Lenders' Learning Corner
Bank of Lake Mills works hard to educate our customers about a variety of topics.
Each month, our lenders will answer common lending-related questions that you may have!
January | February | March | April | May | June | July | August | September | October | November | December
January
What is a pre-approval?
Borrowers should start the home purchase process by getting pre-approved by a mortgage lender. Pre-approval is the process of working with a mortgage lender to determine if a person is financially eligible to finance the purchase of a home. A few reasons a person should get pre-approved are:
- Pre-approval lets the buyer know how much home they can afford, so they can find their dream home within their budget.
- Realtors expect a pre-approval letter to make sure they're showing a home to financially qualified clients.
- Pre-approved home buyers are more appealing to sellers.
- The pre-approval process brings any eligibility concerns to the forefront, so any concerns can be addressed in advance.
- Pre-approval educates the borrower on various loan programs that are available to them.
Being pre-approved puts the customer in the best spot to be ready for home purchase. It prepares them with what their budget is and what payments would look like at different home price points. Buyers are prepared to win an offer before they even begin shopping for a house.
February
Where do I start if I want to purchase a home?
When looking to purchase a home, the first thing you need to decide is if you are ready to be a homeowner. Some questions you should ask yourself are:
- Have you saved a large enough down payment?
- If you are paying rent now, how much of a difference would a house payment be from your current rent? Are you able to comfortably afford this change?
- Would you be able to keep up with the maintenance and upkeep of a home?
- Are you ready to move?
Perspective homeowners should contact a mortgage lender. They can help you determine if you have enough saved for a down payment, qualify for a loan, and how much home you can afford. Lenders can help find the loan program that best fits your situation. They will be able to explain this to you and work to get you pre-approved. Once you have the pre-approval letter you are ready to start working with a realtor that can help you find the house of your dreams!
March
How much down payment do I need? Can the funds be borrowed?
The amount of money needed for a down payment will vary depending on your situation; this is something you can explore further with a lender when considering what loan programs are applicable to you. Some programs require less than 5% down, so a 20% down payment isn't always necessary. Funds can be gifted to you from family members in certain circumstances as well. Your lender will be able to help you navigate through different scenarios to find what is most beneficial to you and your situation.
What is an ARM mortgage?
If you are house shopping right now you may have heard the term ARM mortgage. What exactly does that mean? ARM stands for adjustable-rate mortgage. Unlike a 15- or 30-year fixed mortgage where you are locked into one rate for the entire mortgage, ARM rates will adjust depending on the term length. The Bank of Lake Mills offers a 7/3 ARM mortgage. This means that the mortgage would be locked at the initial rate for the first 7 years of the loan and then it will adjust every 3 years after that based on an index. There can be a lot of benefits for using an ARM mortgage, especially in the current rate environment.
To learn more about our 7/3 ARM loan options, call to speak with a lender today.
May
What is credit?
Credit is the ability to borrow money or access goods and services with the understanding that you'll pay later.
What is a credit score?
A credit score is a numeric value of a consumer's creditworthiness. The credit score can range from 300 to 850, and there are many factors that determine consumers' scores.
Why does my credit score matter?
Lenders use credit scores as a measurement of risk. The higher the credit score, the less risk to the lender. Borrowers with higher credit scores will likely have a lower interest rate on their loan and may not need to make a larger down payment to offset the higher risk. Lower interest rates can also lead to a lower monthly payment on your loan. Having a lower credit score can potentially make a borrower ineligible for a loan, so it is important to boost your credit score wherever possible.
Why do you need good credit?
Your credit score is used for more than just taking out loans or opening credit cards. Landlords will check your credit history before renting to you. Insurance companies can check your credit before issuing you a home and auto policy. Future employers will run a credit check before they offer you a job.
How are credit scores established?
- Payment History - This is the biggest factor in your credit score. Creditors are looking to see how likely you are to pay back your loan and if they see that you have 100% on-time payments, your credit score will be higher.
- Credit Used - How much available credit do you have? If you max out your credit cards this might be a sign that you are overextended and will decrease your credit score. It is important to keep your credit used to less than 30% of what you have available.
- Length of Credit History - The total amount of history you have. Typically, you will not receive an "Excellent" rating in this area until you have at least 25 years of credit. Therefore, it is important to start your credit history early.
- Recent Inquiries - Having a couple inquiries a year is normal, but too many may show signs that someone is financially overextended.
- New Accounts - Similar to recent inquiries, too many in a short period of time may signal trouble. Only open new accounts when necessary.
Do you always need to keep a balance on your credit card to keep earning credit?
No, this is a common myth. Having a credit card open is what is earning you credit. You can make a few purchases a year to keep the card active, and then pay it off right away - that is the best way to keep your credit history going.
Credit Score Tips & Tricks
- Monitor your credit history for fraud. Under U.S. law you are entitled to one free credit report annually from each of the three major credit bureaus. To order this report, visit www.annualcreditreport.com or call toll-free 1-877-322-8228.
- Equifax, Experian, and TransUnion are the tree major credit bureaus. You can request a report from all 3 at one time or you can spread your requests over the year. Many people run a credit report once every four months using a different credit bureau each time.
- Always pay your bill on time! If you cannot make the entire payment, make the minimum payment by the due date. Utilize automatic payments to make sure that the minimum payment is being made.
- Avoid letting anything go to collections. If you have a bill that you have a hard time paying, contact the company to set up a payment plan. Most companies are willing to work with you to set up payment plans instead of sending unpaid bills to collections.
- If you are concerned about identity theft, you can put a freeze on your credit. You can do this by contacting the three major credit bureaus and requesting a freeze be placed on your credit. This makes it more difficult for a fraudster to open accounts in your name or with your social security number. Credit freezes can always be lifted by contacting the credit bureaus.
June
What is PMI?
PMI is short for Private Mortgage Insurance. It protects the lender against financial loss if the borrower would default on their mortgage and the home is foreclosed upon. PMI is additional insurance that most mortgage lenders require if a borrower has less than a 20% down payment. Without it, a borrower may need to wait until they have saved a 20% down payment to purchase a home.
How does PMI impact my loan?
PMI is a powerful tool to use when you don't want to clear out your savings to put down on a house. With good credit, the additional PMI is not a very substantial portion of your monthly payment. PMI can generally be dropped off the mortgage once the borrower has more than 20% equity into the property. Lenders will make sure there is a good payment history, and the home value hasn't decreased before removing PMI. In certain circumstances, like with some government loans, the PMI stays on the mortgage for the entire life of the loan.
To learn more about PMI and if it could be a useful tool for you, contact a Lender today!
July
What is equity?
A home's equity is the difference between the market value of your home and the outstanding balance of your mortgage. Each month that you make mortgage payments, your equity builds. This gives you a valuable asset that can be utilized in various ways.
Equity can be used as collateral on a loan. The most typical use of your home's equity is for home improvements and renovations. Repairs and maintenance will need to be done on your home throughout the course of your home ownership. Some of these improvements can actually increase the value of your home and therefore increase the equity you have in it.
You can also use the equity to borrow against and consolidate other debt you might have. Typically, a home equity loan is going to have a lower rate than that of a credit card. Credit card and high interest debt can be especially difficult to manage. The interest can make it seem like your payments are not having any impact on the debt. Taking out a loan on your home equity may allow you to pay off more of the debt faster by decreasing the interest rate of the debt.
Contact a Lender to find out if a home equity loan might be right for you!
August
What documents do I need to take out a loan?
Gathering all the documents needed for taking out a loan can sound like a daunting task. Here we have made a simplified list of what you may need to show a lender after you apply and intend to proceed with a loan. This is the basic list and things may vary based on your individual circumstances.
If you know what your credit is like, you can talk to your lender about that during your application process. The bank will run your credit to determine your eligibility for a loan. All perspective loan clients would need to submit a mortgage application. You can find that HERE!
- 2-3 paystubs from your current job
- Last 2 years of W-2s
- 2 months of most recent bank statements
- Most recent mortgage statement (if you have one)
- Collateral used for the loan
If you know what your credit is like, you can talk to your lender about that during your application process. The bank will run your credit to determine your eligibility for a loan. All perspective loan clients would need to submit a mortgage application. You can find that HERE!
Contact a Lender today to get information specific to you and your lending goals!
What are the advantages of getting a mortgage with Bank of Lake Mills?
The level of personal service provided by Bank of Lake Mills is one of the main advantages of getting a mortgage with us. We offer fast and local decision-making. Borrowers will have the same point of contact during the entire loan process. If there is ever a question, Bank of Lake Mills is just one call away!
Contact a Lender TODAY! Apply Now
Do I need to have a home inspection when purchasing a property?
A home inspection is not required by the lender, but it is something that buyers should seriously consider. The process can be educational for most home buyers. Considering a home purchase may be the most important investment you will make in your life, it can be very beneficial to making an informed decision on your home purchase.