Money Lender Loans is a direct Lender of private money loans that operates in Orange County, California. We offer many loan options, including first Mortgage real estate loans. At Money Lender Loans, we aim at providing financial assistance to our clients through these loans. We highly value our customers and aim at ensuring that they obtain loans through a stress-free process. We provide advice to our clients on the best loan options according to their financial needs.
What is a Real Estate First Mortgage?
A property owner or a real estate investor may plan to buy a property but unfortunately, lack enough finances to purchase the property. Such an investor may decide to take a loan in order to finance the new property. Once this investor takes a loan and pledges a real property or a home as collateral for the loan, they are said to have taken a secured real estate loan. The borrower, therefore, signs a promissory note as evidence that they promise to pay back the loan, but offer a real estate property as security for the loan to be approved. The most common types of secured real estate loans include first mortgage, second mortgage, or home equity lines of credit.
The first mortgage refers to the original loan that one takes out on a property. Though the homebuyer could have other properties under his name, the original mortgages that the homeowner takes out as security for each of the properties make up the first mortgage. For instance, if a homeowner has three homes and takes a mortgage on each of them, each mortgage among the three is considered a first mortgage.
A homeowner can as well take another mortgage while the first mortgage is still active. This is referred to as the second mortgage. One borrows a second mortgage against home equity for the purpose of financing his other expenditures and project. This mortgage is taken on the same property and will remain inferior to the first mortgage. As a result, the first mortgage must be paid first before the second and other mortgages.
Therefore, it should be noted that a first mortgage real estate loan is not a loan for first-time homebuyers but rather the first mortgage on a property. Therefore, the lender holds a senior lien on the property offered as security, which is recorded prior to any other liens on the property. The lender calculates the amount of money to lend on the basis of the value of the house, the value of the collateral as well as borrowers income.
In case a homeowner takes a first mortgage and later on takes second or subsequent mortgages on the same property, the first mortgage will remain senior to any other mortgage taken after it. If the borrower defaults the repayments after paying a portion of the first mortgage, the property will be foreclosed. During the foreclosure, the property is sold in order to repay the loan. In this case, the first mortgage lender receives the full amount owed first. The rest will receive whatever remains after the first mortgage lender is paid. As a result of this, the second mortgages on a property carries higher interest rates because they are perceived as riskier to the lenders.
In case the loan to value (LTV) ratio of the property goes beyond 80%, the lenders will request for PMI (private mortgage insurance). To be economical, the borrower can limit the first mortgage LTV to 80% and borrow any other needed amount using the second financing. The choice of either using the second loan or paying the PMI depends on the expected rate at which the value of the borrower’s home will raise. If the first mortgage LTV reaches 78%, one can do away with the PMI. However, one must pay off the second lien, which has a higher interest rate than the first mortgage. This is most likely paid through first mortgage refinancing for an amount equivalent to the balance remaining for both the second and first mortgages.
What are the Common Types Of Mortgages?
There are many categories and types of mortgages that are available for homebuyers. Homebuyers can choose the best mortgage according to their needs. Our experts at Money Lender loans can as well assist you to make a good choice of a mortgage. The following are some of the available types of mortgages.
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Adjustable vs. Fixed Rate
As a borrower, you need to know first whether you need an adjustable or fixed rate mortgage loan. All the loans are categorized in one of these two types or a hybrid category, which is a combination of both.
In the adjustable- rate loan, the interest rate changes or adjusts with time depending on the market rates. Generally, there is an annual change in the interest rate in this type of mortgage after an initial fixed time. As a result, it is also known as a hybrid mortgage. A hybrid adjustable-rate mortgage starts off as a fixed-rate but later changes to an adjustable rate. A 5/1 ARM (Adjustable Rate Mortgage), for instance, is characterized by the first five years of a fixed rate, after the first five years, it starts to adjust the interest rate annually. The advantage of this mortgage is that they have a lower interest rate in the initial years as compared to the fixed rate mortgages. They also work well for people seeking to keep the home for a few years.
On the other hand, the fixed-rate mortgage loans do not change the interest rate for the whole loan term. As a result, there are no changes in the amount for your monthly payments. A fixed rate mortgage is advantageous in that the borrower can predict it. Though the interest and principal may vary from one month to another, the monthly payments remain the same. It is also a better option for borrowers who seek to stay in the property as well as keeping the same mortgage for a long time.
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Conventional vs. Government Backed Mortgages
Conventional loans are not guaranteed or insured by the federal government whatsoever. However, in government-insured loans, the lenders are insured by the government against losses resulting from default by the borrower. These loans are advantageous for it allows down payments as low as 3.5% of the buying price. The disadvantage with these loans is that you make a larger size of monthly payments in order to pay for the insurance of the mortgage.
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Jumbo vs. Conforming Mortgage Loans
Depending on the amount of loan that one seeks to borrow, one may choose between a jumbo or a conforming loan.
A conforming loan refers to the loans that satisfy the Freddie Mac and Fannie Mae’s underwriting guidelines. Freddie Mac and Fannie Mae are two corporations controlled by the government and which buy sell and purchase mortgage-backed securities.
However, Jumbo loans go beyond the guidelines by Fannie Mae and Freddie Mac. The lenders consider this kind of loan more risky due to its size. As a result, the lenders of the Jumbo loans require borrowers to have an excellent credit score. The down payments for these loans are also larger than the conformed loans. They also carry higher interest rates.
What Are The Stages Of Obtaining A Mortgage Loan?
To understand the steps that one takes in order to obtain a mortgage loan, we will explain the process below.
Mortgage Pre-Approval
In this stage, the lender of the loan determines whether a borrower is a right candidate for the loan. This is done by reviewing the financial situation of the borrower, which includes the income, debts as well as assets. The lender will then inform the borrower on how much they wish to lend and provide the borrower with a pre-approval letter. In this stage, the lender may as well check the borrower’s credit history and credit scores. This process helps one to know the price range of the house they should search.
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House Hunting And Buying Agreement
After being approved for a certain loan amount, the borrower is able to shop around within the pre-approved price range confidently. One looks for a house that satisfies their needs. Upon getting a house, the borrower makes an offer to buy the house and then moves to the next step, which is an application for the loan.
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Application For The Mortgage Loan
In this step, the borrower fills an application form offered by the lender. Most of the lenders use a similar standardized form; the Uniform Residential Loan Application, which is also referred to as Fannie Mae form 1003. In this form, the borrower gives their personal details, the home being bought as well as the type of loan to be used.
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Processing Of The Mortgage Loan
After filling the application form, the form enters the processing stage. In this stage, the loan processor gathers various documents related to the borrower as well as the house being purchased. The processor will in this stage confirm that the documents required for the underwriting stage. Some of the documents needed include the purchase agreement, employment proof, and bank statements, among others. In addition, the processor may check the credit reports, verify the borrower’s income, employment, and assets as well as the home appraisal for determination of the property value. The processing procedures may vary between different lending companies and the types of mortgages being applied for.
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4Mortgage Underwriting Process
This is the stage in which the approval for the loan is determined. It is the stage in which all the documents compiled by the mortgage processor are examined by the loan underwriter. The loan underwriter has to ensure that all the documents satisfy all the loan lending qualifications and guidelines. The underwriter is authorized to reject the loan application if it does not meet the requirements. The underwriter is obligated to examine the amount of risk related to the loan. They are therefore concerned in the following factors:
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Credit- they will check if the borrower has a good credit score and a good history when it comes to debt repayment.
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Capacity- the underwriter will evaluate the ability of the borrower to repay the loan. This is determined by the total debts that one has as well as the income history.
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Collateral- they will also evaluate the property offered as security for the mortgage to determine whether it can serve as enough collateral for the mortgage loan. To determine this, the underwriter uses the appraisal report.
In this process, the underwriter may come across some issues and ask the borrower to address them. This is referred to as conditional approval. For example, a borrower may be given a condition to explain some issues such as a certain deposit or withdrawal in the form of a letter. If the issues encountered are serious and goes beyond the boundaries of the lending criteria, the underwriter may reject the application. However, most of the minor issues and those that the lenders can solve in a reasonable time cannot lead to rejection.
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Approval and Closing of the Mortgage Loan
Once the loan underwriter is convinced that both the borrower and the property satisfy the qualification requirements of the loan lending criteria, they go ahead and label the application ‘’clear to close’’. This indicates that the application meets all the requirements and is good to be funded.
The closing is done before funding, and a title or escrow company is chosen to which all the documents are sent. The home sellers and buyers must inspect all these documents and sign them before the funds are disbursed.
How to Choose a Good Mortgage Lender
Out of many lenders available in the market, it is important to shop around in order to choose the most appropriate lender who will meet your needs with the least hassle. You can evaluate your lender on several factors like customer satisfaction, interest rates, closing costs, as well as product offerings.
Customer Satisfaction- It is not worth signing up with lenders that do not treat their customers well. Since you will be working with your lender for the long term, you should not work with a lender that mistreats you even if they may be offering great rates.
Product Offerings- The more the loan options a lender can offer, the better for you as a borrower. It is therefore good to look for a lender who can offer multiple choices for both fixed and adjustable mortgage loans.
Interest Rates- Shopping around helps you to come across lenders who offer favorable interest rates for your loan. This is because there are many variations between the lenders when it comes to interest rates. As a result, you could save hundreds of money by choosing a lender who offers good interest rates.
Closing Costs- Though a lender who offers the lowest interest rates may sound great, they may not be offering the best deal when you consider the closing costs. These include origination, appraisal, and application fees. Therefore, it is advisable to consider the annual percentage rate. This will show how much you owe the lender by the end of each year.
How and When is the First Mortgage Paid?
It is important to understand the amortization or the repayment schedule over time in order to know how mortgages work and when to pay the first repayment. The repayment of the mortgage involves both principal and interest. The interest in this effect is paid in arrears. One makes the first mortgage payment when the first full month begins after the closing and every other month thereafter, for instance, a May 1st mortgage payment includes the interest for the whole month of April.
After buying a home and obtaining a mortgage, the collecting agent will have up to 30 days before the beginning of the first full month to collect the interest. This will be paid as closing cost and be recorded on your closing statement.
If your closing date is January 15, for instance, you are expected to pay interest from 15th January to 31st January. The interest to be collected will, therefore, cover the interest for the 16 days remaining in January. The first mortgage payment will, therefore, be on the 1st of February, which will include the interest for January.
Find a First Mortgage Real Estate Loan Near Me
Understanding how first mortgage real estate loans works is a great step towards achieving your dream of buying a home. At Money Lender Loans, we understand and acknowledge this fact. As a result, we provide residents of Orange County with favorable options for such loans. We have a team of competent professionals to help you solve your financial problems. We can examine your financial situation to assist you in finding the best loan option for you. If you are looking for a first Mortgage loan in Orange County, California, do not hesitate to call us oat 949-409-4372 and speak to one of our experts today!
