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There are a variety of mortgage loans that are available to homeowners who want to purchase a home. It’s important to be aware of the various loan options so that you can make the best decision based on your long term goals and the monthly payment you can afford. Here are the top five mortgages to be familiar with.

Fixed Rate Mortgage

A fixed rate mortgage is exactly as it sounds; your monthly payment will be fixed over a period, generally 30 years, although you can take out a fixed mortgage for 15 or 10 years. The interest rate does not change over this time, which makes this mortgage the safest, most popular choice. In fact, fixed rate mortgages account for 75 percent of all loans. Their greatest advantage is that the homeowner knows exactly what their monthly payment will be.

Some homeowners worry that by taking out a fixed rate mortgage, they won’t be able to take advantage of lower interest rates if the rates do go down. The good news is that with a fixed rate mortgage, the homeowner can refinance. The only stipulation is that the homeowner has to pay closing fees. Although fixed rate mortgages are predictable and widespread, they do have higher interest rates than with other loans.

The first payments will go mostly toward interest, providing you with a better tax break early on. As time passes however, more of your payment will go toward the principal instead of the interest. Nevertheless, your payment will always stay the same. Fixed rate mortgages are best for borrowers that intend to stay in their homes long-term and appreciate the stability of fixed monthly payments.

One Year Adjustable Rate Mortgage

A one year adjustable rate mortgage has an interest rate that fluctuates based on the market. The advantage to this loan is that the interest rate is lower than what you pay for a 30 year fixed mortgage. Also, homeowners can qualify for a larger loan amount while having a smaller monthly payment, allowing them to get a more valuable home for less.

The drawback to a one year adjustable rate mortgage is that the loan is unpredictable. One year a homeowner may be paying a small mortgage, but the monthly payment can skyrocket the next. Each year on the anniversary of the loan, the payment changes according to a specific schedule that occurs after the fixed period at the beginning of the loan.

For some borrowers, an adjustable rate mortgage is a great option, even though it’s not as steady. If you’re someone that needs the lowest possible payments over the term of your loan, planning on transferring over your home in the near future or require the flexibility of loan terms, an adjustable rate mortgage may be a great choice for your situation. Also, you can pay off the principal of your loan without being faced with prepayment penalties.

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Are you applying for a mortgage? Make sure you come prepared to ask the right questions, as the more you know, the better decisions you can make. Here are the top ten questions to ask your mortgage lender – jot them down or program them into your smartphone today.

Question #1: What is the interest rate on this mortgage?

Currently, the interest rates are low, but just because the lender is flashing around low rates doesn’t mean you’ll get them. You have to qualify to get the lowest rates, and a low credit score can hurt your chances. So before you take for granted that you’ll be offered a low interest rate, be sure to ask what your specific rate is.

Question #2: What are the closing costs and will I receive a good faith estimate?

Most lenders will provide you with a good faith estimate that details the chargers you will be assessed for their services, also known as closing costs. Since many lenders expect you to pay for closing costs out of pocket, make sure you know what these costs will be as soon as possible.

Question #3: Are there any potential delays that may impact my closing?

As long as you provide honest, upfront information to the lender, the process should go rather smoothly. Some of the factors that can delay the process include changing jobs, having a decrease in your salary or changing marital statuses. Be sure to let your lender know of these changes immediately if they are to occur.

Question #4: What are the qualifications for the loan?

Generally speaking, conventional loans are the most difficult to receive, but other loans have less strict criteria. Be sure to ask about the various loan options and the qualifications for each. First-time homebuyer programs for example, have incentives for new homebuyers.

Question #5: What is the down payment for this loan?

The rate and terms of your loan will be dependent on how much you put down. Most lenders ask for 5 to 20 percent of the total loan amount, and the more you put down, the lower your payments will be and the better terms you’ll have.

Question #6: Can I lock in my interest rate?

If you’re approved for a low interest rate, ask your lender about locking in the rate, but do so with caution. There may be fees to lock in through your lender, and you never know, the interest rates may go down further.

Question #7: Will I have to pay points on my loan?

Many lenders charge prepaid mortgage interest points in order to lower your interest rate. Many of these points have little to no benefit to the borrower, so be sure to ask if you’ll be paying for points and what kind of points they are.

Question #8: What documents do I need to provide?

In order to keep the process moving along smoothly, you’ll want to have the necessary documents in place. Most commonly, these documents include proof of income, bank account information, IRS Form and credit reports, but ask your lender for more specifics.

Question #9: Is there a prepayment penalty on this loan?

Prepayment penalties can kick in when you go to sell your home, reduce the principal balance by a certain amount or refinance. If there is a prepayment penalty, find out how much the penalty is and how the amount is calculated.

Question #10: How long will the process take?

Although lenders may say two weeks, it’s best to expect 45 to 60 days to have the loan application processed. If there are any obstacles or changes along the way, that will slow the process as well. It’s always better to be safe than sorry!

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What are Prepayment Penalties?

Whether you’ve recently applied for a mortgage loan or are considering doing so, it’s important to familiarize yourself with prepayment penalties. Prepayment penalties are exactly as they sound; they are penalty fees charged to the borrower for paying off their loan before a certain time period. Generally speaking, the penalties are six months of interest payments, although this varies depending on the lender.

Do all Lenders Charge Prepayment Penalties?

Not all lenders charge prepayment penalties, which is why you’ll want to ask your lender if they do charge these fees, and if so, what the costs are and how they are calculated. NOLA Lending for example, does not generally write loans with prepayment penalties and explains to borrowers how these penalty fees are not a concern on most conventional and government loans.

If there are prepayment penalties however, the lender only charges the penalties if the loan is paid off before the sixth year, more specifically, in the second or third years. The penalties are designed to recoup some of the losses the lender may be faced with since the lender didn’t have time to make up for some of the costs it advanced.

Types of Prepayment Penalties

Prepayment penalties can be “hard” or “soft”. When the prepayment penalty is hard, that means that the fees will be assessed because the homeowner is selling or refinancing the home before the time period is met. When the prepayment penalty is soft, that means that the penalty is forgiven due to other circumstances.

Nevertheless, prepayment penalties can be expensive. Take a $200,000 mortgage loan for example. If you choose to pay off this amount in two to three years, you could be hit with six months of interest at 6 percent, which would come out to an additional $6,000 of penalty fees. Essentially, these fees are what deter homeowners from paying off their loans too soon and therefore, give lenders the time they need to regain their losses.

Final Thoughts

No matter the case, it’s always important to discuss prepayment penalties with your lender before signing. These penalties should never come as a surprise to the borrower and should be detailed in such documents as the Good Faith Estimate and Federal Truth in Lending. If you have an excellent credit score and are being told by your lender that you will have a prepayment penalty, be sure to get another opinion from a trusted lender.

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Maintaining good credit is a bit like staying in good health – it requires a fair bit of work and just a little bit of luck.  Yes some people are guilty of being inattentive to their credit in the past, but the more common scenario we encounter is when people suffer through unfortunate scenarios like a job loss, divorce, health crisis or even having your identity stolen…all of which can lead to credit problems.

All it can take is one missed payment and you are jarred with a seemingly never-ending bout of “bad credit,” but fear not; in this blog post we are going to show you a few “insider tips” on how you can help fix or improve your credit!

Tip #1 – Get the Facts in a Credit Report

Surprisingly, some people think their credit is worse than it actually is, so it pays to review your report with a mortgage professional to ensure you have the facts.  So the first step when trying to fix your credit score is to assess the real damage, so to speak, with a credit report. While this can be stressful, please try to bear in mind that we will also show you how to amend and correct your credit report.

If you are applying for a mortgage, we will run a credit report for you.  However if you are not quite ready to apply, there are many free trials available online which can show you your credit report in minutes.

Tip #2 – Pay down your credit card balances

Paying off your credit cards may seem like a great idea and if you can afford to do so, then by all means go ahead. But did you know that if you “pay down,” and reduce your balances to less than 30% of your total balance, and maintain a small balance, it could have a much better impact your credit score?

This is because lenders look at the amount of “available credit” you have when you apply for a mortgage.  If you are maxing out your credit limits on a monthly basis, than you have fewer options for things like unexpected home repairs.  And we all know that life is full of unexpected surprises like those!

Maxing out may also indicate that you are having trouble balancing your spending habits with your income – another warning sign that lenders look for.  Therefore, keeping sensible balances gives the appearance of using your credit responsibly, and indicates that you can manage your debts and income.  Plus it shows that you have “borrowing capacity” in the event of an emergency.

Tip #3 – Document, Document, Document

All too often we see borrowers who claimed to have paid an outstanding debt that is reporting negatively, but don’t have the documentation to back this up.  When this is the case it can be very difficult to remove the negative ratings.

The bottom line is that no matter what you do to pay off, pay down, or resolve credit issues – you must document everything!  If you send off a double payment to a creditor, make a copy of the check before you send it.  Or if you are wiring money to pay off a collection, keep a copy of the receipt.  Another good practice is to use certified mail when you are sending checks, that way you have a receipt of when your payment was received by the creditor.

It’s not always necessary to document every payment you make, but if you are attempting to catch up or pay off a debt, this is absolutely critical especially if we will need to present that documentation to a credit rating agency for updating.

Lastly, a few additional tips to consider for those with credit issues:

• Set up payment reminders in advance so you don’t accidentally forget a payment.
• Take advantage of automatic payment plans when possible so your bills are paid automatically.
• Sign up for e-banking which will allow you to pay bills instantly online and keep closer tabs on your payments and balances.

It may not seem like a logical situation, to charge a mortgage application fee, but many mortgage companies do so, and it is legal for them to do so.

Why would any mortgage company charge an application fee like this? The bottom line is that it helps them to turn a profit. In short, when you apply for a mortgage, someone has to take your information and process the application.

To offset the costs of that process, especially in situations where you do not go through with the loan, or do not qualify, this application fee can help to cover those costs of the lender.

What happens when you apply for a mortgage loan?

1.    The first step is to meet with a local loan officer to pre-qualify and determine your potential eligibility for a loan.

2.    The 2nd step is to submit your completed application to an underwriter who will analyze the credit history and the score of the applicant. This gives the first indication as to whether or not the lender will consider the borrower.

3.    Most of the time, there are contingencies involved in the approval process. For example, you may only qualify for the loan if you prove your income. However, sometimes there are other options available to those who do not otherwise qualify. For example, the lender may say that if you provide proof that you paid off a debt or that you have documentation that supports your current asset values then you may qualify for a lower interest rate.

4.    The loan officers will still need to review the process and will need to ensure that all data is in process properly. The loan officer also works with the applicant through the process. He or she may ensure that document is available and received, and determine if the loan will move further through the process.

Keep in mind that not all lenders charge these fees, but many do to help offset the costs of all the work that a loan officer needs to do in an instance where the mortgage loan is not approved. This happens in many cases, in fact. The costs will also range significantly from one lender to the next, depending on their fee structure.

In some cases, the applicant pays the fee upfront while in other instances, the applicant will pay it with closing costs. In all cases, you should be informed of the fee prior to actually applying for the loan, or you may not be able to apply until you pay the fee.

It’s one of the most stressful things mortgage originators, realtors and buyers ever face – last minute emergencies with closings.  Without careful and considerate management, it is easy for a client to find themselves in a strung-out paperwork battle and a fight against time.  But fortunately, the mortgage lending process doesn’t have to be this way for you.

Let’s take a look at the different steps in the lending process and how you can avoid being left with little to no time left on the clock!

The Lending Process explained

In theory, the lending process shouldn’t be a difficult process to tackle; it essentially breaks down into six basic steps:

1. Application
2. Pre-approval
3. Contract
4. Conditional Approval
5. Final Approval
6. Closing

Theoretically, once the mortgage application  is complete, it can be pre-approved with validating documentation and a contract can be drawn up so that the client can progress. This should take a reasonable length of time and come with as few complications as possible.

However, not every lender makes life as simple as NOLA Lending!  But even NOLA Lending sometimes gets stuck with last minute issues during verification (usually things the buyer didn’t disclose) or if someone such as a 3rd party drops the ball.

Common problems in the lending process

Unfortunately, some lending agents from other companies often choose to incorporate drawbacks into the lending process. NOLA Lending always advocates against these tactics and aims to secure your loan as quickly and accurately as possible.

Other lenders can delay your closing by a few extra weeks for any number of reasons such as:

• Lack of experience
• Poor management
• Incompetence
• Lack of communication

How a 30 day contract can be misused

Let’s take a look at how you could lose time and money by negotiating with an irresponsible lender.

First, understand that if you write a 30 day contract to close but you have the lender wait 10 business days for inspection and responses the close date is already in jeopardy.  A lender cannot get officially started without ordering an appraisal, so if you put that on hold for inspections the lender may not have enough time to close.

Below are steps to understanding a 30 day contract, title, and submitting the file for approval from a lender’s prospective:

1. Receive ALL client docs including the contract.  Delaying sending the lender a document can “pause” the whole process.
2. Order title
3. Order appraisal
4. Order insurance
5. Request additional documentation from clients and/or agents
6. Lender waits…
7. Documents are returned (hopefully quickly)
8. The loan is presented to the underwriter
9. Lender waits…
10. Underwriter issues conditional approval
11. Lender works approval and requests all required items from 3^rd parties
1. Updated income or assets should be obtained
2. Missing signatures on real estate forms should be completed including amendments, etc.
3. Explanation letters may be required
4. Updates or corrections to appraisal or title, or any other issues should be addressed
12. Lender waits… until everything is received from ALL! We cannot submit for final approval without these final docs!
13. Once ALL documents are received from ALL parties, submit for final approval and Clear to Close.
14. Receive final approval and Clear to Close
15. Send closing package
16. Close!

After a successful closing!

This may seem like a simple process, but let’s take a look at what is really going on here.

• The contract is written – so far so good
• The clock starts 30 days counting down – Those 30 calendar days are really only about 22 business days
• Lender waits on inspections (only if Agent or Client requests the lender to do so).  This may mean up to 10 – 12 days of additional delays
• Now there are only 18-20 days left and counting down quickly
• All paperwork must ordered from different parties which can take time while we wait on what we asked for
• The time in between dwindles down to about 5 business days or less of close very quickly

As you can see, not everything is quite as simple as it seems. Unfortunately, these delays are all too common.

How a 30 day contract can be further delayed

Other legitimate examples of how the lending process can be delayed can include:

• Insurance company waits until the last minute to submit insurance as it is needed long before the close date (express a sense of urgency with your insurance agent)
• Clients employer takes a while to provide information (same as above)
• Client takes a while to produce docs (work urgently and diligently to provide info & docs)
• Agents may take a while to produce required certificates or inspections

So if a poor lender wastes valuable time and everything doesn’t come back to the lender within 48 hours from the closing, and it takes 24-48 hours (generally) for an underwriter to review submissions; last minute issues can appear quickly, and worst of all, appear to be all the lenders fault although it really is not.

Study documents at the closing!

How to get the most from the lending experience

NOLA Lending wants you to know there are many responsible lenders out there and we hope you chose one of us to work with, and that there are simple ways you can help combat unnecessary delays in the lending process.

Here are some quick tips NOLA Lending advocates to help you save valuable time and money:

• Research the company you are going to work with
• Talk to an loan agent and see if you agree with their attitude and competency
• Make sure you uphold your part of the contract and submit paperwork immediately
• Feel comfortable being able to discuss the progress with your lender
• Feel comfortable being able to discuss any discrepancies
• Use “Full Disclosure” with your lender

NOLA Lending wishes you the very best in your lending process and hope that you have a fulfilling and profitable experience. If you have any questions regarding something you have seen here, or about lending in general, please feel free to contact one of our friendly agents at NOLA Lending in Covington who will be more than happy to answers any and all questions, with no obligation.

So what are you waiting for? Find out how NOLA Lending in Covington can help you today!

When applying for a mortgage , your lender may ask you to sign and submit a Form 4506. It is a form we get directly from the IRS which some mortgage lenders may require you to complete as part of your loan application.

What is a 4506 used for?

Form 4506 T, as it is most often requested, is also called a Request for Transcript of Tax Return. This document allows for a copy of your tax return to be obtained from the IRS directly. A mortgage lender may request this to verify your income documentation that you have provided as part of your loan application.

There are a few things to know about it.

1. This form may be necessary if you are a self-employed borrower and the lender wishes to see official documentation of your most recent earnings from the IRS.
2. This form is also used to detect fraud in cases where there is an apparent discrepancy. If there is some reason the lender does not believe your reported income is accurate, they may take steps to verify it through this manner.
3. Many mortgage companies also use this tool randomly within their business. For example, during the course of the day the lender may request a certain number of these documents. This is often for a quality control measure and those who receive the request are selected randomly.

4506 as part of the loan process

The fact that your lender has asked for a signed 4506 doesn’t necessarily mean they suspect fraud or have identified an issue with your loan.  It may simply be part of their regular process.

During any loan application, it is necessary for mortgage lenders to verify the information you provide to them.  So as a rule, when filling out documents to obtain a loan, always provide the most accurate information. Ensure that all statements you make are accurate and verifiable to avoid any problems with this step or other verification steps the lender will take.

The process of getting your kids ready to head back to school in the fall takes longer than just a day or two to wrap up. As a busy parent, you need to be ready for that first day of school no matter if your child is entering kindergarten or heading off to high school. Throughout the summer, you can do things to help your child prepare for the new school year and it often is easier to do if you plan in advance.

Here are some things that can help you to get your child ready for school

1. Is your child reading? Children of all ages should be reading on a daily basis. The more frequently he or she reads, the more he retains and the better he is able to glean more information from the material. Reading daily is something parents should instill in children from a very young age.
2. Practicing English and math skills can be a challenge especially when flashcards are so boring and dull. The good news is that there are now computer games online to help make it all a lot more enjoyable.
3. Be sure that supplies are in check, too. Find out what your school requires and then pick up items throughout the summer to keep the costs in line. It is a good idea to buy all of what you may need throughout the school year during these low cost sales.
4. Is your child sleeping well? The best way to prepare him or her for school is to get into a regular bedtime routine. Getting enough, quality sleep is critical for maintaining the ability to function properly at school.
5. Set up a place in their bedroom, living room or another location in the home that allows for study. A desk, paper and other supplies gives the child a location to do homework and to create a routine for getting work done efficiently.
6. Pick up clothing and other items the child may need, such as school bags, throughout the summer. Finding great sales can help you to save a substantial amount of money.
7. Be excited about school so that they are excited about going back to school, too.

Going back to school does not have to be a hassle. By planning, it is easier for you to achieve success that first day of school and for the many days that come after it throughout the school year.

A second mortgage is a home mortgage that you take out in addition to your first. It is a different arrangement from a refinance. When you refinance a mortgage, you simply take out a loan that loan replaces your existing mortgage. A second mortgage is written in addition to your first mortgage so you have two payments instead of just one.

How Does it Work?

A second mortgage functions as a lien against your home for the amount of the second mortgage. You still owe whatever you had left on your first mortgage. The bank merely writes you another mortgage and, because it is secured by your home, it usually has good interest rates. This is the reason that some people choose to go this route instead of refinancing. Refinancing sometimes increases the interest rate on the mortgage and, therefore, a second mortgage is sometimes preferable.

What is it Used For?

A second mortgage is oftentimes used in the same fashion as a cash out refinance. Typical things people use 2nd mortgages for include:

• Paying off undesirable loans, such as credit card debt, and replace those debts with the superior interest rates available on the mortgage loan.
• Property improvements or other expenses that will increase the value of their home over time.
• Trips, vacations, tuition and other short term cash needs

 Two Loans Instead of One

A second mortgage is a separate lending product that you’ll have to make payments on. It’s not a part of your regular mortgage, so that may make your monthly finances a bit more complex.

A second mortgage is also tougher to qualify for than a refinance. The second mortgage will also have its own interest rates and so forth, so you’ll have to take this into account when you’re taking out the loan.

Getting a Second Mortgage

Talk to a loan officer at NOLA Lending  today to see if you qualify for a second mortgage. If this isn’t an option for you, you may want to consider a refinance, which is much more common these days. Second mortgages were more common in the past than they are today and, because of the convenience and wider availability of refinancing options, most owners go for that type of funding.

A mortgage calculator is a handy tool, but it cannot replace a mortgage professional. A mortgage calculator can give you a ballpark figure for what you can afford, however, based on your income and, depending upon how sophisticated the calculator is, the local tax rates and the cost of homeowner’s insurance for the properties you’re considering.

Caveats

Homeowner’s insurance rates will vary considerably depending upon where the home you’re looking at is located – especially in southern Louisiana – where the ability to get private coverage or having to go with the state Fair Plan may make or break your mortgage application!

You have to take this into account and using national averages is really not that useful as a means of determining how much you’re going to end up paying for this necessary cost. An insurance company is really the only reliable source for this info, or a mortgage broker that can find out from an insurance company for you.

You’ll also want to make sure that you consider taxes into the equation. These will vary from place to place and not all online mortgage calculators even consider this. If your taxes are around $3,000 per year, you can count on that amount being added to the cost of owning your home. This may put the cost of the home over the edge for you where affordability is concerned.

Make sure you take into account the fact that a mortgage calculator just gives you a number based on a percentage. For instance, a mortgage broker works with you in a way that mirrors how a bank will determine your suitability for a loan. This will include taking into account the amount of expenses you have already. Your car loan, insurance payments, credit card debt and so forth will all factor into how much you can afford in the way of a mortgage.

A mortgage calculator will usually just give you a percentage, somewhere between 28 and 33 percent, of your total income and factor in a few other numbers to determine how much you could borrow.

Calculators Have No Lending Authority

A mortgage calculator is handy and can give you some rough ideas of your borrowing capacity. However, it’s important to remember that banks don’t make lending decisions based on what these calculators say you can afford.

So while a mortgage calculator can get you started, give you an idea of how much you should seek and so forth, it takes a home mortgage professional to really determine how much you can borrow.