Erin Callahan's Blog
Are you having money issues? Well, you are not alone. Financial problem is something that affects everyone from time to time. When money is tight, and your mortgage is due, you might have heard this advice many times — " Take up a mortgage payment holiday" But before you do that, get this: taking a break from your mortgage repayment is not always the best idea. In this post, you will uncover all you need to know about mortgage payment holidays.
What is a Mortgage Payment Holiday?
A mortgage payment holiday is an agreement a person may reach with his/her lender permitting them to reduce or halt their monthly mortgage repayments for a specific period. The duration of this break can range from one month, six months or even a year. However, the length of the breaks depends on a person's financial situations and the terms laid out by the lender.
Who is eligible for a Mortgage Payment Holiday?
Most of the times, Mortgage payment holidays are offered by lenders when:
- If a person has accumulated a generous amount of credit via mortgage over-payments.
- If unforeseen expenses prevent a person from making repayments.
- If there is a change in the financial circumstance of a person.
When nursing the thought of taking a payment holiday, always remember you will need a decent history of your repayments, most times with no back payment due during the previous year of your mortgage.
The Good Side of a Mortgage Payment Holiday
It temporarily takes some pressure off your monthly expenditure until you get a new source of income.It is the best way to find your feet again instead of choosing to go into mortgage arrears.
The Bad Side of a Mortgage Payment Holiday
Even though you are not making mortgage payments, your remaining mortgage balance is still piling up interest.After the holiday payments, your mortgage repayments will be higher than they were before you took the payment holiday.Since it will affect your credit file, you might find it challenging to get credit.
A break from your payment might be a prudent choice if the only option is going into arrears. But don't forget the "bad side." If something confuses you about how to you will make a payment, then you will need to speak to your lender.
Securing mortgage pre-qualification and pre-approval are two crucial steps which assure lenders that you will be able to afford payments. Pre-qualification and pre-approval are quite different, but they do share numerous benefits.
As you get ready to finance a new home, you have probably come across mortgage pre-approval, mortgage pre-qualification, or even both of them. So what does it mean to get pre-qualified versus get pre-approved for a mortgage, and what are the benefits of the two? Some people use these terms interchangeably, but there are crucial differences that every homebuyer should know.
The Similarities of Pre-Approval and Pre-Qualification
Mortgage pre-approval and pre-qualification have the same great benefits for anyone who wants to buy a home with a home loan. Here are the benefits:
1. Both can help to estimate the loan amount that you will probably qualify for.
This particular benefit can help you save time as you will start your home search with a goal in mind: looking only at properties that you know will fall into your budget or fit in your financial goals. It will also help you avoid the frustration of discovering that the house you are looking to buy is actually outside your budget.
2. Both can help convince sellers that you are a serious buyer when submitting your offer.
Regardless of whether you have a pre-approval or a pre-qualification letter, the seller will take you as a serious contender. For a home seller to accept your offer without fear, they will want to know that you will be approved successfully for a mortgage and the home sale will close. A pre-qualification and pre-approval letter can help show that you have a better chance of being approved for a home loan for the amount that you have offered on the home.
3. Both of them will make you stand out from the crowd.
Many home sellers will require a pre-qualification or pre-approval letter if you are planning to get a mortgage as one of the mandatory requirements. However, if it is not needed, have it at the back of your mind that the letter may help your offer stand out. This can be extremely helpful, especially in competitive real estate markets.
Additionally, you should know that neither pre-qualification or pre-approval letter is a guarantee that you will get a loan from the lender. Also, you are not duty-bound to get a mortgage from the lender who pre-qualified or pre-approved you. Pre-qualification or Pre-approval?
Since the terms mortgage pre-qualification and pre-approval are often used interchangeably, it could be challenging to know which one you need to purchase a home. This depends on how your mortgage lender defines the service. So, ensure you ask your lender exactly how they interpret pre-qualification and pre-approval.
Then discuss with your real estate agent to find out which version of the letters has more credibility in your market. So that when it is time to make an offer, you will have what you need to give sellers confidence that you will be approved for a mortgage.
When dealing with mortgages, people erroneously believe that the smaller the mortgage taken out, the better for them. This article will clarify the reasons why even as daunting as it sounds, the larger and more prolonged the loan, the better.
People who apply for mortgages are those who want to own a house but don't have sufficient cash to buy one or those who need a large sum of money from a lender and use their house as collateral. These borrowers have an extended period to pay it back, and the length of time varies up to 30 years depending on the agreement between the two parties and the size of mortgage money-wise.
If the mortgage borrower is unable to pay after the stipulated time, the property is foreclosed and most probably sold so that the lender, which is usually the bank, is paid back for the loan. For this fear of not being able to pay back, borrowers tend to get smaller mortgages, but below are reasons why getting bigger mortgages may be better in the long run;
1. It gets easier
Over time, payment gets more manageable because the property value appreciates, and the borrower's income rises steadily while monthly mortgage payment remains the same especially if choosing a fixed-rate loan. Thus, as time goes on, the money to be paid gets less daunting and less significant in comparison to the borrower's inevitable financial growth over the years. In the beginning, it may be a struggle to make the payments. But, over time it gets easier.
2. Mortgage accords you the ability to invest more and quicker
Many people prefer long mortgages because that means that the monthly payment will be smaller and spread out over a longer time as opposed to short-term loans. It may be better to invest a more significant amount now to reap more productive rewards in the future as one can use the proceeds from the investment to pay up. This seemingly huge risk only encourages more and faster investments too. In the long run, bigger mortgages result in bigger monthly payments, but it may also result in greater wealth.
3. Mortgage: liquidity and flexibility
It is best not to listen to people who say that all that matters in mortgage loans is paying it off. Or, that it is a risky thing to do. Applying for a small mortgage loan with this mentality will not grant you flexibility. People who get small mortgage loans do not put into consideration all the other necessities toward which the money should go. Hence, one loses liquidity and control over access to one's money. Even though it would most likely appreciate in the long term, you are going to be handicapped in the short-term.
No matter what you decide, it is essential to understand that you must do what works the best for you both long term and short. Discuss with your personal financial consultant and real estate agent.
Many first-time home buyers are worried about all of the documents and information they’ll have to gather when applying for a mortgage. If you’re anything like me, you’re probably dreading having to dig through the five places that these documents might be. Fortunately, the process is now somewhat streamlined thanks to lenders being able to collect most of your information digitally.
In today’s article, we’ll talk about the documents you’ll need to collect when you apply for a home loan so that you feel prepared and confident reaching out to lenders.
Documents needed to pre-qualify
Before going into applying for a mortgage, let’s talk about pre-qualification. There are three types, or in some cases steps, of approval with most mortgage lenders: pre-qualification, pre-approval, and approval.
Pre-qualification is one of the earliest and simplest steps to getting pre-approved. It gives you a snapshot of the types and amount of loans you can receive. Pre-qualification typically doesn’t include a detailed credit analysis, nor do you need to provide many specific details or documents.
Typically, you’ll fill out a questionnaire describing your debts, income, and assets, and they will give you an estimate of the loan you might qualify for. Might is the key word here. Your pre-qualification amount is not guaranteed as you haven’t yet provided official proof of your information.
Documents needed for pre-approval
Getting pre-approved for a mortgage entails significantly more work on the part of you and your lender than pre-qualification. First, the lender will run a credit analysis. You won’t need to provide them with any information for this step, as they’ll be able to automatically receive the report from the major credit reporting bureaus. However, it’s a good idea to check your report before applying to make sure there aren’t any errors that could damage your credit.
Now is where the legwork comes in.
You’ll need to gather the following documents to get officially pre-approved or approved for a mortgage:
W-2 forms from the previous two years. If you are self-employed, you’ll still need to provide income verification, usually as a Form 1040, or “Individual income tax return.”
Two forms of identification. A driver’s license, passport, and social security card are three commonly accepted forms of identification.
Pay stubs or detailed income information for the past two or three months. This ensures lenders that you are currently financially stable.
Federal and State income tax returns from the past two years. If you file your taxes online, you can often download a PDF version that includes your W-2 or 1040 forms, making the process of submitting tax and income verification much easier.
Personal contact information. Name, address, phone number, email address, and any former addresses which you’ve lived in the past two years.
Bank statements from the previous two months. Also, if you have any assets, such as a 401K, stocks, or mutual fund, you’ll be asked to include those as well.
A complete list of your debts. Though these will likely be on your credit report, lenders want to ensure they have the full picture when it comes to how much you owe other creditors and lenders.
If you’re a first-time homebuyer, odds are you’ve thrown the words “prequalified” and “preapproved” interchangeably. However, when it comes to home loans, there are some very important differences between the two.
For buyers hoping to purchase a home with a few missteps and misunderstandings as possible, it’s vital to understand the procedures involved in acquiring financing for a home.
Today, we’ll break down these two real estate jargon terms so that you can go into the mortgage approval process armed with the knowledge to help you succeed in securing a home loan.
Let’s start with the easy part--mortgage prequalification. Getting prequalified helps borrowers find out what kind and what size mortgage they can likely secure financing for. It also helps lenders establish a relationship with potential customers, which is why you will often see so many ads for mortgage prequalification around the web.
Prequalification is a relatively simple process. You’ll be asked to provide an overview of your finances, which your lender will plug into a formula and then report back to you whether or not you’re likely to get approved based on your current circumstances.
The lender will ask you for general information about your income, assets, debt, and credit. You won’t need to provide exact documents for these things at this phase in the process, since you have not yet technically applied for a mortgage.
Prequalification exists to give you a broad picture of what you can expect. You can use this information to plan for the future, or you can seek out other lenders for a second opinion. But, before you start shopping for homes, you’ll want to make sure you’re preapproved, not prequalified.
After you’ve prequalified, you can start thinking about preapproval. If you’re serious about buying a home in the near future, getting preapproved will simplify your buying process. It will also make sellers more likely to take you seriously, since you already have your financing partially secured.
Mortgage preapproval requires you to provide the lender with income documentation. They will also perform a credit inquiry to receive your FICO score.
Mortgage applications and credit scores
Before we talk about the rest of the preapproval process, we need to address one common issue that buyers face when applying for a mortgage. There are two types of credit inquiries that lenders can perform to view your credit history--hard inquiries and soft inquiries.
A soft inquiry won’t affect your credit score. But a hard inquiry can lower your score by a few points for a period of 1 to 2 months. So, when getting preapproved, you should expect your credit score to drop temporarily.
Once you’re preapproved for a mortgage, you can safely begin looking at homes. If you decide to make an offer on a home and your offer is accepted, your preapproval will make it easier to move forward in closing on the home.
Once the lender checks off on the house you’re making an offer on, they will send you a loan commitment letter, enabling you to move forward with closing on the home.