We know there’s a lot to consider when buying a home. Please ask us questions – we’re here to make you feel more comfortable and confident!  Meanwhile, we put together a few Frequently Asked Questions:

 

Mortgage Basics

What is a mortgage?

A mortgage is a loan from a bank used to help you finance the purchase of a home. When you take out a mortgage, you make a promise to repay the money you’ve borrowed, plus an agreed-upon interest rate.

The home is used as “collateral,” which means if you break your promise to repay at the terms established on your mortgage note, the bank has the right to foreclose on your property meaning take possession of it.

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What makes up a mortgage payment?

Here are the components that make up your monthly mortgage payment:

• Principal – The amount borrowed.

• Interest – Finance charges.

• Escrow – Property Taxes and Insurance are typically escrowed, which means they are divided by 12 and added to each month’s mortgage payment. When taxes and insurance are due, your mortgage company will make the payments. This amount can and will change annually. When it does, it can affect your monthly payment.

• PMI – When a borrower cannot put a 20% down payment on the purchase of a home, the lender is required to obtain Private Mortgage Insurance. PMI terms vary depending on your loan type.

 

What are the advantages of buying a home?

• Access to cash/equity in your home

  • Equity is the difference between the market value and the amount you owe on the mortgage.

  • Many homeowners take out home equity loans or lines of credit to pay for home improvements, medical bills, or college tuition.

• Improved credit score

  • Having a mortgage loan in good standing on your credit report improves your credit score.

  • The credit score determines the interest rate you are offered on other credit products, such as car loans and credit cards.

• Tax benefits

  • Currently, there are potential tax benefits for homeownership.

  • Depending on your tax bracket, you may be eligible for a deduction for the interest paid on your mortgage, private mortgage insurance premiums, points or loan origination fees, and real estate taxes.  Be sure to speak with your qualified accountant for information.

• Increase in value

  • If the real estate market improves, your home could appreciate in value, meaning that it is worth more than when you purchased it. I call this wealth building. Historically owning a home is the #1 way to build wealth in the USA.

 

What are the types of mortgage rates?

• Fixed-rate mortgage

  • – Interest rate is set for the life of the mortgage.

  • – Offers stability in your mortgage payments.

• Adjustable-rate mortgage (ARM) 

  • – As interest rates change, your monthly mortgage payment may go up or down. 

  • – Interest rate is tied to an index that may adjust after the initial fixed rate period ends. These indexes make up the variable component of the mortgage rate and can increase or decrease depending on factors such as how the economy is doing, and whether the Federal Reserve is increasing or decreasing rates.

 

The Mortgage Process

How long are most mortgages? 

• Long-term loans

  • – 30-year loans are most popular.

  • – Provides a lower monthly payment.

  • – Range is 10 years to even 30 years.

• Shorter term loans

  • – 15-year loans are common. Also available in 10-year.

  • – Pay substantially less interest over the life of the loan.

 

How long does the process take? 

The mortgage process normally runs between 30 to 45 days, depending on the property, loan type and timelines for inspection and appraisal.

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How many people are involved in obtaining a mortgage?

• Mortgage Loan Officer (MLO)

  • – Helps you complete the mortgage loan application and requests any information needed to complete the application. Sets terms of the loan such as rates, debt-to-income ratio, and credit scores.

• Mortgage Loan Assistant (MLA)

  • – Gathers required documentation.

  • – Completes Flood checks, Insurance requests, verification of employment.

  • – Reviews and works with the MLO to make sure all required information has been collected.

• Processor

  • – Reviews the paperwork and documentation to ensure everything is in order and there is no fraud.

• Underwriter

  • – Person who approves or denies the loan based on the application and the required documentation. 

  • – The Underwriter is the person who signs their name to the loan.

• Closer

  • – The closer works with an attorney on getting the closing documents prepared and handles getting the documents where they need to go after they have been signed, or the loan has been closed.

• There may also be Home inspectors, Real Estate Agents and Appraisers. 

 

Buying a Home

How can I determine how much house I can afford?

As a general rule of thumb, the 28/36 debt-to-income guide is a great place to get started. That is, your total mortgage payment should not exceed more than 28% of your gross income. And your total debt (including your new mortgage) shouldn’t exceed more than 36% of your gross income.

 

How do I qualify for a mortgage?

• Credit Score – Good credit history may help customers qualify for better interest rates

  • Canvas uses a Tri–Merge Credit report, which is a combination of Experian, Equifax, and Transunion credit reporting agencies.

• Debt-to-income ratio – A customer’s debt-to-income ratio (DTI) is the total of the monthly debt payments divided by their gross monthly income. DTI helps lenders assess a customer’s ability to manage their monthly payments and repay the money they’ve borrowed.

• Income – To qualify for a conventional loan, lenders will consider whether a customer has stable and reliable income.

• Down payment – Depending on your lender’s guidelines and loan type, you may qualify for down payments between 0% and 20%.

 

What does it mean to be pre-qualified?

• Pre-qualification means a mortgage loan officer has looked at the information submitted and qualifies borrowers based on the information provided. It also lets the borrower know how much house they can afford. It does not mean that they are approved for the loan.

 

What Credit Score do I need to get approved for a mortgage?

• We have a number of different mortgage products with different requirements.  Our experienced mortgage staff can help you to find the best product for you and your credit score. If your credit score is too low, our experienced mortgage staff has helped many customers to improve their credit score so they can achieve the dream of home ownership. 

Do I need 20 percent cash for a down payment?

Not necessarily. We have a number of different mortgage products with different down payment requirements.

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How do I start?

Easy! Contact Denny and he will help guide the way.