Ten Mortgage Questions
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Income
and debt. How much money you make and what other bills you
have to pay helps the lender determine whether you can afford to
make mortgage payments.
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Assets.
The lender needs to make sure you have enough money to cover the
costs of buying a home.
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Credit.
Whether you’ve met other financial obligations helps the
lender predict whether you will repay your mortgage.
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Property. The home you want to buy has to be worth enough
to act as collateral for the mortgage.
What does it mean to
get pre-approved?
Getting
pre-approved means you receive a loan commitment from your mortgage
company before you have found a home, based on a review of your
credit and finances. Having your credit pre-approved shows sellers
that you’re a qualified buyer and helps you establish a clear price
range. The process is the same as a typical mortgage application,
except that your application doesn’t include property information.
If you’re ready
to look for a home, take your first step now and apply for a credit
pre-approval.
What if I’ve had credit
problems?
Your
credit history is only one factor in qualifying for a loan, and
having made some late payments doesn’t have to keep you from buying
a home. Someone who has consistently made payments on time in the
past may have more financing options than someone who has not, but
that doesn’t mean a mortgage is off-limits if you’ve had credit
problems. In fact, Gold Star Home Mortgage’s Solutions program
offers a variety of mortgage options to help people with
less-than-perfect credit become homeowners and leave credit
challenges behind.
What
is the minimum down payment I can make on a home?
There is generally no minimum down payment required for buying a
home. Many first-time buyers believe they must be able to put down
as much as 20% of a home’s purchase price in cash. That may have
been true in the past, but many of the mortgage options available to
today’s home-buyers require little or no down payment. With housing
prices as high as they are, homeownership would be impossible for
many people if not for these low-down-payment options.
Gold Star Home
Mortgage has a number of loan programs that can help you buy a home
with little or no cash — find out if one is right for you.
Will I
have to pay for Private Mortgage Insurance?
Private Mortgage Insurance (PMI) provides your lender with a way
to recoup its investment if you are unable to repay your loan. PMI
is usually required when the mortgage amount is higher than 80% of
the home’s value. That means that if you buy a home with a down
payment of less than 20%, you will probably have to pay for PMI.
One common way of bypassing PMI without making any down payment at
all is to use an 80/20 program, which combines a first mortgage with
home equity financing.
Learn about the
80/20 HomeFlex plan from Gold Star Home Mortgage.
What closing costs
will I have to pay?
Closing costs vary based on a number of factors — including the
lender, mortgage type, purchase contract, and location — but they
usually include the following:
Lender
fees. Your mortgage company may charge for expenses related
to making the loan, including an appraisal fee, a credit report
fee, origination points, and discount points.
Third
party fees. Charges for services not provided by your
lender often include the settlement fee, title insurance, and
attorney’s fees.
Prepaid
items. Certain mortgage costs must be paid to your lender
in advance. The most common of these are pre-paid interest,
hazard insurance, and deposits to set up an escrow account.
Should I pay discount points?
Discount points are prepaid interest, which you can pay to your
lender at closing in exchange for a lower interest rate on your
mortgage. Paying discount points, each of which is equal to 1% of
the loan amount, is often called “buying down” your rate.
So does paying
points make sense for you? The answer depends primarily on how long
you plan to stay in your home. First, find out how much lower your
monthly payments will be if you pay points. Then, calculate how
long it will take for those monthly savings to add up to the cost of
the points. If it would take five years to break even and you’re
planning to live in your home for 10, paying discount points may be
a smart move.
Should I choose a fixed-rate or adjustable-rate loan?
Most mortgage loans have either a fixed interest rate or an
adjustable interest rate. With a fixed-rate mortgage, the interest
rate never changes and your payments remain stable throughout the
life of your loan. With an adjustable-rate mortgage (ARM), the
interest rate changes at regular intervals — usually once every year
— based on a formula that uses a market index. For most ARM
options, rate adjustments begin after an initial period — usually
between three months and ten years — during which the rate is fixed.
A fixed rate is
usually best if you plan to stay in your home for the long term and
are buying at a time when rates are relatively low. An ARM is
usually best if you plan to move before the rate adjustments begin,
or if you are buying when rates are relatively high.
For help
deciding which option is best for you, try our Fixed vs. Adjustable
Rate Calculator.
Should I lock my rate?
Locking
your interest rate means your lender guarantees the rate on your
loan even if market rates change before closing. Most lenders will
allow you to lock your rate for 30 to 60 days, with the option to
extend the rate-lock period for a fee. So how do you know whether
to lock your interest rate? It depends on whether you expect rates
to rise or fall before you close on your home. No one knows for
sure which direction rates will go at a given time, so it’s
difficult to make a reliable prediction. It helps to keep track of
announcements from the Federal Reserve Board, whose monetary
policies have an effect on mortgage rates, and to talk to you
financial advisor about what may happen in the near term.
What will my
mortgage payments include?
For most
borrowers, each monthly mortgage payment goes toward the following:
Principal,
which is the total outstanding balance of the loan
Interest,
which is the cost of borrowing money
Taxes,
which are levied on the property by the local government
Insurance,
which protects the owner and the lender from losses caused by
fire and natural hazards
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