Are you applying for a new mortgage or a mortgage refinance? Its all too common a situation when you have applied for a mortgage with all the hope of moving into that new house only to find out that your financial institution has turned down your application for a mortgage refinance. All those dreams of a new home come crashing down in flames. But then, this need not happen if you get educated about how these mortgage issuers work and then do exactly as they want you to. So, what are these ways?
Below are the five most popular reasons why mortgage applications get rejected - some of them even at the final stage when you are all gung-ho about moving into the new house. By avoiding these five traps, you stand to have a better likeliness of actually having your application for mortgage approved.
1. A Low Credit Rating
Do you know the first thing a mortgage lender will do when you ask them for a loan? One of the first thing the mortgage lender will do when you submit your loan application is to check your credit ratings. Your credit report is easily available to lenders on request if you have submitted an application to them. Getting your credit rating can easily be obtained from all three reporting bureaus. If you have had a bankruptcy or a liquidation of assets, your mortgage application might be already shot. Even things like late payments can be too bad. All kinds of loans are checked - your credit card loans, your personal loans, your business loans, etc. In fact, a lending instruction will go as far as evaluating how you paid back your student loans as they evaluate whether or not to approve your mortgage.
2. High Price of Property
Some sellers would peg a very high price on the property they are selling. This could be because of several factors like location, amenities, condition of house, etc. But the lenders might find such high prices quite unrealistic to finance for. If there's a property whose worth is just about 100,000 in the market, but someone is wishing to sell it for 500,000, then no seller would want to come forward to finance it. This is one more reason why mortgage applications fail.
3. Appraisal Value of Property is Low
This ties in with the above point, actually, but it is different. When you make a mortgage application, the lenders will send their experts to the venue to check out the property and to assess its market value. This step is called as appraisal. Many times, the mortgage application is rejected at appraisal because the value of the property is assessed to be lower than what is applied for.
4. Insufficient Funds in Bank Account
You are not going to get all the funding for the property from the mortgage. You will have to shell out 5 to 25% of the value from your own pocket. Plus there are the fees due at closing to consider. The lenders will dig into your bank account for these fees. If you do not have the right funds ready for them, they will reject. Yes, many lenders just reject without justifying the reason, when the actual reason might be that they have looked into your bank account and made the impression that you would not be able to pay the remaining charges and property value.
5. Too Much Debt
Struggling under a lot of debt is never helpful and especially not good for your mortgage application. If you have too many loans that you are somehow juggling, the lenders would not like to burden you with another. Your level of debt can easily be see on your credit report.
Showing posts with label Mortgage. Show all posts
Showing posts with label Mortgage. Show all posts
Wednesday, February 13, 2013
Sunday, February 3, 2013
Factors And Variables Influencing Mortgage Finance
Properties are secured under mortgage to oblige the borrower to make a predetermined succession of loan payments. A borrower can obtain mortgage finance to from a financial institution like banks. Components like loan size, loan maturity, interest rate and loan payment method differs significantly from one creditor to another.
Mortgaged properties levy restrictions on the use or disposal of the property like selling the property before closing outstanding debt payment. In countries where the demand for home ownership is colossal, robust domestic markets have developed. Economies of USA and UK heavily depend on mortgage finance.
In the USA, borrowers obtain the mortgage finance by submitting a Loan application in conjunction with documents related to borrower's credit or financial history to the bank underwriter. Alternatively, borrower's can submit the same documents to a mortgage broker, who then assess the information and provides the borrower with best possible options of financing the mortgaged property. Often, unsuspected borrowers fall prey to unscrupulous money- lenders or brokers en-cash on the borrower's plight and work the situation to their advantage, while eliminating the mortgage responsibility on the property and force the property owners into foreclosures.
Lenders take into account key factors that influence their decisions regarding lending to a borrower. These factors include credit report, outstanding credit, credit card accounts, down payment, income, interest rates, available funds and debt to income ratio. In addition, supply & demand, interest rates, demographics and economic growth relatively influence the mortgage industry.
Mortgage loans are available to borrowers at Fixed and Adjustable interest rates.
Regardless of national interest rate change, fixed interest rates remain unchanged. Used as part of an introductory offer, usually they are replaced by higher fixed rate or variable rates upon successful completion of six months of the loan duration. The alternative to change a fixed interest rate is through refinancing - getting a lower fixed rate or variable rate on the new loan agreement. Fixed interest rate provides a security against elevating national rates, borrowers are an advantage of paying a comparatively lower are, if locked for a lower fixed rate than the current national rate. It makes budgeting easier, if succession of loan payments is unequivocal. However, the disadvantage lies when the national rates have pulled down, borrowers end up paying a higher interest on their mortgage loan.
Variable rates in contrast fluctuate in response to changes in national rates. It is directly proportional to the national rates, hence when national rates pick up; variable rates increase and when they decline so do the variable rates. It's the most common type of interest rate used for small loans and credit cards. With variable rates prediction of lump sum payment is difficult, it could increase up to several times than the payment that could have been made in matter of few months. However, monthly payments remain fixed and the final payment may be a different amount due to the fluctuating interest that has been accrued over the loan.
Fixed and variable interest rates are popular when dealing with mortgage finance, though there are other types of loans like balloon loans and government backed loans that offer both types of interest as well.
Mortgaged properties levy restrictions on the use or disposal of the property like selling the property before closing outstanding debt payment. In countries where the demand for home ownership is colossal, robust domestic markets have developed. Economies of USA and UK heavily depend on mortgage finance.
In the USA, borrowers obtain the mortgage finance by submitting a Loan application in conjunction with documents related to borrower's credit or financial history to the bank underwriter. Alternatively, borrower's can submit the same documents to a mortgage broker, who then assess the information and provides the borrower with best possible options of financing the mortgaged property. Often, unsuspected borrowers fall prey to unscrupulous money- lenders or brokers en-cash on the borrower's plight and work the situation to their advantage, while eliminating the mortgage responsibility on the property and force the property owners into foreclosures.
Lenders take into account key factors that influence their decisions regarding lending to a borrower. These factors include credit report, outstanding credit, credit card accounts, down payment, income, interest rates, available funds and debt to income ratio. In addition, supply & demand, interest rates, demographics and economic growth relatively influence the mortgage industry.
Mortgage loans are available to borrowers at Fixed and Adjustable interest rates.
Regardless of national interest rate change, fixed interest rates remain unchanged. Used as part of an introductory offer, usually they are replaced by higher fixed rate or variable rates upon successful completion of six months of the loan duration. The alternative to change a fixed interest rate is through refinancing - getting a lower fixed rate or variable rate on the new loan agreement. Fixed interest rate provides a security against elevating national rates, borrowers are an advantage of paying a comparatively lower are, if locked for a lower fixed rate than the current national rate. It makes budgeting easier, if succession of loan payments is unequivocal. However, the disadvantage lies when the national rates have pulled down, borrowers end up paying a higher interest on their mortgage loan.
Variable rates in contrast fluctuate in response to changes in national rates. It is directly proportional to the national rates, hence when national rates pick up; variable rates increase and when they decline so do the variable rates. It's the most common type of interest rate used for small loans and credit cards. With variable rates prediction of lump sum payment is difficult, it could increase up to several times than the payment that could have been made in matter of few months. However, monthly payments remain fixed and the final payment may be a different amount due to the fluctuating interest that has been accrued over the loan.
Fixed and variable interest rates are popular when dealing with mortgage finance, though there are other types of loans like balloon loans and government backed loans that offer both types of interest as well.
Saturday, January 12, 2013
Will Additional Fed Stimulus Cause Lower Mortgage Rates?
Earlier this week, a colleague of mine wrote a good post on how an additional round of quantitative easing by the fed might affect mortgage rates. For those who don't know quantitative easing is a mechanism by which the Federal Reserve increases the money supply. The Fed does this by creating money out of whole cloth, which it then uses to purchase assets (in this case the Fed will likely purchase treasury bonds). This transfer of cash into the economy is supposed to give banks excess reserves, and this excess is lent out or put into the economy, hopefully stimulating growth.
In a speech earlier today Fed Chairman Ben Bernanke seemed to indicate that economic conditions warrant further quantitative easing by the fed (this would be the second major round of quantitative easing, thus the nickname QE2). Bernanke said:
"Given the Committee's objectives, there would appear-all else being equal-to be a case for further action. However, as I indicated earlier, one of the implications of a low-inflation environment is that policy is more likely to be constrained by the fact that nominal interest rates cannot be reduced below zero. Indeed, the Federal Reserve reduced its target for the federal funds rate to a range of 0 to 25 basis points almost two years ago, in December 2008. Further policy accommodation is certainly possible even with the overnight interest rate at zero, but nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used".
This is not really a surprise to anyone. Analysts and pundits have been expecting a second round of quantitative easing for quite some time now. The economy is growing at a much slower pace than the Fed's growth goal of 2 percent. While some Fed Governors (such as Thomas Hoenig of the Kansas City Fed) are opposed to further QE due to fears of inflation, that viewpoint seems to be the minority.
So the big questions are: will this stimulus work, and what effect will it have on mortgage rates? The second question is the most easily dealt with, so let's start there. Theoretically, additional bond purchases from the Fed should cause mortgage rates to decline. Additional demand for treasury notes created by Fed purchases should cause the prices of these notes to increase. This will cause the yield on these bonds to decrease. Mortgage rates generally follow treasury yields, so if yields decrease, so should mortgage rates. However, we have seen mortgage rates hit all-time lows for the last four weeks. It is entirely possible that QE2 is already baked into the price of bonds, as everyone already expects it to occur. If this is the case, mortgage rates might only move significantly if the size of the stimulus is much greater or smaller than the market expects.
Whether or not QE2 will be successful in stimulating the economy is a more difficult question, and I left my crystal ball at home today. Paul Krugman of the New York Times has suggested that we need -10 trillion worth of QE. This seems unlikely to happen. Opinions on the effectiveness of monetary policy for relieving our current situation vary. Interest rates have been near zero for more than a year, and the economy is still struggling. Only time will tell, but it is entirely possible that the Fed is simply pushing on a string here. The next Federal Reserve meeting occurs November 2-3, so we will know more at that time.
In a speech earlier today Fed Chairman Ben Bernanke seemed to indicate that economic conditions warrant further quantitative easing by the fed (this would be the second major round of quantitative easing, thus the nickname QE2). Bernanke said:
"Given the Committee's objectives, there would appear-all else being equal-to be a case for further action. However, as I indicated earlier, one of the implications of a low-inflation environment is that policy is more likely to be constrained by the fact that nominal interest rates cannot be reduced below zero. Indeed, the Federal Reserve reduced its target for the federal funds rate to a range of 0 to 25 basis points almost two years ago, in December 2008. Further policy accommodation is certainly possible even with the overnight interest rate at zero, but nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used".
This is not really a surprise to anyone. Analysts and pundits have been expecting a second round of quantitative easing for quite some time now. The economy is growing at a much slower pace than the Fed's growth goal of 2 percent. While some Fed Governors (such as Thomas Hoenig of the Kansas City Fed) are opposed to further QE due to fears of inflation, that viewpoint seems to be the minority.
So the big questions are: will this stimulus work, and what effect will it have on mortgage rates? The second question is the most easily dealt with, so let's start there. Theoretically, additional bond purchases from the Fed should cause mortgage rates to decline. Additional demand for treasury notes created by Fed purchases should cause the prices of these notes to increase. This will cause the yield on these bonds to decrease. Mortgage rates generally follow treasury yields, so if yields decrease, so should mortgage rates. However, we have seen mortgage rates hit all-time lows for the last four weeks. It is entirely possible that QE2 is already baked into the price of bonds, as everyone already expects it to occur. If this is the case, mortgage rates might only move significantly if the size of the stimulus is much greater or smaller than the market expects.
Whether or not QE2 will be successful in stimulating the economy is a more difficult question, and I left my crystal ball at home today. Paul Krugman of the New York Times has suggested that we need -10 trillion worth of QE. This seems unlikely to happen. Opinions on the effectiveness of monetary policy for relieving our current situation vary. Interest rates have been near zero for more than a year, and the economy is still struggling. Only time will tell, but it is entirely possible that the Fed is simply pushing on a string here. The next Federal Reserve meeting occurs November 2-3, so we will know more at that time.
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