Mortgage FAQs
What do I need to know about qualifying for a mortgage?
Your Ameritrust mortgage professional wants to provide the best possible loan for your financial situation. Many people may be surprised to learn that they can qualify for a loan, even if they have had some credit problems in the past. By contacting an Ameritrust loan professional, you can work together to understand what mortgage is right for you.
Mortgage lenders consider the following when working with you for a loan:
Down payment
Some lenders like a down payment that is 20% of the value of the home. However, there are many types of mortgages that require less down, especially if you have good credit. Your mortgage professional will work with what you can afford to put down, and will review the right mortgage product for your needs.
Loan to Value ratio
Lenders look at the Loan to Value (LTV) when underwriting the loan. Divide your loan amount by the home's appraised value to come up with the LTV. For example, if your loan is $70,000, and the home you are buying is appraised at $100,000, your LTV is 70%. Most often, the lower the LTV %, the lower interest rate you can get. Even if your LTV is 95% you can still get a loan, just for a higher interest rate.
Debt ratios
There are two debt-to-income ratios that are evaluated in mortgages.
- The Housing Ratio (sometimes called the "front-end ratio") is: your anticipated monthly house payment plus other costs of homeownership (e.g., condo fees, etc.) divided your gross monthly income.
- The Debt Ratio (sometimes called the "back-end ratio") is: all of your monthly debt (e.g., credit cards, student loans, alimony, child support) plus your full monthly housing expenses divided by your gross monthly income.
Ideally, your housing ratio should be no more than 28 percent of your gross monthly income and your debt ratio should be less than 36 percent. However, guidelines vary widely and there are a variety of mortgage products available for each individuals needs.
Credit report.
A lender will want credit report and credit score for you. Your credit score helps lenders predict how likely you are to pay back the loan on time. Your lender will get a FICO (registered) score for you - it is today's most commonly used scoring system. FICO scores range from 300-850, and higher FICO scores are better. Lenders buy your FICO score from three national credit reporting agencies (also called credit bureaus): Equifax, Experian and TransUnion.
FICO credit scores above 700 are a sign of good financial health. FICO scores below 600 indicate you may need to address some issues before you are able to get the best loan possible. Talk with your mortgage professional to understand how your score affects your mortgage.
What types of Mortgages are available?
There are many types of Mortgages available, each suited for different financial goals and needs. Your Ameritrust mortgage professional will work with you to ensure the best possible mortgage for your financial situation. The three most widely used home loans are:
Fixed Rate Mortgage
The most common mortgage is a fixed rate mortgage, where your monthly payments remain the same over the life of loan. Fixed rate mortgages are commonly available for 15 or 30 year terms. The monthly payment for the entire 15 or 30 years remains the same on these loans. In the beginning years of the loan, most of your monthly payment pays interest on the loan. In later years, your payments apply more to paying down the principle of the loan.
Adjustable Rate Mortgage
An Adjustable Rate Mortgage, called an ARM, is when the interest rate of the loan changes over the life of the loan. The interest rate of the loan changes based on an underlying index rate. Different lenders may use different indicies to calculate the interest rate you will pay. The most common indicies used are rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to Savings and Loan Associations. An adjustable rate mortgage may also have a lower interest rate at the beginning of the loan, but change to a higher rate after a few years, simply based on the loan agreement.
Home Equity Loan/Line of Credit Loans
A home equity loan is where you borrow against the equity you have in your home. Equity refers to the amount your home is worth, minus the amount you owe on it. A loan is then structured to give you access to cash for the equity amount. Many people use these “second mortgages” to pay for home improvements, college costs or other spending. Home equity and lines of credit are usually repaid over a shorter time period than original mortgages, often 15 years, although the payment period can be as short as five years.
See our Mortgage Products Page for more detailed information.
Should I Consider Refinancing?
For most people the answer is yes, you should look into how refinancing could benefit your individual financial goals. Because interest rates are probably lower today than when you originally financed your home, refinancing could save you thousands over the life of the loan. In addition to lower interest rates, many people find that their financial life has changed a bit from when they originally financed their home. It is helpful to work with your Ameritrust financial professional to see how refinancing can improve your overall financial picture and fit your financial needs today. More details:
1. Interest Rates are Historically Low
Taking advantage of current interest rates and locking into a new loan can save an incredible about of money over the lifetime of your loan- money that can be spent elsewhere or saved.
2. Lower Your Monthly Payment
If you plan to live in your home for a few years, it may make sense to pay a point or two to decrease your interest rate and overall payment.
3. Switch From an Adjustable Rate to a Fixed Rate Mortgage
Adjustable rate mortgages (ARMs) traditionally provide lower initial monthly payments for those who are willing to risk market rate increases. If you plan on owning your property only a few years, they can be advantageous. However, at current rates, you may want to swap your adjustable rate for a stable, fixed rate mortgage.
4. Eliminate Balloon Payments
Balloon programs are another source of low rates and lower initial monthly payments. However, if you still own the property at the end of the fixed rate term, the entire balance of your mortgage becomes due. If you are in a balloon program, you can easily switch over into a new adjustable rate mortgage or fixed rate mortgage.
5. Eliminate Private Mortgage Insurance (PMI)
You can qualify to eliminate PMI if you have made your mortgage payments on time every month for a specific time (usually a year), and you have reached a point of having 20% equity in your home, either through appreciation or paying down your mortgage.
6. Cash In on Your Home's Equity
Home Equity Loans can help pay off credit cards, temporarily accommodate changing cash flow, make home improvements, pay tuition, or other important expenditures. These loans are also tax deductible.
Commonly Asked Questions About Refinancing
Can I refinance for no cost or low cost?
It is possible. There are a variety of loan programs available, and a conversation with a loan specialist can help you find a loan that fits your goals.
Is it worth refinancing if I only see a small change in my current rate?
A lower interest rate will save you money if you plan to stay in your home for more than a few years. However, even if you don't pick a lower interest rate, refinancing can still save you money by allowing you to roll in higher interest debt, or interest-only option.
I lost my job, can I refinance to help handle my monthly payments?
If you have worked under a W-2 and we cannot currently verify employment, it is unlikely you can refinance. Self-employed borrowers require employment verification or one year of tax returns. If you have missed payments, you should contact your lender to see if you are eligible for a loan modification program.
I have been late on a few payments, am I still eligible to refinance?
It depends on what type of payments you have been late on, how long ago your last late payment was and what type of loan you are applying for. One of our specialists can help you determine your eligibility
What is the difference between a refinance and a loan modification?
A refinance is seeking a new loan with a more advantageous rate and term for the borrower, that may be from the same or different lender. In the current market it requires adherence to a minimum credit score and documentation. Loan modifications are short term solutions negotiated with the same lender and are often an extension of the loan to reduce monthly payments for people who cannot meet credit standards or have missed payments.
The current market continues to offer great opportunities benefit from refinancing a mortgage. The following are some general answers to commonly asked questions. The current lending environment continues to evolve, so please contact one of our loan specialists to get specific answers and a complete assessment of your eligibility for a refinance.
