HOME LOAN 101 & how to save for a new home

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Jumping into the world of home buying can be intimidating. Especially when lenders speak in jargon and abbreviations.  Here is our list of home loan definitions so you won’t feel confused as we move through the process. If you hear or see something you don’t understand or have a question about home buying, let us know. 

WHAT IS A FICO CREDIT SCORE?

FICO credit scores are based on information collected by a 3 credit bureaus and information reported each month by your creditors about the balances you owe and the timing of your payments. This information is converted into a number that helps a lender to determine the likelihood that you will repay the loan on schedule.

The credit score is calculated by the credit bureau, not by the lender. Credit scores are calculated by comparing your credit history with millions of other consumers. They have proven to be a very effective way of determining creditworthiness. 

CAN I APPLY FOR A LOAN BEFORE I FIND A PROPERTY TO PURCHASE?

Yes, applying for a mortgage loan before you find a home is actually the preffered method. Applying now lets us issue you a pre-qualification letter online instantly, which you can use to assure real estate brokers and sellers that you are a qualified buyer. Having a pre-qualification for a mortgage may give more weight to any offer to purchase that you make.

HOW ARE INTEREST RATES DETERMINED?

In the big picture, interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates while concerns about rising inflation normally cause interest rates to increase. Our nation’s central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.

On a more personal level, your interest rate is affected by your credit score and your loan to value. Rates change constantly throughout the day. Contact us if you would like to know about current rates.

WHAT IS AN ADJUSTABLE RATE MORTGAGE?

An adjustable rate mortgage, or an “ARM” as they are commonly called, is a loan type that offers a lower initial interest rate than most fixed rate loans. The trade off is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will go up or down accordingly.

WHAT ARE CLOSING COSTS?

A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes and insurance. These fees vary from state to state and also from lender to lender. Any lender or broker will give you a loan estimate, including their fees, but the final number will come from the title company and your insurance provider. 

WHAT IS MORTGAGE INSURANCE FOR HOMEBUYERS?

Mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down payment lending. Low down payment mortgages are becoming more and more popular, and when buyers purchase mortgage insurance, lenders are comfortable with down payments as low as 3-5% of the home’s value.

WHAT IS AN APPRAISAL?

To determine the value of the property you are purchasing or refinancing, an appraisal will be required. An appraisal report is a written description and estimate of the value of the property. National standards govern not only the format for the appraisal, they also specify the appraiser’s qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states. The appraiser will create a written report for us and you’ll be given a copy.

DO I NEED AN INSPECTION AND AN APPRAISAL?

Both a home inspection and an appraisal are designed to protect you against potential issues with your new home. Although they have totally different purposes, it makes the most sense to rely on each to help confirm that you’ve found the perfect home.

The appraiser will make note of obvious construction problems such as termite damage, dry rot, or leaking roofs or basements. Other obvious interior or exterior damage that could affect the salability of the property will also be reported.

However, appraisers are not construction experts and won’t find or report items that are not obvious. They won’t turn on every light switch, run every faucet or inspect the attic or mechanicals. That’s where the home inspector comes in. They generally perform a detailed inspection and can educate you about possible concerns or defects with the home.

Accompany the inspector during the home inspection. This is your opportunity to gain knowledge of major systems, appliances and fixtures, learn maintenance schedules and tips, and to ask questions about the condition of the home.

ARE YOU READY TO OWN A HOME?

Owning a home can be a smart choice for a number of reasons. For one, investing in a home versus paying monthly rent is an investment in your future, providing real financial stability. In addition to gaining equity over time, homeowners can also take advantage of tax benefits that make home buying even more attractive from a financial standpoint. But just as significant as financial impact is the satisfaction that comes with achieving the dream of owning your own home. 

APPLYING FOR A HOME LOAN.

You’re ready to buy and you’ve found your dream home. Now it’s time to get that loan, and best of all, get the keys to your new place. But first, we need a few things from you. Actually, quite a few things. But we’ll try to make it as painless as possible. Start the application process here

REQUIRED DOCUMENTS FOR YOUR LOAN:

Pay stubs from the past 30 days

Most recent two months’ statements for all bank and/or investment accounts

Last two years’ W2 forms

Last two years’ full tax returns

Copy of your driver’s license and Social Security card

Divorce decree (if applicable)

Child support agreement (if applicable)

Bankruptcy papers (if applicable)

Certificate of Eligibility (for VA loans)

Note: If you are receiving a gift for any amount of money needed for closing, please inform your loan officer so you can receive instructions for the required forms and documents.

WHAT HAPPENS AT THE LOAN CLOSING?

The closing will take place at the office of a title company or attorney in your area who will act as our agent but you can choose the title company.  If you are purchasing a new home, the seller may also be at the closing to transfer ownership to you, but in some states, these two events actually happen separately.

During the closing you will be reviewing and signing several loan papers. The closing agent or attorney conducting the closing should be able to answer any questions you have or you can feel free to contact your Loan Officer if you prefer.