Q: How do I know if I am ready to buy a home?
A: Purchasing a home is a big decision and it is important to ask some questions of yourself before jumping into the process. You should consider whether or not you have a steady source of income. Although a college degree may give you some flexibility, it is also important to consider whether or not you have been regularly employed for the last 2-3 years. You should also ask yourself if you have a record of paying your bills and if you have the ability to pay a down payment, monthly mortgage, and additional costs. If you can answer “yes” to these questions, you may be ready to buy your own home.
Q: What are the differences between purchasing and renting a home?
A: Renting and purchasing a home are very different processes that come with different sets of pros and cons. Renting typically does not make you responsible for maintenance costs and is more temporally flexible; however, renting puts you at risk of rent increases and does not allow you to receive tax benefits or build equity. When renting, your landlord may be able to restrict you ability to paint and decorate your own home. Choosing to purchase you own home makes you financially responsible for all of the properties maintenance needs, but it also comes with many benefits. Purchasing you home tends to give you the security, stability, and freedom that rentals cannot offer. Paying mortgage on your own home is an investment that allows you to build equity. Purchasing a home also makes you eligible for certain tax breaks that can help to alleviate the financial burden of home ownership.
Q: How does the lender decide the maximum loan that I can afford?
A: In the loan process, lenders till consider your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses can include long-term loans, such as car or student loan payments, alimony, and child support. According to the Federal Housing Administration, monthly mortgage payments should not exceed 29% of your gross income and the accumulation of your mortgage payments and non-housing expenses should not exceed 45% of your total income. When determining the maximum loan they are willing to grant, lenders will also consider you credit history and the finances you have readily available to cover your down payment and closing costs.
Q: How do I select the right real estate agent?
A: When choosing the right real estate agent for you, you should look for an agent that you trust and that makes you feel comfortable. This agent should be able to provide you with the efficient, friendly service you deserve. At Thrive Mortgage, LLC, we strongly recommend that you use a professional realtor with the industry knowledge to help you through the home buying or renting process. We understand that this is the largest financial transaction most people will make. Contact Thrive Mortgage, LLC today and allow us recommend realtors to you that will protect you and your family throughout this process.
You’ve found your dream home, now what?
Q: What is the role of a home inspector?
A: The job of a home inspector is to ensure the safety of the structure, mechanical systems, and construction of your potential new home. The inspector will examine the plumbing, waste disposal, electrical system, water heater, ventilation, insulation, HVAC system, foundation, water source and quality, home structure, and potential presence of pests. It is not the job of an inspector to ensure that you are getting the best value for your money. Instead, a home inspector will communicate to potential buyers the repairs that the home is in need of and estimated costs for these repairs. Although your real estate agent may have home inspector recommendations, you can also contact Thrive Mortgage, LLC for suggestions of trusted and qualified home inspectors.
Q: How important is homeowner’s insurance?
A: Proof of payment towards a homeowner’s insurance policy is required at closing; therefore, arrangements for homeowner’s insurance must be made prior to finalizing the purchase of your home. Not only is a homeowner insurance agent required for the purchase of your home, but they can also help you to save money throughout the process. Qualified insurance agents have the industry insight to provide you with information and tips to keep your insurance premium low.
Q: What is earnest money and how much should I set aside?
A: Earnest money is a fund put down to demonstrate your seriousness and reliability in purchasing a home. The sum of your earnest money should be about 1-5% of the home’s purchase price, depending upon local customs and conditions, to demonstrate your good faith. If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If your offer is rejected, the earnest money will be returned to you; however, if you choose to back out of a deal, you must forfeit the entirety of your earnest money. Your real estate agent will guide you through this process based on current market conditions.
Q: What are home warranties and how can they benefit me?
A: Home warranties off you protection for a specified period of time against unexpected expenses, such as unforeseen necessary repairs on appliances or home systems, which are not covered by homeowner’s insurance. Home warranties offer protection during the time immediately following the purchase of a home, a time when money is often tight.
Q: What is a mortgage?
A: Generally speaking, a mortgage is a loan obtained to purchase real estate. The mortgage itself is a legal claim on the home property on the part of the lender that secures the borrowers promise to pay the debt. All mortgages include principal and interest.
Q: What types of loans are available and what advantages can I expect from each?
A: With fixed rate mortgages, your payments remain the same for the life of the loan. With 15 or 30-year adjustable rate mortgages (ARMS), payments will increase or decrease regularly as interest rates change. For your protection payment increases are subject to pre-established limits.
Q: When do ARMs make sense?
A: ARMs may make sense if you are confident that your income with increase steadily in the upcoming years or if you expect to b moving in the near future and aren’t concerned about potential increases in interest rates.
Q: Am I allowed to pay my loans ahead of schedule?
A: Yes. You can accelerate the process of satisfying your loan payments, by making extra payments at the end of the year of by making larger monthly payments. When making extra payments of sending extra money with monthly payments, it is important to indicate the extra payment should be put towards the principal.
Q: How large of a down payment do I need?
A: There are mortgage options available to you that require a down payment as low as 3.5% – 5% of the purchase price. VA loans are always zero down. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan, unless it is a VA loan. When considering the size of your down payment, you should consider the money that you will have to put towards closing costs, moving expenses, decorating, and potential repairs.
Q: What is an escrow account?
A: An escrow account is established by your lender as a place to set aside a portion of your monthly mortgage to cover annual payments towards homeowner’s insurance, possible mortgage insurance, and property taxes. Escrow accounts ensure that money will always be available for these expenses. When using an escrow account to pay property taxes or homeowner’s insurance, it is the lender’s responsibility to make payments in a timely fashion; therefore, it is important to make sure that you are not penalized in the event of late payments.
Q: How are pre-qualifying and pre-approval different?
A: Pre-qualification in an informal way to see how much you may be able to eligible to borrow. Pre-qualification can be done over the phone with no paperwork. Your lender will simply require information about your income, long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at an estimation of the amount of money you have available to spend on a house. Pre-approval represents a lender’s commitment to lend to you. This involves the assembling of financial record, excluding the property description and sales contract, and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about making a purchase.
Q: What if I find a mistake in my credit history?
A: Simple mistakes can be easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain the problem. For example, if you made a late payment due to illness, you are able to explain that on the record.
Q: What is a credit bureau score and how do lenders use them?
A: A credit bureau score is a number calculated based on your credit history that represents the degree of possibility of you being unable to repay a loan. Lenders use this number to determine your ability to qualify for a mortgage loan. Your score not only impact the options that you have in terms of lenders and loan amounts, but also impacts your rates.
Q: What happens on closing day?
A: On closing day, the real estate agent will through the money that is owed to the seller and to you. You will be responsible for expenses including prepaid taxes the remained of the down payment. The seller may owe you prepaid rent or unpaid taxes. The seller will also provide documentation of inspections and warranties. Once you and the seller have reviewed and understand all the documents, you will sign the mortgage note and mortgage form. These forms constitute a promise that you will repay your loan and an agreement that if you do not make sufficient and timely mortgage payments, the lender has the right to sell your property to recover the money they are not receiving from you. Once you receive the signed deed from the seller, you will cover the lender’s agent and closing costs. You will then be given a settlement statement that lists each item for which you have paid. After the mortgage and deed are recorded in the State Registry of Deeds, you will be the owner of your new home.
Q: What is mortgage insurance?
A: Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than 20%.
Q: What is a conventional loan?
A: A conventional loan refers to a mortgage that is not insured or guaranteed by the federal government. A conventional, or conforming, mortgage adheres to the guidelines set by Fannie Mae and Freddie Mac. These loans may have either a fixed of adjustable rate. A conventional loan cannot exceed $417,000.
Q: What is a jumbo loan?
A: A jumbo loan is a mortgage of more than $417,000. These tend to be used for large, single family homes. The guideline limits you to 43% debt ratio and you need a bit more reverses or savings after your down payment.
Q: What is a VA loan?
A: VA loans provide lenders with the guarantee that allows them to give you more favorable terms. See my VA page for details.
Q: What is the FHA?
A: Established in 1934, the Federal Housing Administration is meant to advance opportunities for Americans to own homes and has helped over 26 million Americans become proud homeowners. The FHA is now an agency within HUD and provides lenders with mortgage insurance to give them the security they need to lend to first-time buyers who may not be able to qualify for conventional loans.
Q: Are FHA loans assumable?
A: Yes. You can assume an existing FHA-insured loan, or, if you are the one deciding to, you can allow a buyer to assume yours. The process of assuming a loan is streamlined and less expensive than that of a new loan, often resulting in a lower interest rate. The application process consists of a credit check and a proof of sufficient income to support the mortgage loan; however, it does not require a property appraisal. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.
Q: What is a 203(b) loan?
A: This is the most commonly used FHA program, offering a low down payment, flexible qualifying guidelines, limited lender’s fees, and a maximum loan amount.
Q: What is a 203 (k) loan?
A: This is a loan that enables the homebuyer to finance bother the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller’s existing mortgage and the remainder is placed in an escrow account to be released as rehabilitation is completed. To comply with basic guidelines for 203(k) loans, the cost of rehabilitation must meet a minimum of $5,000. The total property value, including the cost of repairs, must not exceed the FHA maximum mortgage limit. 203(k) loans are also subject to many of the 203(b) loan eligibility requirements.