Q: How much can I borrow and what down payment do I need?
A: There are all types of loans available, but conventional loans have about 3 different loan pools that you can borrow from with various down payment requirements. Below you will find what it takes to borrow as much as you can while only putting the minimum down that is required within that loan pool. Now, there are caveats to each loan pool and your personal circumstances might not fit these boxes so it is suggested that you call Chris to get a better understanding of what it is you qualify for before you make an offer. There are plenty of online resources available, but talking with an expert will give you the peace of mind you need when trying to buy in this demanding market.
Example Loan Pools and their respective minimum down payment options:
Loan Pool 1: $0 - $453,100 requires a minimum of 3% (first time home buyers) down payment.
Loan Pool 2: $453,100 - $667,000 requires a minimum of 5% down payment.
Loan Pool 3: $667,000 and above - depending on the loan product, you can put as little as 5% down.
VA loans, FHA loans, USDA loans, etc. have different rules and guidelines. It is important to talk with an expert to make sure you get exactly what is best for you and your circumstances.
Q: Why should I buy instead of rent?
A: A home is an investment. When you rent, you write your monthly check and that money is gone forever. One advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of financial benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing. You have a place to call YOUR home and you can do whatever you want with it. In addition, the value of your home may go up over the years. Unlike a rent payment, when you make a mortgage payment you are building equity.
Q: Should I use a real estate broker? How do I find one?
A: Using a real estate broker is a very good idea. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier. A real estate broker will be well-acquainted with all the important things you’ll want to know about a neighborhood you may be considering…the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more. He or she will help you find the price range you are approved for and set up searches that are personalized to your home preferences. With immediate access to homes as soon as they’re put on the market, the broker can save you hours of wasted driving-around time. When it’s time to make an offer on a home, the agent can point out ways to structure your deal to save you money.
Q: How much money will I have to come up with to buy a home?
A: Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: earnest money – the deposit you make on the home when you submit your offer to prove the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you are ready to closet; and closing costs, the costs associated with processing the paperwork to buy a house.
If your offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies.
The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 3%-20% of the purchase price. I can go over the details with you in person or over the phone.
Q: What are the costs associated with a mortgage?
A: There are three costs associated with a mortgage outside of the obvious down payment.
1. Transaction Costs (these are the costs that it takes to set up the loan)
2. Title/Escrow Costs (these are third party costs that will be the same everywhere you get a mortgage)
3. Prepaid Costs (these are the costs you set aside in an escrow account that are the same everywhere you get a mortgage)
Q: How do I know if I can get a loan?
A: There are mortgage calculators available online that will give you a general understanding of what a mortgage payment will look like at any given interest rate, but until you sit down with a Mortgage Consultant you are estimating. Because there are many different variables to consider, a mortgage calculator online will only get you so far. Plus, when you sit down with a Mortgage Consultant you can create a mortgage plan that best fits your future.
Q: Should I go with an Adjustable Rate Mortgage or Fixed Rate Mortgage?
A: This question comes up daily. It is also very specific to your situation. The answer is – it depends. There are a lot of factors to consider when you are thinking about an ARM or Fixed mortgage. One main factor is risk. How comfortable are you with risk? For example – If you are about to buy a house and you know you won’t be living in it for more than 7-10 years, then maybe a 7 or 10 year ARM is what is best for you. You get to take advantage of an interest rate that is lower, meaning you pay less towards interest and more towards principal every month. If you see yourself living in the house more than 10 years, maybe a fixed rate mortgage is best for you. Fixed rate mortgages in today’s market aren’t where they used to be in terms of rate, but they are still desirable. Did you know that the average person lives in their home 5-7 years?
Q: What are “caps” on ARMS?
A: Caps refer to the terms of the ARM you are getting. For example – if you get a 7 year ARM with 5/2/5 Caps it means the following:
The first 5 in 5/2/5 – The interest rate can’t adjust higher than 5% above the initial rate in that first year.
The 2 in 5/2/5 – Ever year after the first year, the interest rate can’t go up/down more than 2% of the initial rate.
The second 5 in 5/2/5 – The interest rate cap or ceiling is 5% above the initial rate in that first year for the life of the loan.
So, if you have a 7 year ARM at 4% today, your rate will never go over 9% for the life of the loan.
There are also margins or “floors” for which the interest rates can’t go below.
Q: When I find the home I want, how much should I offer?
A: Your real estate agent can help you here. But there are several things you should consider: 1) is the asking price in line with prices of similar homes in the area? 2) Is the home in good condition or will you have to spend a substantial amount of money making it the way you want it? You want to get a professional home inspection. Your real estate broker can help you arrange one. 3) How long has the home been on the market? If it’s been for sale for awhile, the seller may be more eager to accept a lower offer. 4) How much mortgage will be required? Make sure you really can afford whatever offer you make. 5) How much do you really want the home?