3 Common Questions While Mortgage Shopping

Published on April 19, 2017

Jeremy McDonough

What things do lenders view positively and negatively during the application process?

When you apply for a loan, long, steady employment is always seen as a plus, as is a large down payment, a good credit rating, a history of regular savings, and property located in a “good” neighborhood.

Not so good in the lender’s mind: frequent job changes without salary increases, self-employment in a new venture, bad debt history, no previous borrowing record, and dilapidated property.

Do not be discouraged. These are standard lender pre-dispositions when evaluating your application, but when it comes to making a loan decision, most lenders will tell you nothing is completely carved in stone.

Consider, too, that credit you have qualified for—say, credit cards—can work against you, even if never used. This is because those credit cards are looked upon as being open credit lines—and while they have not been used, they could be used, and potentially used up to the maximum dollar amount allowed by the credit card companies As a result, their perceived risks lower your credit, or FICO, score.

Are there such things as no-cost and no-fee loans?

You see promotions for them all the time. But banking regulators have gone after lenders who misrepresent these loans. The reality is that no-cost and no-fee loans may actually cost the borrower more over the long term because costs are often hidden by rolling them into the new loan through higher principal or interest. 

The rates on no-cost loans are usually about 1/2 or 5/8 of a percentage point higher than the “full cost” rate. 

A typical no-fee loan includes points and all fees in the loan principal, so the borrower does not pay or “see” these expenses at the closing. Instead, the borrower pays them over the life of the loan. 

If you are looking to refinance, it may be possible to get a no-cost program that will lower your rate at no expense to you. Today, lenders are paying all closing costs, such as title fees, appraisal fees, and credit report fees. There are no loan fees or points, and nothing is added to your loan balance.

However, many lenders may charge a loan application fee and some restrictions may apply depending on the size of the loan.

Can I split my mortgage in two and pay biweekly?

The biweekly mortgage has become increasingly popular as more people favor paying off their home loan early and reducing interest charges.

Monthly payments on these loans are split in half, payable every two weeks. 

Because there are 52 weeks in a year, you actually have 26 half-payments, or the equivalent of 13 monthly payments per year instead of 12.

Under the biweekly payment plan, a homeowner can save tens of thousands of dollars in interest and pay off their loan balance in less than 30 years.

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