Most home buyers need to secure a mortgage in order to finance the purchase of their new home. A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumberance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.
Do I need to get prequalified for a mortgage?
One of the first things that you need to do as a potential home buyer is to talk to a lender about getting "prequalified". This is a simple process that only takes a few minutes, and typically is free of charge! There is no reason not to have a prequalication done right away.
The first thing a lender will do is to pull your credit report. Your credit score is one of the largest factors in determining whether or not you can qualify for a mortage, as well as the interest rate you pay. The credit report demonstrates your ability to pay bills on time, and also illustrates the amount of existing debt that you currently have. These factors are weighed heavily in the mortgage process.
You may be thinking, "I pay my bills on time, and I don't have much debt, so why worry about it now?". In the United States, 1 out of every 5 people have errors on their credit report! This is especially true with common names, and in situations where there is a "Junior" or "Senior" involved. Have your credit reoprt reviewed now so that you can clean up any discrepancies that may exist.
It is also important to note that most sellers won't even entertain an offer on their home unless you have a pre-approval letter from a lender. Would you take your home off the market, and wait 3 ot 5 weeks for a full mortgage approval, only to find out that the buyer didn't qualify for a loan?
What type of mortgage is best for me?
There are several programs available to the consumer that have different quailification criteria, and have advantages and disadvantages to you. These are the most common programs on the market as represented on the web page for Mortgage America...
Conventional - Conventional mortgages generally require a 5% down payment. This means, if you qualify, you can finance up to 95% of the purchase price or the appraised value of the home, whichever is less. MORTGAGEBANK America offers a 3% down payment program. Conventional loans are required to be insured by a Private Mortgage Insurer if the down payment is less than 20% of the purchase price or the appraised value, whichever is less. Private Mortgage Insurance insures the Lender against losses that it may incur if you default on your mortgage loan. This is not to be confused with mortgage life insurance which insures you.
Jumbos - A loan above $417,000. These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate
PA Bonds - Below market rate home mortgage loans are available to qualifying homebuyers throughout the Commonwealth under PHFAs Statewide Homeownership Program. Both new and existing homes are eligible for Agency financing.
FHA - FHA mortgages are insured by the Federal Housing Administration and require less of a down payment than conventional mortgage. Generally, the required down payment is 3.5% of the purchase price. FHA also permits the financing of a portion of your closing costs, and in some cases the one-time mortgage insurance premium (MIP).
VA - In 1944, shortly before the end of World War II, Congress passed the Serviceman's Readjustment Act, more commonly known as the GI Bill of Rights. Title Ill of this Act provided for the VA Mortgage Guarantee Program. Under the provisions of this law the United States government would guarantee mortgages made by mortgage lenders. A veteran is defined as a person who has served in the active military, naval or air service and, except for a current service member on active duty, was discharged or released from active duty under conditions other than dishonorable. Since November 1992, National Guard and Reserve Training are now considered for VA entitlement.
Rural Housing - USDA rural housing loans are geared toward homebuyers who live in rural areas of the Country and who have little to no money to put down. USDA rural housing loan programs offer flexible, common sense underwriting guidelines, relaxed credit requirements, no PMI (private mortgage insurance) options, the ability to finance closing costs into the loan amount, lenient seller concessions, and rates that are comparable to, if not better than, conventional fixed rate mortgage programs.
When you execute an agreement of sale on the home you want to purchase, one of the negotiable terms is the type of financing that you want to use. It is possible, common, and legal to ask the seller to aide you with your mortgage costs through the use of a "Seller Assist", where the seller will help by paying part of your closing costs for you! The amount that a seller can contribute to your closing costs vary depending on the type of financing package you opt for, and the amout of down payment you intend to put down.
Both Dan O'Brien and your mortgage consultant can help and advise you on the best approach for financing your new home with your specific needs in mind.
If you would like to get pre-qualifed for a mortgage, please contact me today. Its free and there is no obligation!