Buying a Home
Buying a home has always been the biggest and most consequential financial move most people make in their lives, but today's environment can make it especially challenging, leaving little room for mistakes. The biggest mistake prospective home buyers can make is to embark on a pursuit of their dream home without having a well-conceived plan in place to minimize their obstacles and increase their chances of obtaining the most favorable loan terms.
Your Essential Home Buying Plan
Select your Lender
While you could wait until you're ready to get pre-approved to choose your lender, the right lender can be invaluable in facilitating each step of the plan from the very beginning. _____ has been originating and servicing mortgages in _________ for ____ years, so we have the resources and the experience to help you navigate the entire home buying process. We can help you plan for what's ahead so you can make informed decisions each step of the way.
Determine How Much House to Buy
It's important to remember that the loan interest rate is just a part of the expense homeowners must be able to cover each month. The total cost of a mortgage, which is represented by the annual percentage rate (APR), also encompasses loan origination and closing costs. The total mortgage payment, however, will also include the principal payment, taxes and insurance all of which will vary depending on a number of factors, such as your property location, type of loan and loan amount. You may also incur additional monthly expenses such as homeowner's association fees and other insurance coverage.
Now is the time to establish a realistic budget that includes all of the costs associated
with homeownership, including maintenance and repairs. Generally, your total monthly housing
expense should not exceed 36 percent of your total debt expense to be considered
_____ free pre-qualification service can set you in motion with an estimate of how much you can borrow, based on basic financial data you provide
Check your Credit
Before you go house-hunting, it's strongly recommended that you get pre-approved by a lender. So, it is vitally important to check your credit report and score to see where you stand prior to meeting with your lender. Your credit score and history will be a determinant in how big of a loan you can qualify for as well as your interest rate. Taking measures beforehand to improve your credit score can lower your long-term costs and accelerate the loan approval process.
Decide Which Mortgage if Right for You
For the new homebuyer mortgages generally come in two type - fixed and adjustable. Determining which is right for your situation should be based on a number of factors: your budget, your income/debt ratio, the length of time you plan to stay in your home, and your outlook on interest rates.
Fixed Rate Mortgages
The most common terms for fixed mortgages are 15-year and 30-year with the interest rate fixed for the term of the loan. In either case, your principal and interest payments are amortized over the loan period so that, in the early years of the loan, interest expense comprises the biggest portion of your payment, and, as the loan matures, more of your payment is comprised of principal. The primary difference between the two loan periods is that your monthly payments will be higher in the 15-year term because you will be paying down your principal more quickly. Generally, a fixed rate mortgage may be right for you if you plan on staying in your home for a longer period of time and you want a stable monthly payment.
Features and Benefits of a ______ Fixed Rate Mortgage
- Available for 15, 20, 30, and 40 year terms*
- Up to 95 percent loan to value financing (LTV)*
- Jumbo loans available for loan amounts over $147,000
Adjustable Rate Mortgage (ARM)
With an ARM your initial interest rate is set below the prevailing fixed interest rate for a period of three to seven years. At the end of the initial fixed-rate period, the interest rate is reset based on the prevailing rates at the time. If interest rates have increased over the initial period, your rate will be adjusted upward. Most ARMs include an annual adjustment cap of around 2% and a lifetime cap, typically around 6%. After the fixed-rate period, rates are adjusted annually (some may adjust every three years) with adjustments tied to a monthly interest rate index such as the LIBOR or the Treasury rate.
An adjustable rate mortgage may be right for you if you plan to move or refinance within a few years and you want the lowest possible mortgage payment for that period of time.
Features and Benefits of a ______ Adjustable Rate Mortgage
- Available for 10,15,20, and 30 year terms*
- Initial fixed rate period of 3,5 or 7 years*
- No prepayment penalty
- Lifetime interest rate cap
- Up to 95 percent loan-to-value (LTV) financing*
Also called non-conforming loans, jumbo loans are mortgages with loan amounts that exceed the conforming loan limits set by Fannie Mae or Freddie Mac. A jumbo loan may be right for you if you need to borrow more than $417,000 which is the conventional loan limit.
Features and Benefits of a ______ Jumbo Loan
- Both fixed rate and adjustable rate options are available
- Available for 10, 15, 20, and 30 year terms*
- Financing available up to $1 million
FHA loans are government-insured loans backed by the Federal Housing Administration (FHA) requiring smaller down payments and more flexible credit guidelines.
An FHA loan may be right for you if you fall into a low income category and can't afford a standard down payment.
Features and Benefits of a ______ FHA Loan
- Fixed rate loan
- Small down payment required - less than 4 percent
- Up to 98 percent loan-to-value for refinances; 85 percent for cash-out
- Flexible credit guidelines
Department of Veteran Affairs (VA) loans are available to qualifying members of the armed forces. If you are a qualifying member of the military you could benefit from more flexible loan qualification guidelines and no down payment.
- Features and Benefits of a ______ VA Loan
- No down payment required
- Up to 90 percent loan-to-value refinancing
- Flexible credit guidelines
- Minimal out-of-pocket cash required
*On purchase of owner-occupied homes
Gather Your Documents
With your credit in check, you're ready to obtain a pre-approval from a lender. With a pre-approval, you are able to shop for house that you know you can afford, and you will be in a stronger position to negotiate with the seller. You will want to approach your lender well-organized with essential documentation in hand. At minimum, you should have ready to hand over to your lender the following:
- W-2 forms from the most recent two year period
- Federal tax returns from most recent two year period
- Six months of paycheck stubs
- Six month profit-loss statement if you are self-employed
- Documentation of other income sources
- A detailed listing of creditors and outstanding debt
- Statements of all assets including investments, real estate, autos
- Cancelled checks or transaction record of rent or mortgage payments.
When you get pre-approved, you'll walk out with a letter that indicates to sellers that you are ready to buy a home up to a certain amount. A pre-approval letter gives you nearly as much purchasing power as walking in with cash. With letter-in-hand you are ready to begin your home search in earnest. Go with confidence.
Inspect what you Expect
When you find your dream home it is imperative that you thoroughly assess the home and its surroundings to know with the highest level of certainty possible that it is everything you expect. The mortgage process requires a home appraisal and inspection, but you will also want to conduct your own assessment of the neighborhood, the schools, the local business community, the social scene, etc.
Get Ready to Close
Going into the closing period you should be fully aware of all of the costs you will incur, some of which will need to be paid at the closing appointment, and others which may be included in your loan. Your lender should have provided you with "good faith estimate" of these costs at the time of escrow. Among the more common closing costs and fees are:
- Loan origination fee
- Appraisal fee
- Credit report fee
- Inspection fee
- Application Fee
- Mortgage broker fee (if you used a broker)
If you are considering buying a home now or in the future, we encourage you to sit down with one of our mortgage specialists to discuss your home buying plans. Call XXX-XXX-XXXX, or visit one of our convenient banking centers at a location near you.