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.
This is a list of government websites for you to validate our statements and a more in-depth into home loans.
Buying a home will likely be the largest purchase you make in your life. Most homebuyers will need a down payment anywhere between 3%-20% of the cost of the home to get approved for a mortgage. In addition to saving money for your down payment, you’ll also need extra cash for emergencies, maintenance, repairs, and closing costs. To save enough money to buy a home you’ll need to decrease your spending and increase your income. Here are 10 ways to save money to buy a house.
1. Track Your Spending and Create a Budget
To understand how much money you could be saving, track everything you purchase over the past 3 months. Identify at least 2 or 3 categories you can reduce or eliminate your spending in like travel or discretionary fitness. Download a budgeting app to create reminders and hold yourself accountable.
2. Reduce Your Housing Costs
Housing is likely your largest monthly expense. While it will help to reduce spending in other areas, housing is usually the area of spending that can make the biggest impact.
Downsize your apartment to a studio
Move-in with roommates or partner
Move-in with family
Live in a lower cost area
Ask your landlord to reduce your rent
Offer to work for your landlord to receive a discount on your rent
Consider being an on-site property manager for an apartment complex
Rent out a spare room
Convert your living room into an extra bedroom to rent out
It can be hard to live with family or share your space with roommates. However, cutting your rent in half or eliminating your housing costs can help you buy a home years sooner. If you are looking to save money to purchase a home quickly, see if your parents or other family members would let you stay for free.
3. Cancel Your Subscriptions
Once you’ve looked at your spending habits, separate all of the non-essential purchases and identify the recurring monthly purchases like streaming services, fitness memberships, and beauty treatments.
Cancel your subscriptions while you are trying to aggressively save. You can always sign back up once you’ve reached your savings goals and have more room in your budget.
4. Defer Investments and Saving for Retirement
This option might not be right for everyone, but if your priority is to buy a home soon, you might want to stop contributing to retirement funds and investments temporarily.
Consider how much you have saved or invested and how much time you will have to catch up after you’re ready to start contributing to investments to understand if this option is right for you.
5. Reduce Your Food Costs
Aside from housing, food is another category that you can likely cut back on.
Stop eating out
Pack meals to go
Create a grocery budget and a shopping list before you go to the store
Use coupons and savings apps
Buy low-cost nutrient-dense foods like beans, oats, and leafy greens
If you do eat out, go to happy hour
6. Ask for a Raise or Promotion
This is probably one of the easiest ways to increase your income. In many cases, your boss will give you a raise if you can make a case for it. Try to be paid more for the work you’re already doing before you take on more work.
Start a Business, Create a business you can run on the side of your full-time job. The benefit of owning your own business is you can retain a higher percentage of the profits and control your schedule and workload. There are endless types of businesses that cost nothing to start.
7. Get a Part-Time Job
If starting your own business feels like too much risk or too much responsibility, get a part-time job. Working a few nights and weekends can help you grow your savings faster. Search job boards for part-time, freelance, or contract work to take on temporarily.
Pro Tip: Find a part-time job that has downtime and allows you to work on other things. Some security or reception jobs will allow you to work on other things, like your own business, during your downtime on the clock.
8. Take Advantage of Free Money
Put your money to work and let it grow on its own by:
Putting your regular purchases on a credit card with reward points. Pay off your balance in full every month and transfer the reward points into your savings account.
Using a high-interest savings account through and online bank or credit union. Some accounts will offer up to 2% interest.
9. Ask for a Loan or Gift
Ask family or friends for a loan or a gift if you are comfortable. If a friend would like to give you a gift for a holiday or birthday, ask for the gift of cash for your future home.
10. Other Factors to Consider
Aside from saving money for a down payment and emergency fund you’ll need to consider some other financial factors as well.
You’ll need to meet a minimum credit score to be approved for a mortgage. How high your score is will also determine your interest rate. You can save a lot of money by keeping your interest rate low. You’ve worked so hard to save up your down payment and emergency fund and it would be a shame to neglect improving your credit score while you save.
Also, if you have a higher credit score, you can get approved for a lower down payment which will reduce the total amount you need to save.
Tips to Improve Your Credit Score
Pay off high-interest loans first
Consolidate debt or transfer debt to accounts with lower interest rates
Keep your credit usage under 30% of your available credit
Don’t apply for any new loans or credit cards when you are preparing to apply for a mortgage
Make all minimum payments on time
Consider the debt snowball or the debt avalanche method to pay down debt faster
Keep lines of credit open as long as possible to establish credit history
The challenge of saving money for a down payment can be a major obstacle to overcome for homebuyers. To reach your savings goals as quickly as possible, you’ll need to increase your income and reduce your expenses. There are always changes you can make to save more money.
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