There are so many types of mortgage loans available today, how do I know which one is best for me?

 Ever feel like there’s a world of financing information that’s hidden away? Confused about which loan type is best for you? Personal situations vary, and only a qualified lender can give you full details. But we can help open the door to financing solutions, and to your new home. Here’s some info on common mortgage types:

30-Year Fixed

  • PRO:
  • Fixed monthly payments over the life of the loan.
  • Low risk.
  • CON:
  • Higher initial interest rates than adjustable loans mean the borrower may pay more interest charges over the life of the loan, depending on whether rates on adjustable mortgages go up or down

20-Year Fixed

  • PRO:
  • Faster equity buildup than a 30-year mortgage.
  • Interest rate often the same or slightly lower than 30-year fixed.
  • CON:
  • Monthly payments are higher than a 30-year fixed loan.

15-Year Fixed

  • PRO:
  • Shorter term provides substantial interest savings over 30-year fixed.
  • Often a lower interest rate than 30-year loans.
  • CON:
  • Monthly payments will be higher than a 30-year fixed loan, making 15-year loans difficult for many first-time buyers.

Adjustable Rate (ARM)

  • PRO:
  • Starts out at lowest interest rate, then adjusts every 1, 3, or 5 years. Good for first-time buyers who might not have income to qualify for another loan.
  • CON:
  • Depending on market conditions, the loan adjustments can mean increased rates down the road.

How do I determine what I can afford to pay for a new home?

 Lenders will usually allow you to spend up to 28% of your total (“gross”) monthly income to make mortgage payments. The table below shows how much 28% equals at various income levels. Different loan plans allow you to borrow more or less for the same monthly payment.

Annual
Income
Gross Monthly
Income
Affordable Monthly
Payment
$15,000 $1,250 $350
$20,000 $1,667 $467
$25,000 $2,083 $483
$30,000 $2,500 $700
$35,000 $2,917 $817
$40,000 $3,333 $933
$45,000 $3,750 $1,050
$50,000 $4,167 $1,167
$55,000 $4,583 $1,283
$60,000 $5,000 $1,400
$65,000 $5,417 $1,517
$70,000 $5,833 $1,633
$75,000 $6,250 $1,750

Call us for a mortgage payment calculator. The calculator shows the monthly principal and interest payments for each size loan at current interest rates. We can show you how much house you can afford after figuring in the down payment, taxes and insurance. You might be surprised at how easily you can afford to buy.

I’m concerned I might not have saved enough money for the down payment. What can I do?

 A lack of down payment money may feel like a roadblock denying you homeownership. Many consumers are frustrated in their attempts to save enough for a down payment. But many buyers are able to purchase a house with a down payment of only 5% of the sales price. The monthly mortgage payment is a little higher for low down payment loans, however. The lender usually requires private mortgage insurance (PMI) to cover the difference between the actual down payment and an ideal down payment of 20%. Once the new owners’ equity in the home reaches 20%, however, the PMI usually can be dropped.

If coming up with the down payment presents a hurdle for you, there are a number of ways you can meet this challenge:

  • Loans insured by the Federal Housing Administration (FHA) require low down payments.
  • The Veterans Administration (VA) financing for qualified veterans calls for no money down.
  • Some states and localities have special programs to help first-time buyers get into a home.
  • You can beat the up-front money crunch by rolling closing costs into the mortgage – an option offered by some lenders.
  • Or, you can opt for a slightly higher interest rate with no points.
  • Some lenders allow buyers to finance mortgage insurance, so less money is due at closing.
  • Also, think about asking the seller to help with closing costs or points.

What is the difference between loan pre-approval and pre-qualification?

 Pre-approval and pre-qualification are steps you can take to line up your mortgage loan before you start house hunting. They are different, so read on:

Pre-approval:

  • is actually applying for, and getting, a conditional commitment for a mortgage loan up to a specific amount of money.
  • is usually good for 60-90 days.
  • applies, even though you might not have chosen the home you will buy.
  • often requires a loan application fee.
  • gives you bargaining power, because it tells the seller you are ready to buy and able to get financing.

Pre-qualification:

  • is the result of a lender taking a cursory look at the buyer’s income, credit history and assets.
  • states the buyer probably could afford to buy up to a certain limit.
  • does not include a loan commitment.
  • tells sellers you’re serious about buying and their house is in your price range.
  • usually costs no more than the credit report fee.

Some advantages of pre-qualification and pre-approval are:

  • A pre-approval or pre-qualification can speed closing because the paperwork for the loan has already been started.
  • You will begin learning about the financing process, and any problems that might arise can be resolved early.
  • You know in advance how much you can borrow.
  • Your offer is more attractive to the seller, because the seller won’t have to guess about whether you can afford the house.

Where do you begin when it’s time to look for a new house? Start by calling or e-mailing us with your home-buying questions. We can give you an idea of how much home you can afford to buy, then you can follow up with your local lender.

My credit rating isn’t so good. What do you advise?

 One of the most common hurdles to getting a mortgage or refinancing your home can be a less-than-stellar credit rating. But it isn’t always a stop sign on the road to homeownership. To overcome this problem, credit counselors advise you to come clean with potential lenders and offer a good explanation.

Having two or three late payments on your credit report isn’t going to stop most lenders. But if you’ve had a number of 30-day late payments, or you’ve been more than 60 days late on any payments, or you’ve defaulted on a loan within the past two years, you need to be ready to do some serious explaining.

Tell the loan officer about any credit problems when you apply for the loan. By candidly volunteering the information and offering an explanation – perhaps a layoff, unexpected medical bills, divorce, or unanticipated emergency home repairs – the lender may still consider you a good risk. If this approach doesn’t work, you might consider using a mortgage broker who specializes in helping poor credit risks.

  • Check Your Credit Rating Early In Purchase Process
  • Have you asked for a credit report recently? If you are thinking of buying a house, it’s a good idea to ask for a copy of your credit report now, rather than waiting until you apply for a loan. If there are any mistakes on it – and mistakes can happen – you will need time to correct them.
  • If negative, but accurate, information appears on your report, you can request to have a short explanation put into your file.
  • Raise Your Credit Rating
  • Before shopping for a home, it’s a good idea to check your credit record. Under the Fair Credit Reporting Act, you can have a credit bureau correct any incomplete or inaccurate information for free. This means the credit service must re-check with the creditor on information you dispute and correct any inaccuracies or omissions. If the item cannot be verified, it must be deleted.
  • If the dispute is still unresolved, you may add a statement of up to 100 words to explain your side of the story.
  • If you have accounts not listed with the credit bureau, but wish them to be added to your file, the credit bureau may charge a fee to add the other accounts.

When is it a good idea to look for an assumption?

 Assuming, or taking over, an existing mortgage is the key that opens the door to homeownership for many buyers. If you don’t have the minimum down payment your lender requires, if your income fluctuates or does not meet the lender’s debt-to-income ratio, or if your credit history is less than perfect, an assumption may be the way to go.

Many assumable loans are obtained through the Federal Housing Administration, although some older assumable mortgages from banks still exist. Assumptions generally cost less at the settlement table because fewer fees are required. FHA loans made before December 15, 1989 can also be assumed by a buyer meeting minimal credit requirements. In this case, however, the seller retains responsibility for the mortgage if the buyer defaults. If the buyer qualifies for a FHA loan originated after that date, the seller can request a “release from liability.”

  • Improve Your Credit Standing.
  • Often, assumable loans are older and may carry a higher interest rate, and the buyer could need a lot of cash to take one over. The seller can take back a second mortgage equal to the difference between the value of the first mortgage and the price of the home, plus a discount fee. The seller can then either collect the monthly payments, or sell the second mortgage at a discount to raise immediate cash.
  • If the interest rate on the assumable loan is higher than current market rates, the buyer has the option of establishing a good credit history and then refinancing to a lower rate.