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How the Truth in Lending Act Protects You When You Take Out a Mortgage
If you’re planning to get a mortgage, it’s critical that you know your rights under the law. The Truth in Lending Act (TILA) is a piece of federal legislation that governs how mortgage lenders can and cannot operate their businesses.
So how does the Truth in Lending Act protect you, and what are your rights under this legislation? Here’s what you need to know.
Your Lender Must Give You A Timely Loan Estimate
A Loan Estimate (previously known as a Good Faith Estimate) is a document your lender provides you that details information about what kind of a mortgage you’ve applied for. Your Loan Estimate includes terms such as your estimated monthly payment, your estimated interest rate, and whether or not your mortgage balance is able to rise even if you make payments.
Under the Truth in Lending Act, your lender is obligated to give you a good-faith Loan Estimate within three days of when you apply for your mortgage. If your lender fails to provide your Loan Estimate within three days or fails to fix reported errors within 60 days, you can sue for damages and report the lender to the federal government.
Your Lender Must Notify You Of Rate Changes
The Truth in Lending Act states that your mortgage lender is required to give you an annual percentage rate estimate within 1/8 of one percent of government guidelines. Your lender must use the government-approved mathematical formula to provide your rate estimate.
If your estimated rate may be subject to change, your lender is obligated to disclose the first possible change you’ll see to your interest rate, and the maximum degree to which it may change. Your lender is also required to disclose the maximum possible changes for subsequent rate adjustments.
There Are Strict Rules About How And When Lenders Can Charge Late Fees
If your lender typically administers fees for late payments, TILA will specify that your lender must notify you – in advance – the date on which a late fee will be imposed and how much the late fee will be. TILA states that no late fee can exceed 4 percent of the amount past due, and a payment is only considered late if it is 15 or more days past due (or 30 or more days past due if you prepaid your interest). Your lender also cannot charge you a late fee on top of a late fee.
TILA is a powerful consumer protection law that gives would-be homeowners a great deal of power. By knowing your rights under TILA, you’ll be able to confidently negotiate with lenders and avoid any unnecessary problems. Contact your local mortgage professional to learn more.
Mark Taylor | Arizona Home Loans | Blarming | Will You Listen to Me | Arizona Short Sales | Arizona Foreclosures | Arizona FHA Loans | Arizona USDA Loans | Real Estate Websites | Arizona HUD Homes | Ariona VA Loans | Fix My Broken Credit | Arizona Mortgage | Arizona Short Sale | Power Ranch Bank Owned Homes
3 Tips and Tricks to Make Mortgage Pre-Qualification Easy
If you’re planning to buy a home, you should know that the mortgage pre-qualification process is the first in a series of steps that eventually lead to home ownership. A pre-qualification is different from a pre-approval – the pre-qualification meeting is simply you and your lender hashing out how much you can afford to spend on a property. But once you’ve been pre-qualified, it makes the mortgage process easier.
So how can you make the pre-qualification quick and painless so you can get on with your house hunt? Here’s what you need to know.
Get Your Debts In Order
One of the major questions during the pre-qualification meeting will be your credit history and debt payments. Your lender will use your social security number to look up your credit history and determine how your income and current monthly debt payments stack up. If you have a high amount of debt, you may want to do everything you can to pay it down to qualify for your dream home. However, it’s important to go over the details with a trusted mortgage professional for specific guidance here.
Chart Your Income And PITI
Your lender will use a specific ratio (the PITI to income ratio) to determine how much it’s willing to lend you in order to buy a home – and that’s why, if you calculate this ratio beforehand, you’ll know what to expect going into the meeting. PITI stands for “Principal and Interest, including Taxes and Insurance”. It refers to the four components of a standard mortgage payment. Your PITI ratio, often referred to as the “front end ratio” then, shows how much of your income goes toward your monthly mortgage payment.
To calculate your front end ratio, simply divide your gross monthly income by your monthly mortgage payment (your PITI amounts plus your mortgage insurance). Most lenders will want to see a PITI to income ratio that is under 28%.
Build Up Your Savings Account
It’s important that you have some savings over time that can be used for a down payment, closing costs and reserves. Although there are some very low down payment options, having a decent balance in your savings account always helps you qualify easier for a mortgage.
Closing costs are the fees associated with getting a mortgage loan. These can also be negotiated to be paid by the seller if you choose. But once again, they aren’t required to make that concession, so it would be wise to move toward saving for those expenses.
Reserves are the amounts that will need to be collected to cover your taxes, insurance and mortgage insurance on the property. These will fund the “reserve” in your escrow account so you’ll always have enough to cover those expenses as they come due throughout the year. Your mortgage company keeps this money for you and pays the expenses on time as well.
Pre-qualifying for a mortgage can seem like a daunting process, but it’s actually quite simple. Your mortgage advisor can help you to understand what goes into a pre-qualification. Contact us today to learn more about how pre-qualifications work and how you can get started.
Mark Taylor | Arizona Home Loans | Blarming | Will You Listen to Me | Arizona Short Sales | Arizona Foreclosures | Arizona FHA Loans | Arizona USDA Loans | Real Estate Websites | Arizona HUD Homes | Ariona VA Loans | Fix My Broken Credit | Arizona Mortgage | Arizona Short Sale | Power Ranch Bank Owned Homes
Worried about Your FICO Score? 4 Easy Strategies to Fix It Up
If you’re worried about your bad credit, you’ll want to do everything in your power to improve your rating as quickly as possible – especially if you have a major purchase coming up. Improving your credit rating can give you access to better interest rates on mortgages or even help you to get that job you’re after.
IMPORTANT! If you are currently involved in a home loan transaction, speak with your trusted mortgage lender before taking any action regarding your credit!
So how can you boost your FICO score quickly and easily? Here’s what you need to know.
Get Your Credit Report And Dispute Any Errors
Credit reporting agencies don’t always keep 100% perfect records, and there’s a good chance that your credit report contains at least one error. One recent FTC study found that 25% of consumers have an error on their credit report, and that in 5% of cases, the errors were actually severe enough to impact the loan terms that borrowers were able to negotiate.
You can get your annual credit report from all three credit reporting agencies for free. Carefully read over it. If you see any errors – if your name is misspelled, if they have the wrong address on file, or if there are late or unpaid charges that you didn’t make – you can dispute the items in question.
Still Overdue? Negotiate Payment Terms With Your Creditors
If you’re overdue on a payment, it will weigh heavily on your credit score. As your payment history makes up a full 35% of your FICO score, this is one area where you’ll want to invest a great deal of time and effort.
Contact any creditors you owe money to and ask if you can negotiate your bill. The ideal outcome for you is to have the creditor report your debt as paid in full, so see if you can secure that promise in writing in exchange for an accelerated payment schedule.
Try Maintaining A Lower Utilization Ratio
Your utilization ratio refers to the amount of credit you use at any given time. If this number goes beyond 30 percent, you’ll start to see your credit score drop. Ideally, you should aim for a utilization ratio below 10 percent – this will prove to your lender that you can responsibly pay for the credit you use.
Have Recurring Bills? Automate Your Payments
Automating your monthly payments can be a great way to boost your credit score. Whether it’s your mortgage, your credit card, or your student loan, a pre-authorized monthly payment will ensure that everything gets paid on time and give you a great credit history.
Your FICO score is a number that will determine your eligibility for mortgages and other loans. These are general tips to help with your credit score and improve the overall reporting of your credit.
Call your local mortgage professional to learn about what kind of a mortgage your credit score can afford you.
Mark Taylor | Arizona Home Loans | Blarming | Will You Listen to Me | Arizona Short Sales | Arizona Foreclosures | Arizona FHA Loans | Arizona USDA Loans | Real Estate Websites | Arizona HUD Homes | Ariona VA Loans | Fix My Broken Credit | Arizona Mortgage | Arizona Short Sale | Power Ranch Bank Owned Homes
It Isn’t Always a Clear Road after Pre-approval: 4 Reasons Why Your Mortgage May Be Denied
So you’ve been pre-approved for a mortgage – great! You’ve taken the first step toward becoming a homeowner. But before you start picking out china patterns, you’ll want to keep in mind that a pre-approval isn’t the same thing as a mortgage agreement. There’s still no guarantee that you’ll actually get a mortgage.
But why would a lender deny a mortgage after pre-approving a borrower? Here’s what you need to know.
Sudden Changes In Income Or Employment History
A number of mortgages will require borrowers to have consistent employment for a certain length of time. If you apply for an FHA mortgage, for instance, you’ll be obligated to have an employment history dating back at least two years. Any gaps in your employment history will require a written explanation that your underwriter will need to approve.
If you switch career fields while in the process of buying a home and it has a significant impact on your income, your lender may deny your mortgage.
Credit Mismanagement After Pre-Approval
Lenders like to see consistency – so if your credit score suddenly drops after you’ve been pre-approved for a mortgage, it sends up a red flag. Even something as minor as a late payment on a cell phone bill could affect your credit score just enough to cause your lender to deny you. Pay extra attention to your bills throughout the home buying process, and make sure nothing slips past you.
Taking On More Debt In The Interim
A number of buyers will take on more debt after they’ve been pre-approved for a mortgage. Although it may be tempting to get a new car to go with your new house, getting a car loan will change your debt-to-income ratio and cause your lender to think twice about how responsible you are. If you’re in the process of buying a home, hold off on any other major purchases until after the deal has closed.
An Unsatisfactory Bank Appraisal
Sometimes, your mortgage can be denied for reasons that have nothing to do with you. Some lenders will only issue a mortgage if the property value of the house in question is appraised above a certain level. Others will deny a mortgage if the home requires roof repairs, electrical work, or a new heating system.
You’ll want to check with your lender to see what home conditions could be cause for denying your mortgage application.
Getting approved for a mortgage is a convoluted process at best, but a mortgage advisor can help you to navigate the approval process with ease. Contact your local mortgage professional for more tips on how to ensure you get approved.
Mark Taylor | Arizona Home Loans | Blarming | Will You Listen to Me | Arizona Short Sales | Arizona Foreclosures | Arizona FHA Loans | Arizona USDA Loans | Real Estate Websites | Arizona HUD Homes | Ariona VA Loans | Fix My Broken Credit | Arizona Mortgage | Arizona Short Sale | Power Ranch Bank Owned Homes