Mortgage 101Even before the dream house search commences, the dream mortgage should be considered.
Unless you’re planning to pay cash for a property, you’ll need to secure a mortgage to finance the purchase. You are the mortgagee. The lender is the mortgagor. Mortgagors are generally banks, brokers and credit unions. Please do not get alarmed if you read of a particular interest rate as everyone is unique. I have some good referrals for lenders I’ve worked with over the years who are not only pleasant to work with but also reliable and offer very competitive rates.
Product – 30-year fixed rate vs ARM
Most people focus on a 30-year fixed rate mortgage. The oft overlooked ARM (adjustable rate mortgage) might be a better fit for you. Here is how an ARM works: the interest rate is fixed for a certain number of years after which it adjusts, generally annually. Increases or decreases are linked to a specific index. There is a per adjustment cap and there is a total cap. So a 10/1 ARM would be fixed for 10 years and then adjust annually. A 10/3 ARM is fixed for 10 years and then can adjust every 3 years. You can get an ARM that is fixed for a variety of years. Keep in mind that the shorter the fixed term is, the lower the interest rate will be. Each situation is unique but it might be worthwhile to estimate how long you will own the property and then calculate the savings you would realize with an ARM. To compare the payments and the savings of choosing an ARM: <CALCULATOR>
Closing Costs
When you make an offer it is all about price and terms. Well, when you decide on a mortgage it should be about rate and terms. What are terms? Generally they are known as closing costs. Comparing one lender to another is simple. Ask for the LE (Loan Estimate). All lenders use the same loan estimate document, so it’s easy to compare costs.
When you see see or hear the total figure for your closing costs, do not freak out. The total will include figures from 3 buckets: Actual costs, Prepaids and Escrowed funds. The actual costs are funds you are really spending. The money is gone after you pay it. The Prepaids are money you would be paying anyway and are just paying at the closing like the mortgage payment for the remainder of the current month. The Escrowed funds are monies that are held for you in escrow and still belong to you. A percentage of your real estate taxes and homeowner insurance bill will be escrowed. You will get this money back when you sell unless you have fallen behind on your payments and the lender needed to dip into the escrow.
You can become familiar with what to expect from closing costs by learning about the LE (Loan Estimate). https://www.bankrate.com/mortgages/how-to-compare-loan-estimates/
Zero Down Payment Loans
VA – https://www.va.gov/housing-assistance/home-loans/
USDA – https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Points What are they and should I buy them? Mortgage discount points are fees you pay upfront to reduce your mortgage interest rate. Interest rate savings can add up to a lot of money over the life of a mortgage, and discount points are one way to gain those rate savings if you’re in the right position to purchase them. Do the numbers! How long will it take you to recoup your points? Use this handy calculator to see: <POINTS CALCULATOR> (https://www.nerdwallet.com/mortgages/calculators/should-i-buy-points)
Unless you’re planning to pay cash for a property, you’ll need to secure a mortgage to finance the purchase. You are the mortgagee. The lender is the mortgagor. Mortgagors are generally banks, brokers and credit unions. Please do not get alarmed if you read of a particular interest rate as everyone is unique. I have some good referrals for lenders I’ve worked with over the years who are not only pleasant to work with but also reliable and offer very competitive rates.
Product – 30-year fixed rate vs ARM
Most people focus on a 30-year fixed rate mortgage. The oft overlooked ARM (adjustable rate mortgage) might be a better fit for you. Here is how an ARM works: the interest rate is fixed for a certain number of years after which it adjusts, generally annually. Increases or decreases are linked to a specific index. There is a per adjustment cap and there is a total cap. So a 10/1 ARM would be fixed for 10 years and then adjust annually. A 10/3 ARM is fixed for 10 years and then can adjust every 3 years. You can get an ARM that is fixed for a variety of years. Keep in mind that the shorter the fixed term is, the lower the interest rate will be. Each situation is unique but it might be worthwhile to estimate how long you will own the property and then calculate the savings you would realize with an ARM. To compare the payments and the savings of choosing an ARM: <CALCULATOR>
Closing Costs
When you make an offer it is all about price and terms. Well, when you decide on a mortgage it should be about rate and terms. What are terms? Generally they are known as closing costs. Comparing one lender to another is simple. Ask for the LE (Loan Estimate). All lenders use the same loan estimate document, so it’s easy to compare costs.
When you see see or hear the total figure for your closing costs, do not freak out. The total will include figures from 3 buckets: Actual costs, Prepaids and Escrowed funds. The actual costs are funds you are really spending. The money is gone after you pay it. The Prepaids are money you would be paying anyway and are just paying at the closing like the mortgage payment for the remainder of the current month. The Escrowed funds are monies that are held for you in escrow and still belong to you. A percentage of your real estate taxes and homeowner insurance bill will be escrowed. You will get this money back when you sell unless you have fallen behind on your payments and the lender needed to dip into the escrow.
You can become familiar with what to expect from closing costs by learning about the LE (Loan Estimate). https://www.bankrate.com/mortgages/how-to-compare-loan-estimates/
Zero Down Payment Loans
VA – https://www.va.gov/housing-assistance/home-loans/
USDA – https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Points What are they and should I buy them? Mortgage discount points are fees you pay upfront to reduce your mortgage interest rate. Interest rate savings can add up to a lot of money over the life of a mortgage, and discount points are one way to gain those rate savings if you’re in the right position to purchase them. Do the numbers! How long will it take you to recoup your points? Use this handy calculator to see: <POINTS CALCULATOR> (https://www.nerdwallet.com/mortgages/calculators/should-i-buy-points)