Mortgage 101

/Mortgage 101
4 04, 2018

Home Buying Help: Should I Lock in a Rate on My Mortgage?

April 4th, 2018|Buying a home, Mortgage 101, Tips & Advice|

Mortgage rates change daily, making it difficult to spot the perfect moment to lock in a mortgage rate. To simplify the decision, keep these things in mind:

  1. Timing is everything.
  2. Have a few options to compare.

What is a Mortgage Rate Lock?

It’s an agreement the lender will deliver a specific combination of interest rate and points if the mortgage closes by a certain date. A point is a fee or rebate equal to 1 percent of the loan amount. Often times, rate locks last for 30, 45 or 60 days, but they can be shorter or longer. A rate lock protects the borrower from rate fluctuations during the lock period.

To begin, find out when your loan is expected to close and work backward to determine when to lock the rate. If you think you need 45 days to close your loan, find out what the interest rate would be if you locked it for a 60-day period.

Find the Best Combination For You

Look for the sweet spot when pricing out a rate lock. The sweet spot is the combination of interest rate, term, and cost you need to acquire the best deal. Most lenders won’t lock-in your rate for less than 30 days. An exception would be if you’re ready to close and offer the same rate for a 15- and 45-day period. There are different lock periods between 15 and 60 days. Anything longer than 60 days gets pricey, so it might be smarter to wait until you get closer to the closing date and check rates again.

When is the best time to lock in your rate?

For most homebuyers, it makes sense to sign a purchase […]

24 04, 2017

Mortgage Pre-Approval Frequently Asked Questions

April 24th, 2017|Blog, Mortgage 101|

Pre-Approval

What is mortgage pre-approval?

To be pre-approved for a mortgage means that a lender has looked at your credit and financial history and determined that you would be eligible for a mortgage. A pre-approval generally is a written statement from a lender stating that a borrower would qualify for a certain loan amount. Most pre-approval letters are good for 60 to 90 days.

How do I get pre-approved?

To get pre-approved, you will need to complete an official mortgage application and provide the lender with the necessary documentation to perform an analysis of your credit and take an in-depth look at your financial background. Some of these documents include:

 

  • Proof of employment
  • Proof of income
  • Tax documentation
  • Place of residence
  • Bank account statements
  • Credit information
  • Monthly expenses

 Is pre-qualification enough?

Pre-qualification is different than pre-approval. A mortgage pre-qualification is an estimate of how much the lender thinks you could be eligible to borrow based on your basic financial information. So no, pre-qualification is not enough. Pre-qualification can help give you an idea of how much you might be able to borrow, but errors on your credit report and other issues can get in the way of that. The lender is only showing you the loan that they believe you could be approved for if everything checks out. Pre-approval is much more involved than pre-qualification and gives you a more solid figure.

Why should I get pre-approved?

Getting pre-approved for a specific loan amount will give you a more accurate idea of how much home you can afford. It can also make your offer more attractive to sellers because he or she will know you are only a few steps away from obtaining an actual mortgage. Pre-approval can also help speed up the underwriting and loan […]

14 02, 2017

Being a Homeowner During tax Season

February 14th, 2017|Blog, Buying a home, Mortgage 101|

Tax season is upon us! Whether you already own a home or are looking to buy in the near future this is important information. For being a homeowner, there are many deductions you could receive when filing your taxes. Let’s check out a few:

  1. Mortgage Interest. When buying a home the interest payments can be pretty expensive but there is a silver lining to the situation. Interest that you pay on your mortgage is tax deductible, within limits. If you are married and filing jointly, you can deduct all your interest payments on a maximum of $1 million in mortgage debt secured by a first or second home.
  2. Points. There will be various fees when you first buy your home, one of which is called, “points.” One point is equal to 1% of the loan principal. One to three points are common on home loans, which can easily add up to thousands of dollars. You can fully deduct points associated with a home purchase mortgage. Refinanced mortgage points are also deductible, but only over the life of the loan, not all at once. Homeowners who refinance can immediately write off the balance of the old points and begin to amortize the new.
  3. Equity Loan Interest. You may be able to deduct some of the interest you pay on a home equity loan or a line of credit. However, the IRS places a limit on the amount of debt you can treat as “home equity” for this deduction. Your total is limited to the smaller of:
  • $100,000 (or $50,00 for each member of a married couple if they file separately), or
  • The total of your home’s fair market value – this is, what you’d get for your house on the open market – minus […]
5 07, 2016

Home Inspection vs. Home Appraisal

July 5th, 2016|Blog, General, Mortgage 101|

House and key shaped paper cutout, calculator and magnifier on wooden table.

Some future home buyers may be confused about the difference between a home inspection and a home appraisal. While they sound like they are the same thing, they are very different in reality. The two serve different purposes. A home inspection is optional; while an appraisal is required by a mortgage lender. An appraiser is more concerned with the value or a property, and a home inspector is more concerned with the condition of the property. Here is a closer look at the differences between the two.

Home Inspection

It is the inspector’s job to take a more in-depth look at the home than the appraisers do. Home inspectors are optional. Everything from the foundation to the roof will be thoroughly evaluated to make sure the buyer knows exactly what they are getting. Unlike an appraiser, home inspectors do not place a value on the home. Inspectors create a report that lets the buyer know the overall condition of the home. They inspect things that you do not necessarily see in a walk-through of the property. They will check the plumbing (pipes), radon, possible lead paint exposure, any signs of structural issues, ventilation, heating, air conditioning, electrical, drainage, etc. Inspectors will also advise you to contact a professional, such as a structural engineer, plumber or electrician if they feel there are any major issues to be addressed. The inspector will provide you with a clear understanding of what is going on with the home and if they foresee any future problems.

Home Appraisal

An appraisal is an evaluation of a property’s value based on its condition, features, and similar home sales in the area. Appraisals are conducted by trained, certified professionals who are licensed to […]

28 06, 2016

Jumbo Loans 101

June 28th, 2016|Blog, Buying a home, Home Finances, Mortgage 101|

Rhinebeck, NY, USA - November 5, 2007: Elegant private residence located in Rhinebeck; This area is in the Hudson Valley area of Upstate New York.

Since this is a 101 about jumbo loans and when you should use one, let’s start with the basics. A jumbo loan can also be referred to as a non-conforming mortgage. This is a loan that does not conform to the guidelines of Frannie Mae and Freddie Mac. Created by Congress in 1938 and 1970 respectively, Frannie Mae and Freddie Mac provide stability and affordability to the mortgage market by buying “conforming” mortgages from lenders, giving lenders liquidity to make more mortgages.

Frannie Mae and Freddie Mac only buy mortgages meeting their guidelines for down payment, credit score, post-closing reserves and loan amount. As of 2016, the conforming loan size limit for a one-unity home is $417,000 with exceptions as high as $625,500 in certain high-priced markets.

When should you use a jumbo mortgage?

You would use a jumbo mortgage when you are seeking a loan amount that is greater than the conforming loan limit in your area. In most of the country, that means you will take out a jumbo loan if the amount of the loan is greater than $417,000. In certain areas that are deemed high cost, the conforming loan limit goes above $417,000. You can look up your area’s loan limited here: http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx.

Qualifying for a Jumbo Mortgage

Jumbo mortgages have the same overall qualifying methodology as a conforming loan. Lenders will look at your credit score, down payment size,  total monthly debt obligations relative to income (called your debt-to-income ratio), and money left over after closing.

  • Credit score requirements are about the same for conforming and jumbo.
  • Money left after closing – This is often called reserves or […]
17 06, 2016

Smart Moves for First-Time Home Buyers

June 17th, 2016|Home Finances, Mortgage 101, Tips & Advice|

Shot of a couple moving into their new homehttp://195.154.178.81/DATA/i_collage/pu/shoots/805830.jpg

First-time home buyers, are you ready to buy? It is a seller’s market right now so we are here to prepare you with tips before entering the market. Your biggest challenge is that you are probably bringing less cash to the table, which makes it harder to compete with more season buyers. What YOU do have is flexibility-you’re not counting on selling your current place to fund the deal. Which means that you are a perfect answer for sellers who want to stay put until they land their next place.

  1. Lock up your financials. It is time to clean up your credit and save for a bigger down payment so that you’ll qualify for a better mortgage rate and avoid costly fees. Start paying down credit cards so your balance is less than 30% of the limit and avoid late payments. It is so important to pay your bills on time, even student loan payments. Student loans will not hinder your chance of getting a loan, as long as you are making the payments on time. Next, 20% is the golden number for down payments. Putting down 20% helps you avoid costly private mortgage insurance and can help you to beat competing offers. If you aren’t there yet, either change your spending habits to save up more or start looking at cheaper homes.
  2. Check Alternative Mortgage Options. If you can’t get close to that 20% down payment or your credit score is not where you would like it to be, that is okay too! FHA loans (read more about them here) let you put just 3.5% down, and offer better rates for those with less-than-pristine credit. It is important to know the tradeoff though, […]
25 05, 2016

Buying a Home with Student Loans

May 25th, 2016|Blog, Buying a home, Home Finances, Mortgage 101, Tips & Advice|

 

Young couple meeting financial consultant for credit loan

The housing market has been waiting for millennials to settle down and start buying homes instead of renting or remaining in their parent’s home for a few years now. If you ask any millennials, many of them will say these decisions are being prolonged due to the amount of student debt haunting them. The average Class of 2016 graduate has $37,172 in student debt, up six percent from last year according to https://studentloanhero.com/student-loan-debt-statistics-2016/. This is a huge financial burden to be facing, but we are here to tell you how you can still buy a home even with student loans.

Shop for a Home you can afford

This should be a rule of thumb for any purchase in life, if you can’t afford it, you probably should not be buying it. Home shopping can be tempting. You may be looking at multiple car garages, completely new appliances, high ceilings and much more. It is important not to get carried away. If you are a first-time home buyer, you may have to go with a starter home instead of your dream home but that will come with time.

Minimize Debt from Credit Cards and Car Loans

When applying for a loan these are the main factors taken into consideration:

  1. Income.
  2. Savings.
  3. Credit Score.
  4. Monthly debt-to-income ratio.

Your debt-to-income ratio shows the lender your total financial obligations including car payments, credit card debt and student loans in comparison to your income. To keep yours low, keep off as much debt as possible before applying for a mortgage.

Lower your monthly student loan payments

Even if you do not have any other types of debt, having a high student loan monthly payment could give you a high debt-to-income ratio. To lower that ratio […]

3 05, 2016

Down Payment: How much you should save to buy a home

May 3rd, 2016|Blog, Mortgage 101, Tips & Advice|

Horizontal view of marriage analyzing the bills

Is buying a home on the horizon for you? Have you started to save up for the down payment? Let’s first start with the basics of what a down payment is. A down payment is the amount of money you will spend upfront to purchase a home and is typically combined with a home loan to fulfill the total purchase price of a home.

How much do I need to save for my down payment?

The higher your down payment is, the lower your monthly mortgage payments will be. This will also depend on what type of loan that you get. Different loans require different amounts for the down payment. Typically you will need to save 5 to 20 percent of the sale price in cash in order to qualify for a conventional loan (30-year fixed mortgage). Down payments for jumbo loans can be as low as 5%. If you put down less than 20 perfect on a conventional loan, you will most likely have to pay mortgage insurance.

Low down payment financing options

Saving for a 20 percent down payment might be too difficult or take too long for many first-time home buyers or borrowers with lower household incomes. Other loan programs offer as low as zero to 3.5 percent down payment option, although a zero down-payment option is more difficult to get. The most common programs for the lower down payment mortgages come from the Federal Housing Administration (FHA) Most FHA loans require a minimum 3.5 percent down a decent credit score in order to qualify. Additionally, these types of loans are federally insured to reduce the risk of loss if a borrower defaults on their mortgage payments.

If you meet the eligibility guidelines, you may be able to qualify […]

21 04, 2016

Components of a Mortgage Payment

April 21st, 2016|Home Finances, Mortgage 101|

Mortgage concept. isolated on white background 3d

Before you dive into buying a home, it is important to know what your money is going to each month. Your monthly mortgage payments are commonly referred to as a “PITI” or principal, interest, taxes and insurance. PMI and homeowner’s association dues may also make up a portion of your total payment.

Principal: The original amount of the loan.

Interest: Just like with any other loan, this is the amount that you are charged for borrowing money. The amount of interest for the month is calculated based on the outstanding principal balance as well as the interest rate of your loan. As the term of the mortgage proceeds, the ratio between the principal and interest amounts shifts in each payment.

Taxes: The property assessment collected by your local government. Lenders typically collect a portion of these taxes in every mortgage payment and hold the funds in an account called an esgrow account until they are due.

Insurance: This offers financial protection from risk. Like property taxes, these are typically held in an escrow account and paid on your behalf to the insurance company. There are two main types of insurance that are typically included in your mortgage payment: homeowners insurance and mortgage insurance. Homeowners insurance is required financial protection you must maintain in case your property is damaged by fire, wind, theft or other hazards. Mortgage insurance protects your lender in case you fail to repay your mortgage.

Overall there are several factors that determine how much your monthly mortgage payment will be. Two examples are the amount you pay for a down payment and the mortgage program you choose.

It is important to take all four factors into consideration when determining what house you can afford. Use our mortgage calculator http://firstohiohome.com/home-finance-mortgage-calculators/ […]

4 03, 2016

What tax Season means for Homeowners

March 4th, 2016|Home Finances, Mortgage 101, Tips & Advice|

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Tax season is upon us! Whether you already own a home or are looking to buy in the near future this is important information. For being a homeowner, there are many deductions you could receive when filing your taxes. Let’s check out a few:

  1. Mortgage Interest. When buying a home the interest payments can be pretty expensive but there is a silver lining to the situation. Interest that you pay on your mortgage is tax deductible, within limits. If you are married and filing jointly, you can deduct all your interest payments on a maximum of $1 million in mortgage debt secured by a first or second home.
  2. Points. There will be various fees when you first buy your home, one of which is called, “points.” One point is equal to 1% of the loan principal. One to three points are common on home loans, which can easily add up to thousands of dollars. You can fully deduct points associated with a home purchase mortgage. Refinanced mortgage points are also deductible, but only over the life of the loan, not all at once. Homeowners who refinance can immediately write off the balance of the old points and begin to amortize the new.
  3. Equity Loan Interest. You may be able to deduct some of the interest you pay on a home equity loan or a line of credit. However, the IRS places a limit on the amount of debt you can treat as “home equity” for this deduction. Your total is limited to the smaller of:
  • $100,000 (or $50,00 for each member of a married couple if they file separately), or
  • The total of your home’s fair market value – this is, what you’d get for your house on the open market – minus certain other outstanding debts against […]
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