This is a great time to buy your first home!
This is a great time to buy your first home! It’s easy to get so excited about buying your first home that you forget about the details. But overlooking little things at the start can hurt you later on, so being educated and prepared is essential.
How Much Home Can I Afford?
Your home may be the biggest investment you ever make. If you invest wisely, the payoff can be substantial. However, making the mistake of buying a home you can’t afford and then falling behind on payments can ruin your credit.
Use our mortgage payment calculator to determine the payments for different homes. Then assess your personal finances to see what really fits your budget. Remember, there are many expenses associated with home ownership beyond your mortgage payment. You need to budget for things like home repairs and maintenance, as well as decorating and improvements.
Understand the Mortgage Process
If you’ve never had a mortgage before, the process can appear intimidating. Your lender will request your personal and financial information, so be prepared to provide documentation of your income and investments with copies of your pay stubs and bank statements. If you are self-employed, retired or not working, your mortgage specialist will work with you to gather the documentation needed to demonstrate you can manage the payments on your loan.
During the application process, you’ll be asked to lock in your interest rate. Interest rates change daily, and the rate lock will protect you from fluctuations in the market.
An appraisal will be ordered to determine the value of the property you are purchasing. A professional appraiser will evaluate the home and provide an estimate of the market value of the home. The lender will not lend more than the value of the property, which is the lower of the purchase price or appraised value. There is no problem if the appraisal is higher than the purchase price; it simply means you’re getting a good deal on the home.
Your completed application will be submitted to underwriting for evaluation prior to receiving final approval. The underwriter assesses all the information about the property and your loan application to determine whether the lender should approve the loan.
Once your loan is approved, your Mortgage Specialist will schedule your closing. At closing, you will review and sign all of your loan documents. At this point you will have officially become a homeowner, so celebrate this exciting step in your life!
Adjustable Rate Mortgage (ARM)
An ARM loan is subject to changes in interest rates. The ARM monthly interest payment may increase or decrease at the specific intervals established in the note you sign at closing; the maximum amount that the interest rate can change at any one time and over the life of the loan, however, is usually subject to a Cap
Amortization is the schedule of monthly mortgage payments of principal and interest due over the life of the loan. At the end of an amortized mortgage, such as a 30 year fixed rate mortgage, the loan balance will be zero.
Annual Percentage Rate (APR)
The APR reflects the cost of financing, including all interest, points and fees associated with a loan, expressed as an annual percentage rate over the life of the loan. Because the calculation for APR includes the costs of a loan, it will generally be higher than the actual interest rate, even on a fixed rate loan. APR will also vary from lender to lender for loans with the same interest rate, depending on the amount of points and fees each lender charges.
An appraisal is an estimate or informed opinion on the value of a property, as given by a certified appraiser. The appraisal is provided in a standard format, and shows the value of comparable properties, as well as any adjustments to the property value for differences in size, improvements or unusual characteristics. Lenders generally require a current appraisal before approving a new loan in order to confirm the value of the property is in line with the loan amount.
An appraiser is an individual who has been trained and certified to evaluate the value of real estate. Look for an appraiser who holds a certification from a major national organization, such as the National Association of Real Estate Appraisers, the American Society of Appraisers, the National Association of Independent Fee Appraisers or the Appraisal Institute.
See Adjustable Rate Mortgage
Balloon mortgage loans have a lower principal and interest payment, based on a 30 year amortization for the term of the loan, which is often 7 – 10 years. At the conclusion of the 7 – 10 year loan term, the loan balance becomes due.
A Bi-Weekly mortgage has payments due every two weeks instead of the standard monthly payment. By making 26 bi-weekly payments instead of 12 monthly payments each year, the borrower reduces the loan balance more quickly. A bi-weekly mortgage has the same effect as paying 13 monthly payments each year; a borrower can make one extra payment each year and achieve the same result, without the higher fees often associated with a bi-weekly mortgage.
A bridge loan is a short term loan used to fund the down payment required to close on a new loan prior to the sale of the borrower’s current home. When the sale of the first home closes; the bridge loan is paid off.
A cash-out refinance loan or Home Equity loan is when the amount borrowed on the new loan is more than the amount required to pay off the prior mortgage. The additional cash is given to the borrower at closing.
Certificate of Title
The Certificate of Title is a document detailing the ownership of real property. It is prepared by an attorney or title company after researching public land and tax records to identify any encumbrances or liens, which must be cleared at closing.
Closing is the process of signing all the legal papers associated with the purchase of a property, including the loan documents. Closing, also known as settlement, occurs once all documents have been executed and the funds have been paid to transfer the property from seller to buyer.
The costs associated with closing on a home sale and mortgage loan. These costs, and who pays them (buyer or seller) vary by type of transaction, as well as by state or locale. Typical closing costs include lender fees and the cost of the appraisal, title insurance and government recording and transfer taxes. Projected closing costs are detailed on the Good Faith Estimate (GFE) provided by the lender when a borrower applies for a loan.