funds and plan to keep the loan for an extended period, paying points for a lower interest rate can be cost-effective. When considering purchasing points, it's essential to calculate the "Break Even" period to plan for the future..

Interest Rate Lock

Loan interest rates fluctuate daily, and the rate you see when applying for a mortgage may change by the time the rate is locked. Locking in the interest rate ensures that the borrower gets the agreed-upon rate before the closing. Depending on the loan program, lenders typically offer rate lock periods ranging from 30 to 90 days. Consult with your loan professional to determine when and at what rate to lock. For new construction house, it’s recommended to coordinate with the developer to align the rate lock period with the anticipated closing date, considering potential delays. There are costs associated with extending the rate lock or re-locking. It is recommended that you consult with your lending professional.

Prepayment Penalty

Some loan programs has penalty for early repayment, which is a fee incurred when paying off the loan before the scheduled term. Conventional loans, whether for primary residence, second home, or investment property, generally do not have prepayment penalties. Non-QM loans may have prepayment penalties for investment properties, depending on the specific loan program and its terms.

 

Early repayment includes three scenarios:

1) The borrower pays off all remaining principal.

2) All principal is settled when the property is sold.

3) When you consider refinance to replace the current loan.

Note:  Please consult your experienced loan officer to discuss your scenario and determine the optimal solution for your mortgage application.