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What is a comfort letter, and why might you need to submit one?

The mortgage process when purchasing a home can be tricky. There’s a ton of paperwork to read through and sign”so much that your hand might cramp up from the vast amounts of signatures required. But don’t worry if your mortgage lender requests that you write a “comfort” letter”it’s just a statement clarifying your financials so the lender can get you to the closing table with minimized risk.

As to what the mortgage lender might want to clarify, it could be a number of things:

Employment Lapses
Is there a period of time in which you werent working recently? The lender may ask you about this lapse to ensure youre still a stable loan candidate and financially comfortable with paying back the loan once you close on the home. You may have worked freelance during this time, in which case the lender may ask for proof of income.

Large Bank Deposits
Did you recently come into a large sum of money? If you deposited it into your bank account, your mortgage lender may ask you where that money came from and what you plan to use it for. There are strict rules about using gifted funds toward the purchase of a home, and your lender will want to confirm it’s not a loan given to you by friends or family that you’ll need to pay back.

New Job Status
Are you switching jobs in the middle of the loan application? If there’s a change in income, this could add another layer of questioning. Your lender may want you to state how much youll be making at the new job, as anything less than your current income is going to change how much you can afford. The lender may also want to know where the job is located”if it’s further away from where you live, will you be commuting or working remotely? The lender just wants to ensure youre a legitimately viable loan candidate.

A comfort letter is a way for your mortgage lender to cover its bases. If youre completely open about your financial history when applying for the loan, you have nothing to worry about. So, don’t panic. Just provide the requested information in a timely fashion, and you should be good to go.

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Here are five interior design styles millennials love.

Warm Minimalism

Warm up millennial minimalism with earth tones, natural textures and handmade objects.

Maximalism

On the other end of the spectrum is maximalism. Love collecting items from different places, time periods and design movements? Maximalism is for you!

Grandmillennial

Some millennials prefer to decorate with an eclectic mix of antique objects, needlepoint pillows and chintz fabrics the way their grandmothers used to.

Transitional

Walking the line between traditional and contemporary, transitional style holds widespread appeal with millennials.

Memphis Movement

The Memphis Movement of the 1980s has influenced current tastes with the popular shade of millennial pink and the resurgence of terrazzo surfaces and graphic patterns.

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Whether youve owned a home for years or are buying your first home, purchasing insurance can be confusing. Some of that confusion can come from policy myths that are often not true.

If ignored, thesefive home insurance myths could cost you in the long run.

Flood coverage is standard. Flood insurance isnt usually part of a standard homeowner’s insurance policy. You might think it is, or should be if you live in an area prone to flooding. However, homes in flood zones are typically required to have separate flood insurance. FEMAs National Flood Insurance Program and private insurers can provide you with flood insurance. Just remember that the cost will be separate from your home insurance costs. Even if you live near a flood zone, it may be worthwhile to buy the extra insurance.

Everything I own is covered. Home insurance has its limits, and is meant to protect your home from disasters such as fire and hurricanes, or as protection from burglars and accidents. It isnt meant to replace all of your personal property, such as expensive jewelry or artwork. Those should be covered by a scheduled personal property policy separate from your standard home insurance policy, which should clearly state whats covered and what isnt.

Base coverage on market value. If you think you need to buy enough insurance coverage based on your homes market value, think again. A better way to think about it is to buy enough insurance to cover the cost of rebuilding the house, which is different from the home value at the time you buy an insurance policy. In fact, you may need less coverage than the market value to rebuild the home

My home business is covered. Running a business out of your home requires a separate type of insurance coverage that isnt typically included in a standard homeowners policy. A business rider added onto your existing home insurance policy shouldnt cost too much and will protect your office items if they are stolen or damaged.

All injuries are covered. If a guest is injured at your house or on your property, the liability coverage in a home insurance policy will typically pay for any claim filed. This isnt the case if you or a family member is injured in your home. If you fall down the stairs, dont expect a home insurance policy to pay for your doctor’s bills. Instead, look for help from your health insurance.

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The mortgage process can be complicated if you jump in without any prior knowledge on home-buying and lending. The best tool you can arm yourself with is an understanding of how your mortgage interest rate is calculated.

Credit Can Make or Break You

Your credit score will determine how reliable you are in the lending world. The higher your score, the lower your interest rate will likely be. Check your credit on one of the three major credit reporting agency sites”TransUnion, Experian and Equifax”or your credit card company may have a free credit report service (although these aren’t as reliable). Take steps to improve your FICO score for a better chance at a lower interest rate.

Size and Location Matter

State or County: Even your place of residence can affect your interest rate.

Mortgage Lenders: Shop around with multiple lenders, including local ones. Interest rates can vary from company to company, even if they’re located in the same town.

Loan Size: The size of your home can also impact your interest rate. The bigger the loan, the higher your interest rate will be if you’re not putting more money down.

Down Payment Size: Your mortgage interest rate may also depend on how much you’re putting down and if your loan includes closing costs and private mortgage insurance (PMI). Putting down less than 20 percent can increase your risk factor and may require PMI, but your interest rate may be lower depending on the loan.

Not All Loans Are Created Equal

Loan Length: Your loan term plays a bigger role in interest rate calculations than you think. Have you decided whether you want to pay off your loan in 15 or 30 years? You may pay more per month with a shorter term, but you’ll be paying less interest over the life of your loan. Short-term loans may also have a smaller interest rate.

Fixed or Adjustable: You’ll also have to consider whether a fixed- or adjustable-rate loan is right for you. Your interest rate can change over time if you choose an adjustable-rate loan. It typically starts off lower than with a fixed-rate loan, but will likely increase depending on market conditions.

Loan Type: Interest rates can also vary according to your loan type. Choosing a loan can be overwhelming, but talking to multiple lenders can help you understand your best options. Some of the more popular loans are conventional, Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans. While FHA loans have less down payment restrictions and a smaller interest rate, your monthly payment can be more expensive due to the required PMI added on. VA loans can have smaller interest rates and don’t require PMI like FHA ones do. Although conventional loans may have higher interest rates, they are widely accepted in the real estate industry as dependable.

This article is intended for informational purposes only and should not be construed as professional or legal advice.

Source: Consumer Financial Protection Bureau

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