Massachusetts Mortgage Basics 101
Let’s start with the basics from a high level about what a mortgage is and what it means to you before we dive into the details about the various programs and the amount of mortgage payment you can afford.
According to Wikipedia, a mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan.
However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.
We break down the details of each part of a mortgage on the next tab, but the following bullets highlight the various aspects of getting a mortgage:
Basically, when speaking with a Massachusetts Mortgage Company about getting approved for a new loan, your lending professional will work to get you approved for a particular home loan program that meets your eligibility status based on credit, income and other underwriting criteria.
The goal of Fairway Independent Mortgage Corporation is to provide you with an affordable monthly payment that is obtained by getting the best interest rate with lowest fees and closing costs.
Getting The Best Mortgage Deal in Massachusetts
In early 2013 the Consumer Financial Protection Bureau (CFPB) made it a law that banks are required to verify a borrower’s ability to repay a loan.
In addition, closing costs, rate and fees were essentially standardized across the mortgage industry for the purpose of protecting consumers from unethical lending practices that may potentially put them in a home loan that they couldn’t afford.
How Does This Relate To My Massachusetts Mortgage?
The purpose of this law is to hold mortgage lending institutions more accountable for the loans they issue.
This means that the Wild Wild West days of shopping for a Cape Cod lender based on rate or fees is behind us, leaving banks to compete on communication, experience and professionalism.
However, since mortgage banks will be heavily regulated and scrutinized for every loan they issue, you should anticipate having to provide a slightly heftier paper-trail of documentation.
Don’t worry, every mortgage program is different, and there are plenty of options for borrowers in scenarios from recently out of short sale, underwater refinance solutions and even foreclosure home renovation purchase loans.
Call us directly at (508) 656-0055 at any time if you have specific questions.
The Scoop About Mortgages in Massachusetts
Simply put, a mortgage is a loan secured by real property and paid in installments over a set period of time.
The mortgage secures your promise that the money borrowed for your home will be repaid.
The following two tabs on this page break down the frequently asked questions and recent articles from our real estate blog that pertain to mortgage financing.
Below are links and summaries of every component of the mortgage process, including refinancing a home loan.
For a mortgage approval in Massachusetts to buy or refinance, banks may take into consideration your credit score and history, income and employment status, bank cash reserves and potentially a lot of other supporting documentation depending on your mortgage program, down payment or equity.
Fortunately for you, getting started with the pre-approval or rate quote process is as simple as calling Fairway Independent Mortgage Corporation directly at (508) 656-0055, or filling out some basic info about your scenario in the form to your right.
Credit scores and borrowing history are important components in qualifying for a mortgage loan in Massachusetts for both a purchase or streamlined refinance. Each mortgage program has its own criteria for eligibility based on credit.
There are many government programs that are more liberal with a borrowers current or recent past credit history, and the CFPB has made it easier to correct inaccuracies that have been reported about you. Either way, it helps to have an idea of your score ahead of time so that you can protect your identity.
Even though lending guidelines have tightened up since the great real estate crisis of 2008, there are still many home loan programs available for first-time home buyers, Veterans, conventional refinance options for underwater homeowners and renovation loans for upgrading properties.
The mortgage approval process above goes hand-in-hand with the type of loan program you may be eligible for in Massachusetts when purchasing or refinancing. Fairway Independent Mortgage Corporation will be able to find a mortgage program that fits your financial needs.
One of the more frustrating experiences with getting a mortgage is the dealing with the anxiety about what the final mortgage payment will be with everything included.
In addition to your mortgage principal and interest payment, which is simply calculated using the interest rate, there is also hazard insurance, mortgage insurance premiums, funding fees, HOA dues… and the list could go on. Make sure you get a full printout of your “Complete” monthly mortgage payment liability when shopping rates.
Since mortgage rates can change several times a day, most banks require a full credit application to be submitted prior to locking in a loan rate.
Several factors influence the way interest rates move, and the decision to lock your loan ultimately relies on the relationship and trust you have with the mortgage professional working on your file. However, there are several important questions you can ask a lender when shopping for the best mortgage rate to determine whether or not they understand the market.
With the right home buying and mortgage team on your site, closing on your Cape Cod home loan should be a smooth transition from initial application to final documents.
This is the final step where you sign for your new mortgage and accept responsibility for the monthly payment schedule. Details involved include closing costs, title insurance, hazard insurance and verifying any assets needed for closing.
Refinancing your home loan in Massachusetts can be a very similar process as obtaining a purchase loan. However, there are many options created to “streamline” the process, depending on your equity, credit scores and current mortgage program.
Determining the net benefit of refinancing involves analyzing your goals and budget and weighing the costs against your potential savings. Cashing out equity to consolidate debt or to pay for living expenses are also reasons to refinance.
Understanding Mortgage Terms
Mortgage professionals who live and breathe “closings” tend to get caught up in lingo that the outside world may only have to be aware of a few times in their lives.
I can’t say that the government’s alphabet soup of regulatory agencies and compliance laws helps much to create an easy to understand dictionary that the general public can follow.
Either way, the following terms may help serve as a guide when your loan officer fails to communicate properly:
Amortization Schedule
A schedule of payments showing the amount applied to the principal and interest through the payoff.
Annual Percentage Rate (APR):
The effective rate of interest that includes loan related fees. The APR helps determine the total cost of borrowing a loan and is used to compare loans that are advertised with different note rates
Adjustable Rate Mortgage (ARM):
As opposed to a fixed-rate mortgage where the payment is set for the full term of the loan agreement, an ARM is tied to a specific financial index and may adjust after a set amount of time.
Buydown:
Where a borrower pays an up-front fee to lower the mortgage rate and monthly payment. Rate Buydowns can be used to help a borrower qualify for a loan, or as a means of negotiation where the seller would contribute to a lower rate in order to entice a buyer to purchase their property.
Combined Loan-to-Value (CLTV):
The total amount of mortgage obligations on a particular property compared to the fair market value.
Debt-to-Income Ratio (DTI):
A borrower’s minimum monthly liability payments divided by their gross monthly income.
Default:
Failure to fulfill an obligation to pay a mortgage.
Delinquency:
Late payments on a monthly liability. Creditors generally report payments to credit bureaus once the delinquency goes past 30 days.
Disclosure:
A big stack of documents that the lender, buyer and sellers sign during a real estate purchase or mortgage transaction. These disclosures may also notify all parties involved of their rights and obligations.
Discount Point:
The amount paid to decrease an interest rate.
Fico Score:
The three credit reporting agencies in the United States, Equifax, Experian, and TransUnion, collect data about consumers used to compile credit reports. The credit agencies use FICO software to generate FICO scores, which are sold to lenders.
Each individual actually has three credit scores at any given time for any given scoring model because the three credit agencies have their own databases, gather reports from different creditors, and receive information from creditors at different times.
Fixed Rate Mortgage:
A mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float”.
Good Faith Estimate (GFE):
A good faith estimate must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with your loan and must be provided within three business days of applying for a loan.
These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges.
A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.
Gross Income:
Total taxable income which is generally verified by a lender through tax returns and W2′s.
Home Equity Line of Credit (HELOC):
A line of credit secured by real estate.
HUD-1 Statement:
A comprehensive and itemized list of closing costs prepared by a closing agent that details all of the financial figures in a mortgage refinance or purchase transaction.
Joint Liability:
When more than one person applies for and secures a mortgage.
Jumbo Mortgage:
A mortgage with a loan amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender.
Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages.
When FNMA and FHLMC limits don’t cover the full loan amount, the loan is referred to as a “jumbo mortgage”. The average interest rates on jumbo mortgages are typically higher than that of conforming mortgages.
Loan-to-Value (LTV):
The loan-to-value (LTV) ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For instance, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87% (LTV).
Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much stricter. Lenders can require borrowers of high LTV loans to buy mortgage insurance to protect the lender from the buyer default, which increases the costs of the mortgage.
The valuation of a property is typically determined by an appraiser, but there is no greater measure of the actual real value of one property than an arms-length transaction between a willing buyer and a willing seller. Typically, banks will utilize the lesser of the appraised value and purchase price if the purchase is “recent.” What constitutes recent varies by institution but is generally between 1–2 years.
Loan Rate Lock:
Where the loan officer locks a specific rate with a lender for a set amount of time.
Liquid Assets:
Money in a bank or investment account that can be obtained quickly.
Loan Origination Fee:
A fee paid by a borrower to a lender for obtaining a mortgage loan.
Loan Servicer:
A mortgage servicer is the company that borrowers pay their mortgage loan payments to. Mortgage servicers either purchase or retain mortgage servicing rights that allow them to collect payments from borrowers in return for a servicing fee. The duty of a mortgage servicer varies, but typically includes the acceptance and recording of mortgage payments; calculating variable interest rates on adjustable rate loans; payment of taxes and insurance from borrower escrow accounts; negotiations of workouts and modifications of mortgage upon default; and conducting or supervising the foreclosure process when necessary.
Many borrowers confuse mortgage servicers with their lender. A mortgage servicer may be a borrower’s lender, but often the beneficial rights to the payment of principal and interest on mortgages are sold to investors such as Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and private investors in mortgage securitization transactions.
Mortgage Insurance:
Mortgage insurance (also known as mortgage guaranty) is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer.
Mortgage Backed Security:
A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property.
First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government-sponsored enterprises, and private entities, which may offer features to mitigate the risk of default associated with these mortgages.
Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as Securitization. These securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value from mortgage pools.
Private Mortgage Insurance (PMI):
Private mortgage insurance (PMI) is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It is insurance to offset losses in the case where a borrower is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property.
Cape Cod Mortgage Information Guide
