Buying a home can be a long, difficult, and question-filled process. Here are some of the most frequently asked questions:
How much cash will I need for closing costs?
Closing costs generally range from 2 to 3% of your loan amount. Closing costs can be divided into three main categories:
- Lender fees. Fees can include origination, points, application, credit report, and appraisal.
- Third-party fees. These fees vary by state and the company you select to close your loan. They can include fees for closing, title exam, title insurance and recording.
- Pre-paid items. These are items collected at the time of closing but are not really considered costs (for example, interest, taxes, and hazard insurance).
You’ll be provided with an estimate of your closing costs soon after your application has been received by your lender. These estimates will change if you change the product type or loan amount. If this should occur, be sure to ask how the changes will impact your closing costs.
How much home can I afford?
Generally, the amount of mortgage you can qualify for is based on three main factors:
- Your monthly payments as a percentage of income.
- How much cash you have for the down payment and closing costs.
- Your credit history.
What types of mortgages are available?
Fixed-rate mortgage. You pay the same interest rate and same monthly payment of principal and interest for the duration of the mortgage. The most common fixed terms are 15 & 30 year motgages. Fixed-rate mortgages are best if you plan on being in your home for at least 6-8 years and longer.
Adjustable-rate mortgage (ARM). The interest rate stays fixed for an initial interest rate period, which ranges from 1 to 7 years. Then after the term you select, for example 3 years; at the time aftter the third year, the rate will adjust until the end of the loan. An ARM is a good option if you believe interest rates will go down in the future or if you plan on staying in your home less thatn 5 to 7 years.
Combination loan. This is a loan where you receive a first mortgage combined with a second mortgage. This option usually gets you from having to pay for the cost of private mortgage insurance (PMI) and/or the higher rates of a jumbo loan with as little as 10% down. The most popular combination’s are 80-10-10 (80% first, 10% second, 10% down), 75-15-10 (75% first, 15% second, 10% down).
What are the benefits of a 15-year mortgage?
A 15-year mortgage allows you to own your home in half the time of a conventional mortgage with a 30-year term. Although payments are higher with a 15-year mortgage, you’ll save thousands of dollars in interest and build equity faster.
Are there any special programs for first-time home buyers?
Almost every financial institution offers special mortgage programs for individuals who meet certain income requirements, who are financing property in certain census tracts, or who meet other special requirements.
- Lower down payments than most other financing options so you won’t need as much cash to buy a home.
- Competitive interest rates.
- Manageable payments for every budget.
- Reduced closing costs and mortgage loan fees.
What are the tax advantages of owning a home?
- Income tax reduction. In the early years of a mortgage, most of your monthly payment covers interest on the mortgage. In most cases, the mortgage interest (and property tax) is deductible from your taxable income, lowering your overall tax bill.
- Therefore, your after-tax cost of home ownership may be lower than renting. There may be tax implications if you later sell the home at a profit. Consult your tax advisor for more information.
- Tax deductible borrowing power. As your home equity increases, you can borrow against it for almost any need with a home equity loan or line of credit.
Because your home equity loan or line of credit is backed by the equity in your home, you may be able to deduct that interest from your taxable income. This could lower your final tax bill. See a tax professional for complete details.
Should I get pre-qualified for a mortgage before I shop for a home & will it “ding” credit?
Getting pre-qualified for your mortgage is an important step before you shop for a home. It tells you how much home you can buy and makes applying for your mortgage easier. A mortgage prequalification can also give you additional leverage with a seller in negotiating the best possible terms of the sale.
No, it will not hurt your credit rating, as most lenders do an in-house credit check; but you should always ask this question first.
How long will it take to pre-qualify for a mortgage and Will I be tied to that one lender if I get pre-qualified?
You can get a response over the phone when pre-qualify for a mortgage. There are just a few easy steps involved in the pre-qualification process.
No, you will not be locked into anyone until you sign any paperwork and even then you still have the right to work with anyone you choose. Call me for additional questions at 703.836.6116, no obligation, Free advice!
How can I lock my interest rate?
You must complete a full mortgage application in order to lock in a rate.
What is an impound/escrow account?
In addition to the principal and interest payment on your mortgage loan, you may elect to impound additional funds each month in an impound/escrow account to pay for property taxes and insurance. With some mortgage programs, impounding for taxes and insurance may be required.
Having an impound/escrow account allows you to put aside a small portion each month toward the costs of insurance and property taxes. You send the additional funds each month when you make your mortgage payment. Your bank holds the money in an impound/escrow account and makes the payments from the account when they are due.
Can I get a loan if I’m not a U.S. citizen or if I live outside the country?
Yes. As long as the property you are buying or refinancing is in the United States.
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