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What’s the best way to approach buying a home?
Buying a home is not a difficult process. It is basically a ladder of events. Our brokers are happy to walk you through the process.
What counts in the loan application process?
- Your Income: The amount of income you earn will determine the amount of money you can borrow to purchase your home. For example, if a person makes $5000 a month and spends $1600 on a mortgage loan, including property taxes, mortgage insurance and Home Owners Insurance, the housing expense ratio is 32% (1600 divided by 5000).
- Your debts: The lender will look at the monthly debt such as loan payments, charge cards, child support, made monthly by the applicant. The percentage of debts to income is known as the debt-to-income ratio.
It is important for the lenders to see a steady employment in any occupation held by the applicant. Mortgage lenders are more likely to lend money to people who have worked several years at the same job or the same type of job. A Verification of Employment Document will be requested by the lender to verify your work history.
- Your credit history: Each borrower has a credit history report that is filed with the Credit Bureau. Lenders receive a copy of your credit history in the loan application process in order to determine your willingness to pay as a borrower. This assessment depends on your credit record, ie. if you have been late on your various payment obligations.
- What is the property worth: The lender will want to know the value of the prospective home. The loan amount approved will depend on the value of the property to be determined by an appraiser.
How do I know which loan program will benefit me the most?
There are various types of loan programs design to suit the financial needs of individual borrowers. In deciding the type of loan program for which you would like to qualify, it is important to consider your loan amount…
- Loan type: First, the two types of loans are a conforming loan and a non-conforming/jumbo loan. Conforming loans are for amounts between $50,000 to $333,600. Jumbo loans cover loan amounts between $333,600 to $650,000. Higher loan values have special quotes. Loans can be fixed or variable (ARMS). Fixed rate loans are amortized over a period of 30, 15, or 10 years. Due to shorter commitments for rates, ARM (Adjustable Rate Mortgage) rates are typically lower than longer term rates. These are best suited for transient borrowers.
- Loan Amortization: A loan can be amortized over a period of 30 years, 15 years, or 10 years. Adjustable rate mortgage loans will have rates fixed for a shorter period of time. A shorter amortized loan will build up your equity faster and will therefore provide you with a debt-free home; however, mortgage payments are higher for shorter amortized loans.
- Loan-to-Value: The loan amount you receive will depend on the appraised value of the property and how much down payment you can afford. If you are purchasing a $100,000 home with $20,000 down payment available, it will be necessary to borrow an amount of $80,000 from a lender to purchase the property. This will be 80% of the home value; therefore, the loan-to-value of your mortgage is 80%. LTV’s can be as high as 100+%
What does it mean to have 0 points or 1 point or 2 points?
A point is one percentage of the loan amount. Lenders offer rates which may be lower but require paying points. A rate of 7.875% with 1 point for a loan of $100,000 would require the borrower to pay a total of $1000 to the lender upon settlement of the loan. A rate of 8.000% with 0 points will require no payment to the lender, but the interest rate is slightly higher. Points will lower rates and are of benefit if you have some cash for the down payment and can therefore lower the rate. You should intend to keep the loan for its full term.
How do I get pre-approved for a loan?
Pre-approval is a new trend in the mortgage industry that allows a borrower to be pre-approved for a loan before shopping for a home. Sellers and real estate agents will know you are a serious and qualified buyer. Pre-approval can be obtained within seven days of filling out the online loan application. Final approval of the loan will be subject to an appraisal of the property.
What documents are needed to process my loan?
The loan requires certain documents for approval. These may include credit reports, the loan application, an appraisal of the property, income verification, asset verification, and various other documents depending on the complexity of your personal financing situation.
Top Who’s Who in the housing business?
- Real Estate Agent/Broker: When you first start looking for a new home, contact a real estate company in the area that you are planning a purchase. The real estate professionals will show you many available houses in your price range that will meet your personal needs. When you decide on a home to purchase, make an offer on the home. The real estate broker will present your offer to the seller. But please remember that the broker is under contract to the seller to represent the seller’s interest. When an agreed price has been reached, it is necessary to draw up a sale of contract document signed by both the buyer and seller.
- Mortgage Brokers: The mortgage brokerage firm has Mortgage Consultant who will find the best loan program to suit your financial needs and concerns. The mortgage broker represents numerous wholesale lenders and typically searches for the best program and rates to suite your particular needs. Hometown Equity Mortgage would like to be your mortgage broker.
- Mortgage Consultant: The Mortgage Consultant will be the buyer’s liaison to the lender for obtaining a loan.
- Lender: Banks, savings and loans, and mortgage companies lend money to home buyers. Your lender will ask you to fill out a loan application form that includes information about your income, employment, and debts.
- State or Local Housing Finance Agency: Some government agencies provide valuable housing assistance to low- and moderate-income home buyers and renters. To find out more about these programs, ask your real estate agent or your mortgage broker.
- Property/Mechanical Inspector: For a fee, a qualified inspector will examine the home you’ve chosen from basement to attic. The inspection includes an evaluation of the home’s plumbing, electrical work, appliances, the furnace and/or air conditioner, roof, and structural stability. These inspections can save you thousands of dollars in the future, and the knowledge of flaws can help you negotiate a better price on the house.
- Appraiser: The appraiser will be hired by the mortgage broker or lender to determine the market value of your prospective home based on its condition and the selling prices of comparable homes recently sold in the area. This estimate helps the lender decide a reasonable loan amount for the mortgage.
- Mortgage Insurer: Mortgage insurance makes it possible for lenders to offer mortgage loan options to buyers with small down payments. If for some reason you can no longer make your payments, mortgage insurance helps cover the lender’s losses.
- Underwriter: The underwriter works for the lenders in reviewing all the documentation involved with your loan. Once you’ve applied for the loan and found the loan program appropriate to your needs, the mortgage broker will begin the paperwork to provide all the supporting documents required for the approval of the loan. These shall include employment history, credit reports, the appraisal of the home, verification of employment, the uniform loan application, and other documents.
- Attorney/Closing Agent: The attorney or closing agent is responsible for ensuring that all documents have been completed properly including those related to the title search and title insurance. The closing agent will explain all closing documents to you and the seller, obtain your signatures, and record the documents with the appropriate local governments. He or she also will collect the transaction fees and give them to the appropriate parties.
What do the words amortization, escrow, principal, foreclosure, PITI, and closing mean?
- Amortization: Gradual debt reduction. Normally, the reduction is made according to a pre-determined schedule for installment payments.
- Escrow: An account set up by the lender into which the borrower makes periodic payments, usually monthly, for taxes, Home Owners Insurance, assessments, and mortgage insurance premiums.
- Principal: The original balance of money loaned, excluding interest; also, the remaining balance of a loan, excluding interest.
- Foreclosure: If the borrower fails to pay back the loan through mortgage payments, the lender has the right to put the home on the market for sale to recover the money owed to the lender. This is known as foreclosure.
- PITI: Principal, Interest, Taxes, and Insurance are the components of a mortgage payment.
- Closing: The conclusion of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.
How long before I can get my loan?
The settlement closing of a loan requires about 30 days from the date of the locked-in rate. While at settlement, you will read and sign numerous documents related to the purchase or refinance of your property. Your settlement agent will be able to answer any questions you may have regarding these documents. Settlements usually run smoothly and are completed within 60 minutes.
What are closing costs?
Once a loan has been approved by the lender, the buyer is asked to go to settlement to sign papers, and the loan process is complete! There are certain costs involved in closing a loan which usually amount to about 2%-6% of your mortgage loan. For example, if your mortgage loan is $85,000, your closing costs might range from $1700 to $5100. These closing costs will be in addition to your down payment on the house.
- Origination Fees: Your lender will charge a fee to cover the administrative cost of processing your loan. This fee is usually a small percentage of the loan amount.
- Items Paid in Advance (Prepaid Escrows): Most lenders require you to pay for some items that will be due after closing. These pre-paid items usually include first year insurance premiums (for hazard and mortgage insurance) and real estate taxes.
- Title Charges: A title is the document that shows who owns a property. It is necessary for an attorney to examine a title to make sure there are no problems that would prevent you from having “clear” (legal) title. It is also necessary to get title insurance in case someone else should try to claim title to your property. Fees for title examination and title insurance will be included in the closing costs.
- Recording and Transfer Charges: A record of your home purchase will be on file with your local government , and there is a small fee to cover the cost of paperwork.
- Attorney’s Fee: This fee is to pay the attorney or closing officer for preparing and reviewing all of the documents needed to close your loan.
What’s in a mortgage payment?
Mortgage payments consist of costs for principal, interest, property tax, Home Owners Insurance, and mortgage insurance.
- Principal: The principal is the amount of money you borrowed. Each month when you make your mortgage payment, you are paying back a small portion of the principal. The longer the payments are amortized (over 30 years for example), the more the payments go to reduce the principal you owe; over time, interest will become a smaller part of your monthly payment. In the beginning, most of the mortgage payments made to the lender will be interest payments.
- Interest: Interest is the cost of borrowing money, usually expressed as an annual percentage of the loan amount – for example 8.125%, 9.000%, etc. Lenders will offer different rates depending on the type of loan program offered.
- Property Taxes: These are taxes paid to local governments, usually charged as a percentage of the property value. Your lender collects the taxes through your monthly payments. The amount of tax will vary depending on the location of the home.
- Home Owners Insurance: This is a contract that protects you from any financial losses on your property that might result from fire, flood, or any other “hazards.”
- Mortgage Insurance: This is an insurance policy that pays mortgage lenders for part of their financial losses if a borrower fails to fully repay a loan. Mortgage insurance makes it possible to buy a home with a low down payment.
What types of insurance do I need to know about?
- Private Mortgage Insurance (PMI): A lender will require you to purchase mortgage insurance if you make a down payment of less than 20% of the market value of the home. There are different types of insurance available which often affect the type of mortgage loans you obtain.
- Conventional Mortgages
- FHA Mortgages
- VA Mortgages
- Title Insurance: Title insurance will be included in the closing costs to insure that no other party can claim title to your property.
- Home Owners Insurance: This insurance is a contract that protects you from any financial losses on your property that might result because of fire, flood, or any other “hazards.”
What is refinancing, and when should I apply for it?
Refinancing involves obtaining a new mortgage loan on a property already owned – often to replace existing loans on the property. When the mortgage rates are low, it may be a good time to refinance. Refinancing can save you money on your monthly mortgage payments. Read more…
What is a rate lock-in?
A lock-in, or rate lock option, ensures the borrower a commitment to a specified mortgage rate, including not only the interest rate but also its discount/origination points. The borrower must agree with an authorized representative of Hometown Equity Mortgage Company for a specific interest rate in order to choose this option. It is also possible to choose not to lock-in a specific rate, but instead to “float” for a certain number of days. Floating means simply a borrower electing to have interest rates move up and down according to market conditions until a specific rate is elected to be locked-in. All borrowers electing this option must lock-in a rate and its discount points at least five (5) business days prior to a scheduled settlement, or else your settlement will be delayed.
At Hometown Equity Mortgage, loan applicants can lock rates over the phone using a credit card. In order to lock-in rates and points, Hometown Equity Mortgage accepts a non-refundable fee of $357.00. This amount will be credited toward appraisal and credit report fees once the loan settles. Lock-in rates are usually valid for 30 to 45 days, depending upon a borrower’s specific needs.