How much cash will I need to purchase a new home?

Typically, there are four cost categories when financing with a mortgage.

• Down Payment: This can range from as little as zero for qualified borrowers, to whatever you can afford to put down.
• Closing Costs: The lender will likely impose fees for performing certain services, as will third-party service providers such as appraisers, title examiners, and closers. Depending upon your loan size, closing costs could range from 1 to 2
• Points or no points: Points are usually considered optional fees that are used to buy down the rate of interest. Not every loan requires you to pay points. When most people are looking for a mortgage, the initial thought is that they want a mortgage with NO POINTS! That is not always the smarter way to go..and when asked, some folks don't know what points are or what they can do for you. They just know they don't want them!!

So.... what are points and what are they used for?

• 1 point is equal to 1% of the loan amount. Example: on a loan amount of $120,000
• 1 point is equal to $1200. Points are used to buy down your interest rate. If you stay in the house for a long time -- say five to seven years or more -- it's usually a better deal to take the points. The lower interest rate will save you more in the long run.
• Pre-Paid Items: Pre-paid items include recurring costs such as interest, Real Estate Taxes, and Hazard Insurance. These fees, which are collected at the time of closing, can differ depending upon several variables such as the interest rate and the time of month you close.

How much home can I afford?

• Income: Lenders typically take a percentage of your qualifying, gross monthly income to arrive at a maximum housing payment that includes principal, interest, taxes, and insurance (PITI). This percentage can vary from program to program, but usually ranges from 28 percent to 33 percent of gross monthly income.
• Debt: The greater your debt load, the less monthly income will be available to service the debt on your new home, the less home you can afford.
• Credit: Your credit history will also help determine how much home you can afford. A low credit score tells a lender you are a higher risk. To compensate for that risk, the lender will usually charge a higher rate of interest. The reverse is also true: a higher credit score will usually afford you a market rate of interest.

So...how is your credit rating?
Here are 6 tips to help you clean up your credit if you feel it could and should be better!
1.  Pay all of your bills on time!
2.  Avoid opening several NEW accounts in a short period of time.
3.  Order a copy of your own credit report and correct any errors.
4.  If you already know you have bruised credit, open 2 new accounts and use them responsibly.
5.  Installment Loans, (cars and personal loans, secured credit cards) can raise your score if paid off in a timely manner.
6.  Pay balances down to 0 but do not close the account.

Should I get pre-approved for a mortgage before I shop for a new home?

Absolutely! Getting pre-approved for your mortgage will allow you to focus on homes you know you can afford, and lets the seller know you are a serious buyer who can afford the house being offered. Pre-approval helps you stand out in the event of multiple offers and gives you negotiating strength. Just a quick phone call can make all the difference to let you know where you stand with buying power.

What is the difference between pre-qualified and pre-approved?

Pre-qualification represents a mortgage professional’s opinion, in which little information, if any, has been verified. A pre-approval is the result of verifying credit, income, and assets, and represents a decision as opposed to an opinion.

What documentation will I need when I apply for a mortgage loan?

W-2 forms for the past two years
Bank statements (showing assets to close) going back sixty days

What types of mortgages are available?

“There are a wide array of mortgage products, including the following:

• Fixed Rate Mortgage: This loan offers a fixed rate of interest over the term of the loan—usually 15 or 30 years. A fixed rate means a fixed payment of principal and interest, which is desirable for long-term budgeting. This program is best when rates are low and the borrower plans to own the property for the long-term.
• Adjustable Rate Mortgage (ARM): This loan usually offers a below-market interest for a fixed time period—usually one, three, five, seven, or ten years. After then, the interest rate, along with the principal and interest payment, will adjust with the movement of the economy. This loan is best for those borrowing in a high fixed-rate environment, or for those who plan to live in their new home only a short time.
• New Construction Mortgage: This loan allows the borrower to lock in an interest for an extended period of time, usually the construction period; as completion draws near, the borrower can elect to relock if rates have improved.
• Home Equity Lines/Loans: A home equity line, or loan, can be used in combination with a suitable first mortgage to purchase a home; if you are putting down less than 20 percent of the purchase price, the home equity loan can help you avoid having to pay mortgage insurance. These loans can also be used to help manage the equity in one of the largest assets you will ever own: your home. A home equity line can be put into place when the home is purchased, or later, and the equity drawn from the line can be used to make major purchases, such as a vacation home, car, or college education.