Below are answers to several frequent questions about loans.
Question: How will a lender decide whether you qualify for a loan?
Answer: A lender's main concern is whether you're likely to be able to make your monthly payments in full and on time. So a lender will review:
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Your assets: savings and investments.
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Your income: wages, bonuses and other earnings.
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Your credit history: track record of making credit, utility, car and student loan and other payments in full and on time.
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Your debt: credit card balances, car or student loans and other amounts you owe.
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The property: the price being paid as compared to its market value, as well as real estate taxes, assessments and other fees.
There's no need to shy away from trying to buy a home if you have a problem in one or more of these areas ? many new home buyers have those issues. Instead, contact me to discuss your options. I can advise you on the best approaches and alternatives for your specific circumstances.
Question: How do you know which mortgage is right for you?
Answer: There are many types of mortgages because borrowers have such varied needs. But most loans fall into one of the following categories:
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Fixed-rate: These guarantee the same interest rate and monthly payment for the length of the loan (usually 15, 20 or 30 years).
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Adjustable-rate: The interest rate on these loans changes periodically - typically once or twice a year - based on a specific market indicator. There's generally a limit on the amount of each rate adjustment and the total amount the interest rate can change over the life of the loan.
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Federal Housing Administration or 'FHA': are guaranteed by the government and were created to help first-time and low-to-moderate income buyers purchase homes. They feature low down payments and flexible guidelines.
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Veterans Administration or 'VA': The government also guarantees VA loans for veterans and military personnel who have met specified lengths of service. These loans often require no down payment.
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Low- and No-Down Payment: These loans cover 95 to 100% of the purchase price, so they may be ideal for first-time buyers who have limited cash or are in low- to moderate-income brackets.
There are other kinds of mortgages, including many designed for first-time buyers. I can explain various loans and how each might affect you depending on your resources and financial situation, how long you plan to stay in your first home, how quickly you want to pay off your mortgage, whether you prefer a predictable monthly payment and so on.
Question: How much can you borrow? Should you stretch or buy conservatively?
Answer: A lender will decide your maximum loan amount based on a variety of factors, including your income and other assets, your credit history and how much debt you owe.
But it's important to realize that how much you can borrow to buy your first home is not necessarily the same as how much you can afford to spend. Our Mortgage Qualification Calculator may provide some useful information.
Between monthly payments, insurance, taxes, repair and maintenance costs to upkeep the property and other fees, owning a home often involves higher ?out of pocket? costs than renting. So it's important to understand the total financial picture before you commit to a price range or specific property. I can give you an idea of the costs associated with buying homes at various price levels, but only you can decide whether you're more comfortable buying modestly or at the upper end of your limit.
Question: How much will your monthly payment be?
Answer: The amount of your monthly payment depends on the size of your loan (your purchase price minus your down payment), its length, the interest rate and other factors. Our Monthly Payment Calculator will show you the monthly loan amount associated with different purchase price, down payment and interest rate combinations.
I can also provide monthly loan payment estimates to help you shop for your first home. However, keep in mind that the monthly loan payment is only one of the costs associated with owning a home. You'll also have to pay property taxes and homeowners' insurance, as well as condo assessments, association dues and/or private mortgage insurance, if applicable. These costs may be included in your monthly payments.
Question: What fees are associated with getting a mortgage?
Answer: You'll receive information about fees throughout the process. First, I'll provide a ?good faith? estimate of all origination and closing costs shortly after you apply for a mortgage. Just before closing, I'll give you a detailed statement of financing-related home buying costs, which generally fall into four categories.
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The down payment is usually between 5 and 20% of the purchase price, although there are some ?no down payment? mortgages available.
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Origination or application fees, which cover the cost of processing and reviewing your application. These include obtaining a current credit report, processing and preparing documents, and having a professional appraiser evaluate the home you want to buy. Origination fees may be paid upfront when you apply for a mortgage, or charged as a percent of the loan amount at closing.
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Closing costs typically range from 3 to 6% of the purchase price. These include researching the title to the property, registering you as its new owner, conducting any required flood and/or pest inspections and paying taxes. You'll need to bring a certified or cashier's check to the closing to cover these costs. I will let you know the exact amount a few days before closing.
Other costs: You'll be responsible for paying any other service providers you hire to help you purchase your home. This may include an attorney, an inspector who evaluated the property's condition and so on. Before you hire any of these professionals, ask about the costs associated with their services.
Question: Is now the right time to buy? Are you thinking of waiting until prices come down or so you can save more for a down payment?
Answer: Although home values have increased steadily in many areas, no one can predict what will happen to prices, interest rates and the economy in the future. Since only you can decide if now is the right time to become a homeowner, it might be helpful to consider the decision in terms of your personal goals and spending habits.
You might feel more comfortable waiting until you save more money, but unexpected bills or purchases can easily consume those additional savings. If you want to buy a home and can afford one you will enjoy, now is probably a good time to research the benefits and satisfaction of owning a home. Our Rent vs. Buy Calculator may also be helpful in determining which path is more financially prudent for your individual situation.
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