Financing Your Home
Choosing a lender and shopping for a mortgage are nearly as important as selecting the right home to buy. Your first step will be to choose from two kinds of lenders, and then you will need to consider the best mortgage for you from the four major mortgage plans.
Choose the type of Lender:
> Direct lenders are banks, savings and loan institutions, and credit unions. These lenders will each have their own loan programs. Their selection may be limited.
> Mortgage brokers/companies work with a number of different investors/lenders who underwrite or finance the loan. Because mortgage companies have access to a variety of lenders, there are more loan programs available which increases your chances of finding a mortgage that best suits your circumstances.
Choosing the best mortgage for you – the four major mortgage plans:
> Fixed rate conventional mortgage, wherein the interest rate is fixed for the life of the loan, i.e., 15, 20, or 30 years.
> Adjustable-rate mortgage (ARM, also“variable rate”) offers a lower initial interest rate, however, on a periodic schedule during the life of the loan, the rate is adjusted (either up or down) based upon certain financial indices.
> FHA and VA mortgages are government-backed loans issued by traditional lenders. These loans have qualification guidelines, limitations or caps on the maximum amount of the loan and the borrower can make a smaller down payment (FHA) or no down payment (VA). As well, there are other fees associated with these loans which the lender should disclose and thoroughly explain to the borrower.
A Beginning – a brief summary of the pre-approval process: > The lender will ask you questions about your income (assets) and debts (liabilities);
> They’ll pull your credit report;
> They’ll run your “numbers” through an automated program to evaluate your eligibility for a mortgage and determine the mortgage amount for which you qualify;
> The lender will then issue a pre-approval letter, subject to verification of the information you provided as well as stating any other contingencies you will need to meet prior to final loan approval.
Tips for Home Buyers, even before you start looking…
> It’s important that you initiate the financing process in the earliest stage of your home search so that you will know exactly how much house you can afford to buy.
> Even before you contact a lender, it is recommended that you obtain a copy of your credit report from all three credit bureaus to verify that the information on record is correct and current. Credit issues can affect your ability to get a mortgage so you will want to correct all inaccuracies to avoid any unpleasant surprises.
Basic mortgage terms:
Down payment – the amount of cash money the homebuyer/borrower puts down towards the purchase of the property. Usually expressed as a percentage of the purchase price, i.e., 3%, 5%, 10% or 20% down.
Private mortgage insurance (PMI) – used by lenders to protect themselves in the event the borrower defaults on the loan. Required by most lenders if the down payment is less than 20%. Buyer pays the cost of PMI. The first month of PMI may be rolled into closing costs.
Points – some lenders may charge point(s), usually along with a lower interest rate. Each point is equal to 1% of the loan, i.e., 2 points on a $250K mortgage = $5,000.00. Points are tax deductible as are other closing costs and mortgage interest.
Your Buyer Agent at Buyer’s Edge Realty can refer you to a lender who will assist you with your financing needs.