Questions about the loan process? Read on:
Q: What is the difference between a fixed rate loan and an adjustable rate loan?
A: With a fixed rate loan, the interest rate stays the same throughout the term of your loan. With an adjustable rate loan, the interest rate on your loan will change after a specific period of time. There are advantages to each type of loan and it’s best to contact a mortgage professional so they can find out what makes the most sense for you.
Q: How much home can I afford to buy?
A: Generally, you can afford to purchase a home that is 2-3 times your annual household income. However, the amount you can borrow will depend on your credit history, employment history, current saving and debts, and the amount of down payment you are able to make. Give me a call and I’d be happy to determine what you can afford.
Q: I keep hearing about how important credit is. Is that true?
A: Yes. Your credit score determines your interest rate on your home loan. All the more reason to know what it is and how to maintain a great credit score. You can check your credit for free once/year at www.annualcreditreport.com. Take the time to manage your credit and you’ll be handsomely rewarded.
Q: When should I refinance?
A: That depends on what you plan on doing with the money if it’s a cash out situation. Perhaps you plan on remodeling your kitchen, for example. You could also refinance if you have a higher rate or an adjustable rate mortgage. When refinancing, it’s important to weigh both sides. Obviously, a refinance could cut your payment but what goes with that are the fees that will be charged. Contact me and I’ll walk you through the variables to see if a refinance makes sense.
Q: What about points and fees? How does that work?
A: Generally, you will be charged to do your loan. If you’re not, expect to pay a higher rate to obtain your loan. Points and fees may include origination fee (typically 1% to the lender), appraisal fee, escrow fee, underwriting fee, and title insurance. We are obligated by law to provide you with a Good Faith Estimate within 3 days of your application. The Good Faith Estimate will break down all the charges you will incur to do your loan.
Q: What does the APR refer to and why is it different from my interest rate?
A: APR or Annual Percentage Rate refers to the total cost of your loan. It includes your interest rate plus your closing costs. Keep in mind, though, that your interest rate on your loan determines your payment. This is different than the APR.
Q: How much do I need to put down if I’m buying a home?
A: That varies. Generally, 20% down will get you the most favorable terms on a loan. However, first time homebuyers may not have these reserves available. There are wonderful first-time homebuyer programs with low down payment or even assistance available. Contact me for further information.
Q: What is private mortgage insurance and will I need it?
A: Private mortgage insurance or PMI is required if your loan-to-value is greater than 80%. Loan to value is defined as the price versus the amount borrowed. For example, a $200,000 purchase where $160,000 was borrowed would be 80% loan to value. If your loan to value is above 80%, you may be required to pay private mortgage insurance. Private mortgage insurance protects the lender in event of foreclosure and is often waived by the lender when your loan to value dips below 80%. It is up to you to prove to the lender that this has happened. PMI is always required on government loans such as VA or FHA.
Q: I’ve heard about FHA and VA loans. What are they?
A: FHA and VA loans are government insured and are a great way for a homebuyer to buy a house or refinance their existing home. Generally, they’re easier to obtain for cash or credit challenged borrowers. They also carry mandatory mortgage insurance. There are borrowing and income limits so it’s best to check with me to determine if you’re eligible. VA loans are reserved for people who served in the military. Again, they’re a great way to buy or refinance a home.
Q: How should I choose a lender to work with?
A: There are all kinds of choices for you. I suggest you talk to at least 3 and look for the one that best suits what you’re trying to accomplish. Ask for referrals from people you know and take the time to investigate the person, company, etc. A mortgage is usually the largest transaction you will ever do. All the more reason to carefully choose who you want to handle your loan.
Other questions not posed here? Call me at (425) 282-0553 and I’ll make every effort to answer them.