Mortgage
Author: Jeanean Gendron, Realtor, DRE#01299346Here are some tips and information to help you prepare to meet with a Mortgage professional and establish a relationship for determining what you can afford and what your goals will be. I have a number of references for mortgage consultation and I recommend that you speak with several professionals to determine who you feel comfortable with and want to work with.
1. What will a lender look at when I apply for a mortgage?
Lenders consider many factors in evaluating your loan application, but they usually focus on four areas:
- Income and debt. How much money you make and what other bills you have to pay helps the lender determine whether you can afford to make mortgage payments.
- Assets. The lender needs to make sure you have enough money to cover the costs of buying a home.
- Credit. Whether you’ve met other financial obligations helps the lender predict whether you will repay your mortgage.
- Property. The home you want to buy has to be worth enough to act as collateral for the mortgage.
2. What does it mean to get pre-approved?
Getting pre-approved means you receive a loan commitment from your mortgage company before you have found a home, based on a review of your credit and finances. Having your credit pre-approved shows sellers that you’re a qualified buyer and helps you establish a clear price range. The process is the same as a typical mortgage application, except that your application doesn’t include property information.
3. What if I’ve had credit problems?
Your credit history is only one factor in qualifying for a loan, and having made some late payments doesn’t have to keep you from buying a home. Someone who has consistently made payments on time in the past may have more financing options than someone who has not, but that doesn’t mean a mortgage is off-limits if you’ve had credit problems. In fact, we may be able to suggest a variety of mortgage options to help people with less-than-perfect credit become homeowners and leave credit challenges behind.
4. What is the minimum down payment I can make on a home?
There is no minimum down payment required for buying a home, in general. Many first-time buyers believe they must be able to put down as much as 20% of a home’s purchase price in cash. That may have been true in the past, but many of the mortgage options available to today’s home-buyers require little or no down payment. With housing prices as high as they are, homeownership would be impossible for many people if not for these low-down-payment options. We may be able to suggest a number of loan programs that can help you buy a home with little or no cash.
5. Will I have to pay for Private Mortgage Insurance?
Private Mortgage Insurance (PMI) provides your lender with a way to recoup its investment if you are unable to repay your loan. PMI is usually required when the mortgage amount is higher than 80% of the home’s value. That means that if you buy a home with a down payment of less than 20%, you will probably have to pay for PMI. One common way of bypassing PMI without making any down payment at all is to use an 80/20 program, which combines a first mortgage with home equity financing.
6. What closing costs will I have to pay?
Closing costs vary based on a number of factors – including the lender, mortgage type, purchase contract, and location – but they usually include the following:
- Lender fees. Your mortgage company may charge for expenses related to making the loan, including an appraisal fee, a credit report fee, origination points, and discount points.
- Third party fees. Charges for services not provided by your lender often include the settlement fee, title insurance, and attorney’s fees.
- Prepaid items. Certain mortgage costs must be paid to your lender in advance. The most common of these are pre-paid interest, hazard insurance, and deposits to set up an escrow account.
7. Should I pay discount points?
Discount points are prepaid interest, which you can pay to your lender at closing in exchange for a lower interest rate on your mortgage. Paying discount points, each of which is equal to 1% of the loan amount, is often called “buying down” your rate.
So does paying points make sense for you? The answer depends primarily on how long you plan to stay in your home. First, find out how much lower your monthly payments will be if you pay points. Then, calculate how long it will take for those monthly savings to add up to the cost of the points. If it would take five years to break even and you’re planning to live in your home for 10, paying discount points may be a smart move.
8. Should I choose a fixed-rate or adjustable-rate loan?
Most mortgage loans have either a fixed interest rate or an adjustable interest rate. With a fixed-rate mortgage, the interest rate never changes and your payments remain stable throughout the life of your loan. With an adjustable-rate mortgage (ARM), the interest rate changes at regular intervals – usually once every year – based on market indicators. For most ARM options, rate adjustments begin after an initial period – usually between three months and ten years – during which the rate is fixed.
A fixed rate is usually best if you plan to stay in your home for the long term and are buying at a time when rates are relatively low. You may get the most value from an ARM if you plan to move before the end of the fixed-rate period, or if you’re buying at a time when rates are relatively high.
9. Should I lock my rate?
Locking your interest rate means your lender guarantees the rate on your loan even if market rates change before closing. Most lenders will allow you to lock your rate for 30 to 60 days, with the option to extend the rate-lock period for a fee.
So how do you know whether to lock your interest rate? It depends on whether you expect rates to rise or fall before you close on your home. No one knows for sure which direction rates will go at a given time, so it’s difficult to make a reliable prediction. It helps to keep track of announcements from the Federal Reserve Board, whose monetary policies have an effect on mortgage rates, and to talk to you financial advisor about what may happen in the near term.
10. What will my mortgage payments include?
For most borrowers, each monthly mortgage payment goes toward the following:
- Principal, which is the total outstanding balance of the loan
- Interest, which is the cost of borrowing money
- Taxes, which are levied on the property by the local government
- Insurance, which protects the owner and the lender from losses caused by fire and natural hazards
Here are a number of calculators that will help you access how ready you are to purchase. They will also help you better understand the purchase process and whether you can afford to purchase.
This calculator will help you get a quick estimate of what type of house payment and loan amount you can afford based on your current total monthly income and debt payments. Fill in the following information and click the Calculate button for results.
This Rent vs Own calculator allows you to compare the advantages and disadvantages of owning vs. renting a home. Fill in the following information and click the Calculate button for results.
This simple mortgage payment calculator allows you to estimate mortgage payments for any fixed rate loan. Complete the following fields and click the Calculate button to find out your mortgage payment.
This simple calculator allows you to calculate a fixed-rate amortization schedule. Fill in the following information and click the Calculate button for results.
Save by Making an Extra Payment
This mortgage prepayment calculator shows you how much sooner you pay off your loan by making extra payments. Fill in the following information and click the Calculate button for your mortgage prepayment savings.
This mortgage refinance calculator will help you determine what your monthly savings might be if you refinance your mortgage now. Fill in the following information and click the Calculate button to find your mortgage refinance savings.
This savings calculator can help you set your savings goals by calculating not only how much you need to save each month to reach your goals, but also how long it will take you to reach them at your current level of savings. Fill in the following information and click the Calculate button for results
How Long to Pay Off My Credit Cards?
This credit card payoff calculator will tell you how long it will take you to pay off your credit card bills with the amount you pay now, and how much more you would have to pay each month to eliminate your credit card debt even sooner. Fill in the following information and click the Calculate button for results.
What It Takes to Become a Millionaire?
This millionaire calculator shows you how long it will take you to become a millionaire. Fill in the following information and click the Calculate button for results.
I am Jeanean Gendron, your Redding and Shasta County Specialist. I can be reached at 530 276-7417. I answer my phone. Visit our websites to learn more about Redding and Shasta County Real Estate. I love helping first time home buyers.