Buying a home can be intimidating, especially if it’s your first home. After all, this is probably the biggest purchase you’ll ever make! To figure out if you qualify for a loan and how much you qualify for, we’ll take the following information into account:
• Employment, income, and credit histories
• Debt you may have like student or car loans or credit card debt
• Your assets like savings accounts and possibly retirement accounts or any other property you own
• How much you plan to put towards your downpayment
We will clearly explain your mortgage options like FHA vs Conventional loans and answer all your questions, so you feel confident in your decision. This is also when we can also discuss options like down payment assistance programs.
Getting prequalified is a less invasive process your loan officer can talk you through. It provides general ballpark numbers based on how much you may already have on hand and your income. This is often a great first step for those who are just starting to think about purchasing a home.
A preapproval requires a complete mortgage application, and our underwriting team will review your application along with your financial documentation like your tax returns and paystubs. Having a preapproval on hand means you can go home shopping with a realtor with the ability to put in serious offers on a home.
Which is better? It simply depends on where you are in your home buying process!
You can put down as little as 3% with some programs and if you put down 20%, you avoid private mortgage insurance. Some areas also have down payment assistance programs you may be able to take advantage of! This is why you want to explore all your options with your loan officer.
You also want to consider how much cash you have on hand as you’ll need funds for things like appraisals, inspections, and closing costs that are in addition to your down payment.
Mortgage insurance (MI), sometimes called private mortgage insurance (PMI), is a form of insurance you are required to pay if you put less than 20% down. While it is an additional cost built into your monthly payment, mortgage insurance allows you to have access to financing with a smaller down payment.
Mortgage insurance typically ends when you have paid 80% of your mortgage, also called your LTV or loan to value. There may also be opportunities to refinance your loan to end your mortgage insurance. Your loan officer will help direct you and can provide loan options with and without mortgage insurance.
Mortgage points, also called discount points, are a way to prepay interest to get a lower interest rate on your mortgage. Each mortgage point equals 1% of your home’s value. That means if you’re getting a $250,000 loan and choose to pay two discount points, you’ll pay $5,000.
Why would you want to pay points? It can lower your rate. Talk to your loan officer to see if this makes sense for your loan scenario.
Once you have preapproval, you shouldn’t make any significant changes to your financial picture. That means you shouldn’t:
• Suddenly pay off all your debts or deposit large sums of cash
• Apply for new credit cards, auto loans, or other types of credit
• Co-sign a loan with someone
• Change jobs, become self-employed, or quit your job
• Skip or miss payments on existing credit accounts, utility bills, or loans
• Purchase any big-ticket items, like furnishings for a new house
If any of these things might need to happen, talk to your loan officer before you act. They can help you figure out what to do so your mortgage loan is not negatively affected.
Your payment looks like one single payment, but each month your payment is broken up into several parts. Typically, your monthly mortgage payment breaks down into:
• Homeowners insurance
• Property taxes
• Mortgage insurance (if you put down less than 20% on your home)
You can also make additional payments towards reducing your principal balance. This is a great way to prepay your mortgage early. Talk to your loan officer about how this could benefit your long-term financial picture.
An escrow account is a payment account your mortgage servicer (who you pay your monthly payments to) sets up once your loan closes to set aside money to pay expenses outside of your principal and interest on your behalf.
This would cover the (typically) annual payments of your property taxes and homeowners insurance and it’s held to make sure those costs are paid on time. Many homeowners prefer to make payments monthly rather than managing a large tax bill each year. This doesn’t affect any possible discounts you get from your insurance company for “bundling” your homeowners insurance with your car insurance. Those companies are well-versed in dealing with escrow accounts.
The average time it takes to close on a house is currently around 30 days. Factors such as your loan type, your financial situation, and the length of your contract can either lengthen or shorten that time frame.
Once you close, that new house and mortgage are officially yours! Your loan officer will work closely with your realtor to schedule closing where you will sign all the legal documents needed to give you ownership of your new property. Three days before settlement, you can expect a Closing Disclosure which will detail all the costs and money you need for settlement along with how that money is transferred. Your loan officer will walk you through this document, so you are fully prepared for the big day!
We know there is often a lot of research done before ever speaking with a loan officer. Here is an outline of the most common acronyms you may come across and what they mean:
• APR – Annual Percentage Rate – The percent of your loan you will pay every year in interest. This amount then gets added to the amount you borrowed to calculate the total amount you’ll owe.
• CD – Closing Disclosure – The document you receive a few days before you officially close on your home. It compares your final costs and loan terms to your initial loan estimate.
• DPA – Down Payment Assistance – Programs that can help prospective home buyers who are ready to purchase but don’t have funds for a full down payment. This assistance can come in the form of grants, low-interest loans, or zero-interest loans, some of which are forgivable.
• DTI – Debt to Income (ratio) – Your debt-to-income ratio is the amount of your all of your debts (including a mortgage) in relation to your income. This is one key figure lenders use when determining loan qualification.
• FHA – Federal Housing Authority – Part of the U.S. Department of Housing and Urban Development. The FHA provides loans that are backed by the government with a fixed rate.
• HOI – Homeowner’s Insurance – Homeowner’s insurance is a type of insurance that covers your property against damage or loss. Note that it is different from a home warranty and mortgage insurance.
• LE – Loan Estimate – Loan Estimate is a document that explains in detail the terms, payments and costs associated with your loan.
• LTV – Loan to Value (ratio) – your loan-to-value ratio is the value of your mortgage loan in relation to the appraised value of the home. Lenders use it to determine two things: whether to approve your application, and whether you’ll need to pay mortgage insurance.
Not all refinances are the same! Your personal financial situation can dictate which option will work best for you.
Rate-and-term refinance: In general, this type of refinance would change your monthly payment without changing your principal balance by changing the rate and/or term of your loan. For example, you could refinance a 15-year mortgage to a 30-year term if you want to lower your monthly payment. You could also take advantage of a changing rate environment and get a lower rate.
Cash-out refinance: A cash-out refinance allows you take cash out through the equity in your home. Let’s say you have a $200,000 balance on your loan and you want to pay off $20,000 worth of high interest credit card debt. A cash-out refinance would allow you to take out a new loan worth $220,000 which includes the extra cash in hand. Talk to your loan officer about the types of refinances we offer. There are pros and cons for each.
This depends on your specific financial situation and your motivation for refinancing. The most common reasons to refinance are to reduce your rate and/or monthly payment, convert from an adjustable to a fixed rate, or pull cash out of your home’s equity to consolidate debt or improve your home.
If your objective is to reduce your monthly payment, it may make sense to extend your loan back to a 30 year mortgage or get a lower rate.
If you have an adjustable rate mortgage, you may want the peace of mind knowing your rate will never increase again.
If your home’s value has gone up since purchasing it (home values continue to rise!), you may want to remove your mortgage insurance, access the equity in your home to consolidate debt, or simply build your emergency fund by having more cash on hand.
Your licensed loan officer can help you determine whether refinancing makes sense for you.
Every mortgage is different. It depends on what your current interest is and what your motivation is for refinancing. If your current rate is higher current rates, it probably makes sense to refinance. To get an idea of what you could save by refinancing, use our mortgage calculator to review your specific mortgage or call one of our licensed loan officers for some expert advice.
Typically, any second mortgages are paid off through a refinance. We will consolidate both loans into one new first mortgage and you will only have one payment each month. If you’d prefer to keep your second mortgage open while paying off the balance, we may be able to ask your second mortgage lender to remain in second position and allow us to refinance the first loan.
There are options that may allow you to refinance your loan even if the value of your home is less than what you owe. Call and speak with one of our licensed loan officers to see if there is a program to fit your current scenario.
Fees associated with refinancing vary from lender to lender but there are standard fees that are typical across the board. These fees include 3rd party fees such as credit report, title, escrow, notary, and recording fees. Other fees include the appraisal fee and lender fees such as processing and underwriting. If you are paying points to lower the rate, the cost of each point that you pay equals 1% of your new loan amount.
Depending on your escrow account set up, you may need to pay prorated pre-paid costs for items such as property taxes, interest, and homeowners insurance. By refinancing, the total finance charges may be higher over the life of the loan. If you have enough equity in your home, you can add all fees and pre-paid items into your new loan.
You’ll need financial documents regarding your income such as paystubs covering the most recent 30 days and W-2s for the last two years, asset information such as bank or mutual fund/stock statements covering the last 60 days, and current loan information such as your most recent mortgage statement and homeowners insurance declarations page.
Depending on the reasons why your credit is imperfect, there are great loan options available including government programs. Speak with one of our licensed loan officers to determine whether or not you qualify for one of our programs.
There is no rule-of-thumb when it comes to refinancing because there are different reasons to refinance. If you are currently in an adjustable rate looking to get into a fixed rate loan, your rate and payment may change, but you will be in a better long-term situation knowing your rate and payment will not change.
If your goal is to consolidate high interest debt, your loan amount and monthly mortgage payment may go up but your overall monthly cashflow will improve because you will have eliminated some or all of your other monthly obligations.
There are also no-cost and low-cost refinance options that can lower your rate and payment with no or minimal investment. It is a good idea to go over your specific situation with a licensed loan officers to determine whether refinancing makes sense or not.
Most refinance transactions close in about 30 days from application to closing, though we’ve closed some very straight forward refinances in as little as 15 days! Over 30 years, Allied Mortgage Group has developed a very smooth process which enables us to close loans fast!
Depending on the state where your property is located, you can either sign in your home or at a designated settlement location such as an escrow office or attorney’s office. In the presence of the signing authority, you will review and sign all your loan documents and then present a certified or cashier’s check to pay the closing fees and other applicable closing funds unless you decided to finance the closing funds into your new loan.
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