You've
been looking at houses for
months, and finally you’ve found
it--the house that's just right.
So now, all you have to do is to
purchase your new home, move in,
and get settled, right? Not
quite. There’s one more big step
to go-getting a mortgage loan.
You’re going to want to decide
on the type of mortgage and
payment terms that fit within
your budget. And you’re going to
have to prepare yourself by
doing some research. What
follows is valuable information
that will be crucial in helping
you make loan decisions that
will fit your budget and
circumstance.
Series: 3
Finding a Perfect Match for your
Home Mortgage
Factors
That Affect Your Mortgage
Mortgage
payments are determined based on
the following criteria:
Amount of
the loan
Length of the loan
Down payment
Discount points
Closing costs
Credit quality
Income level
Lock in period
Loan
Amount: The amount of your loan
can increase your interest rate
if the amount financed exceeds
the conforming loan limits set
by Fannie Mae and Freddie Mac,
(private corporations regulated
by the federal government) that
administer loans. The conforming
loan limit changes at the
beginning of each year.
Shorter
loans, such as a 30 year or 15
year note, can save you thousand
of dollars in interest payments
over the life of the loan, but
your monthly payments will be
high. An adjustable rate
mortgage may get you started
with a lower interest rate than
a fixed rate mortgage, but your
payments could get higher when
the interest rate changes.
Down
Payment: A large down payment
will give you the best possible
rate. If you've got the cash now
and want to lower your payments,
you can pay points on your loan
to lower your mortgage rate. The
concept is simple: In exchange
for more money upfront, lenders
are willing to lower their
interest rate, cutting the
borrower's payments. Remember to
consider upcoming expenses and
closing costs in your down
payment decision.
Closing
costs. In addition to your down
payment, you will need to pay
closing costs for processing
your loan and transferring the
property ownership from the
seller to you, the buyer.
Closing costs can range from
3%-5% of your loan amount,
depending on where you live, the
loan you choose and your closing
date. In some cases, you can
finance certain closing costs in
your mortgage loan. When you
apply for loan, your lender will
give you an estimate of closing
costs, which usually include:
Origination fees.
Costs of
processing your loan (includes
property survey and appraisal).
Items paid in advance, such as
first-year mortgage insurance
premium, first-year hazard
insurance premium and first-year
flood or earthquake insurance
premiums, if required.
Escrow
accounts – an account held by
the lender into which the
homebuyer usually pays for
city/county property taxes,
mortgage insurance, and hazard
insurance, if required.
Title
insurance charges.
Recording
and transfer charges.
Attorney’s
fees.
Credit
Score: Your credit and
debt-to-income-ratio affect the
terms of your loan through your
FICO score which is used to
determine your credit rating. If
you have good credit and your
monthly income exceeds your
monthly debt obligations, you
will get approved at a lower
interest rate. However, if your
monthly income barely covers
your minimum debt obligations,
you will not receive the lowest
available interest rate even if
you have a good credit report.
Lock-in
Rate: When shopping for a loan
remember that interest rates
change frequently. It is
important to ask your mortgage
representative if a lock-in rate
is possible. This will guarantee
you a specific rate, provided
the loan is closed, with a set
period of time. Determine How
Large a Monthly Mortgage Payment
You Can Afford
Your
choice of mortgage will be
influenced by questions such as
How many years do you expect to
live in your new home? How
important is it to be free of
mortgage debt before facing your
children’s college bills or
planning your future retirement?
How comfortable are you with the
certainty of a fixed mortgage
payment vs. a payment that can
change over time?
Your
monthly payment will vary
depending upon the type and
length of the loan and the
amount you put down. Most
lenders will help you select the
loan that’s best suited to your
financial situation.
How Low an
Interest Rate Can You Expect?
Shorter
term loans offer lower interest
rates and are divided into two
types. A Fixed mortgage means
that the rate is locked in for
the life of the loan. Adjustable
Rate, also called an ARM or
variable rate note, is a note
that generally offers lower
payments for the first year and
then changes periodically based
on the terms and conditions of
your note. Paying discount
“points” can lower your interest
rate. If your loan requires you
to pay points or if you want to
buy “down” the interest rate
using points, remember that one
point equals 1% of the loan
amount.
Choosing
the Right Mortgage
If you
want the stability and
predictability of a set rate for
the life of your loan, then a
fixed rate mortgage may be for
you. Usually the longer the term
of the mortgage, the more
interest you pay over the life
of your loan. Though, a longer
term means your monthly mortgage
payments will be less than they
would be with a comparable
shorter-term mortgage.
30 year
vs. 15 year fixed rate mortgage.
A 30-year
mortgage will have a lower
monthly payment and a higher
interest rate than a 15-year
mortgage. You'll have a smaller
monthly obligation but you'll
pay more for your house over
time because you're paying it
off with interest for a longer
period. On the other hand, a
15-year mortgage will have a
higher monthly payment and a
lower interest rate so you'll
pay less for your house because
you're paying it off in a
shorter period.
Adjustable
Rate Mortgage.
ARMs, are
short-term fixed-rate loans: After
the fixed rate term is up, the rate
adjusts at regular intervals in
accordance with current interest
rate conditions at that time. A 5/1
ARM, for example, has a fixed rate
for five years and then adjusts
every year for the next 25 years. (ARMs
typically run on a 30-year
schedule.)
The length of
the fixed-rate term on an ARM
typically can range anywhere from
one month to 10 years. The longer
the rate is fixed, the higher the
interest rate you'll get. But
generally speaking -- and there have
been exceptions in the past -- ARMs
will cost you less in the
short-term. With the ARM, both your
monthly payments and interest rates
should be lower than either a fixed
rate 15-year or 30-year mortgage.
The risk with
an ARM is that when interest rates
rise, you could end up paying much
more than you bargained for. Check
to see if your ARM has a cap rate so
that if rates increase, your change
cannot exceed a certain pre-defined
limit.
If you
know you'll be in a home for 12
years or more, a 30-year fixed
rate mortgage might work better
for you than, say, a 5/1 ARM,
where you fix a rate for five
years and then it adjusts every
year after that. But if you
think you won't be in the home
longer than five or six years, a
5/1 ARM might make more sense.
Mortgage
Shopping Tips.
Talk to
the mortgage specialists at your
bank. If you are starting to
look for a home they can asses
your financial situation and
help you determine a purchase
price that is within your budget
and a mortgage program that
suits your lifestyle and income.
In many cases your advisor can
prepare a pre-approved mortgage
before you finalize your
purchase.
Ask a
mortgage specialist at your bank
to help you calculate payments
at different interest rates.
This will help you determine a
monthly payment that can be
comfortable integrated into your
budget.
Types of
Mortgage Programs.
Most
lenders are committed to
ensuring that your home
financing experience is
reUTrding and effortless. To
this end, there are many
programs available to suit a
variety of situations,
lifestyles and your financial
profiles. These include:
Fixed-rate
loan. If you’ve found a home you
plan to live in for 10-30 years,
consider a fixed-rate loan. It’s
predictable and stable since the
interest rate is set for the
full length of the loan. Because
the monthly payment for the
principal and interest stays the
same for the life of the loan,
it’s easier to plan a budget.
Most lenders offer many
fixed-rate loans with terms to
fit your budget, including loans
that require no money down.
Adjustable-rate loan.
If you
plan on being in your home for a
shorter period of time, or
expect your income to increase
of the years, an adjustable-rate
mortgage (ARM) may just be the
right fit for you. An ARM loan
usually starts with a lower
initial interest rate than
traditional fixed-rate loans.
After a set initial payment
period (usually one, three,
five, seven or ten years), the
interest rate may change
periodically (usually annually
or semiannually) based on market
conditions. As the rate changes,
your monthly payment changes.
ARM loans feature an adjustment
“cap” which limits how much the
interest rate can go up. This
helps protect you from large
increases in your monthly
payment.
Loans for
first-time homebuyers.
Most banks
offer affordable loans to make
it easier for first-time
homebuyers with limited savings
to qualify for a home loan.
Specifically, FHA and VA
government loans are available
to qualified buyers, based on
income or property location.
These affordable financing
programs can help make it easier
to buy a home since they require
little or no money down and also
offer flexible credit and income
guidelines.
Repayment
schedule.
Also
consider how quickly you’d like
to repay your loan – within 15
years, 20 years, 25 years, 30
years? Do you want to make
biweekly mortgage payments?
Typically, the sooner you repay
the loan, the more you’ll save
in interest payments. However,
the longer you extend the term
of your financing, the lower
your monthly payments maybe. So
when choosing a loan term,
consider your budget, your
long-term spending patterns,
your income over the life of the
loan and how long you plan to
stay in your home.
Which loan
is right for me?
The
lifestyle situations below can
help you decide which loan you
might want to consider.
”Getting
the lowest monthly payment is
most important to me, and I’ll
be in my home for less than five
years.” An intermediate ARM
(five years or longer) if your
income is fixed or expected to
decline. A short-term ARM (three
years or less) if you expect
your income to increase.
“Getting
the lowest monthly payment is
most important to me, and I’ll
be in my home for more than five
years.” A fixed-term mortgage
(for example, 30-year fixed). An
intermediate ARM if you expect
your income to keep increasing.
”I have
little money saved for a down
payment.” AN FHA loan. A VA
loan, if you are a veteran.
“I have no
traditional credit references
(for example, car loan or credit
cards) but I pay my rent and
other bills on time.” An FHA
loan. A VA loan, if you are a
veteran.
“Paying
off my mortgage faster and
saving money by paying less
interest long-term is what’s
most important to me.” A
shorter-term mortgage, such as
15- or 20-year fixed-rate loan.
A biweekly 30-year mortgage
accelerates the reduction in
principal by applying more than
one extra payment a year,
reducing the total interest and
term of the loan
Borrowers
Protection Plan
Borrowers
Protection Plan is an optional
feature of your loan that can
provide peace of mind during
difficult times – like an
unexpected job loss or
disability. Borrowers Protection
Plan will cancel your monthly
principal and interest payment
should you lose your job or are
unable to work due to illness or
injury. Borrowers Protection
Plan may cancel a total of up to
12 months, depending upon the
protection option and benefit
period selected. And if you
should die in an accident your
entire loan balance will be
canceled.
Benefits
of protection.
Affordable. Decide what you and
your family need and we'll help
make it affordable.
Easy to
obtain. There are no health
requirements or medical exams
and any size loan qualifies.
Supplemental benefits. Your
monthly benefits will not be
reduced because of other state
unemployment benefits or
disability income you may
receive. Protection options
available prior to loan closing
include involuntary unemployment
and disability and can be
purchased individually, or as a
combination. These options also
include accidental death
protection and are available on
a single or joint basis.
Fast
answers and streamlined
processing. The approval process
should be fast and simple. Many
homebuyers who have excellent
credit history can be approved
for a mortgage at the time of
the application and with very
little documentation.
Hassle-free mortgages with 80%
less paperwork.
Use a
proprietary process to determine
if you qualify for this
streamlined loan feature. This
means less digging, sorting and
collecting paperwork for you.
Your
qualification for reduced
paperwork depends on a number of
factors: Strong credit — doesn't
have to be perfect Type of
mortgage you choose — many
mortgage types and loan amounts
up to $750,000 are eligible Even
if you don't qualify for the 80%
less paperwork mortgage feature,
your mortgage request can still
be approved.
Buying a
home is one of the most
important events in your life.
So talk to the mortgage
professionals, do your homework
and select a loan that fits your
lifestyle and your budget. And
enjoy the satisfaction of owning
your own home.
