What is a Mortgage?
The Costs of Buying a Home:
Mortgage interest rate
– Cost for the use of a loan, usually expressed as a percentage of the loan, paid over a specific period of time. The interest rate does not include fees charged for the loan.
Annual percentage rate (APR)
– The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan.
– The principal and interest rate portion of the loan will remain the same through the entire term of the loan. Payment increases may occur with taxes and insurance.
Adjustable-rate mortgage (ARM)
– The interest rate on the loan will periodically change based upon a financial index. The payment may increase due to increases in interest rate, taxes and insurance.
Federal Housing Administration (FHA) loan
– Offers down payments as low as 3.5%, allows gift funds, and is available for both fixed-rate and adjustable-rate loans.
Department of Veterans Affairs (VA) loan
– Has loans up to $417,000 nationwide with higher limits in high-cost areas, no down payment required with full entitlement, available for both fixed and adjustable-rate loans.
Step 1: Application
– Employment, credit history, assets and debts, and income information is collected
– Lender reviews and determines if you qualify
Step 2: Conditional approval
– You will receive an information packet and conditional approval letter
– Conditions will include an appraisal of the home you are interested in buying
Step 3: Final approval
– After all conditions have been met, you will receive a commitment letter
– You will then be ready to close
Step 4: Closing
– The date and time for closing is established by your lender
– Review and sign all of your loan documents
– Pay for down payment, closing costs, prepaid interest, taxes and insurance
– Funds will be released to the seller
– If required, you will set up an escrow account to pay property taxes and homeowners insurance with your monthly mortgage payment
What You Need to Buy a Home:
Good credit history
– A record of paying what you owe in a timely manner and using credit responsibly. Poor credit history or no credit history can hinder your ability to qualify.
Employment and verifiable income
– You must be able to prove you have the resources to repay the loan. A lender will verify a borrower’s:
– Current income or assets
– Employment status
– Credit history
– Monthly mortgage payment and any other mortgage-related obligations and loans associated with the property
– Other debt
– Monthly debt-to-income (DTI) ratio
Money for upfront costs
– Down payment: The required amount depends on the mortgage loan program. It can range from 3.5% to 20% (or more if you prefer) of the purchase price. If your down payment is less than 20% you may be required to purchase private mortgage insurance (PMI), typically 0.15% to 2.5% of the loan amount.
– Closing costs and other fees: Including upfront fees, origination fee, third-party closing fee, and initial escrow deposits, typically 3% to 7% of the loan amount.
Assistance with upfront costs
– Learn more about down payment and closing cost assistance programs available from state and local
government agencies, nonprofit organizations, and employers to help make buying a home more affordable.
– Eligibility for assistance can include:
– First time home buyers
– Type of mortgage
– Property location
– Program Types:
– Mortgage credit certificates
– Down payment programs
– Deed restrictions
– Section 8 for home ownership
– Employer Assisted Housing Programs
Finding the Right Home:
Set a price range
– An important question to ask yourself is: “How much should I borrow?” instead of, “How much could I borrow?”
– Meet with a lender to:
– Pre-qualify and assess your eligibility for a loan
– Determine the loan amount you qualify for
– Discuss down payment, closing costs and assistance programs
– Home ownership costs to consider:
– Monthly mortgage payment
– Maintenance and repairs
– Homeowners Association (HOA) dues