Whether you're a first time buyer, or have owned a number of homes and financed their purchase, getting a loan can be daunting. At Rand Realty, we want your purchase experience to be the best it can, and understanding the mortgage loan process - we encourage you to shop the market. Like other things, getting a loan costs you money, and you should understand the basics as you compare lenders.
Mortgage Basics
First, the interest rate, which is the percentage rate at which you'll pay back the loan. Simple rule: big numbers are bad, little numbers are good. Historically, 3 and 4% interest rates are good. Those above that are less good. But, as it's a marketplace, the rates are what they are.
Below is a chart of the current interest rates:
Interest: Mortgage interest is the percentage charged on a mortgage that must be paid in addition to the principal
Interest Rate: The annual percentage rate at which you'll pay back the loan. Can be fixed or adjustable.
Term: The lifetime of the loan, in years. Loans can for different periods, 15, 20, 25 or 30 years. 30 is the most common.
Down payment: the amount of money you've saved to purchase your home. Most people try to save at least 3.5% of the purchase price.
Type of Mortgage: Conventional, FHA, VA, etc.
- Conventional means that you'll be putting at least 5% of your own money down on the home, and financing the balance.
- FHA means that the loan you get will be insured by the Federal Housing Administration, and you can put less down, typically 3.5%.
- VA means that the loan will be insured by the US Veterans Administration, and if you are a veteran in good standing, you may be able to purchase with 0% down.
Loan Origination Fees: Money you pay the lender to create and underwrite the loan for you. Underwriting means that they check you and your finances carefully before they commit to giving money so you can own the home.
Mortgage Insurance (MI/PMI/MIP) - if you put less than 20% down on a home, lenders require insurance on the loan. This is call Private Mortgage Insurance, or Mortgage Insurance Premium (if it's an FHA-insured loan). For most loans, you can drop the PMI when your equity in the property is 20% or more (but you'll have to watch and ask your lender to do so). By law, the lender must drop the MI when equity hits 22%. The exception is FHA loans - you are required to pay the insurance for the life of the loan.
Closing Costs: Fees you may be charged, including loan origination fees, attorney fees, prepaid taxes and insurance, escrow fees and others. These MAY be negotiated to have the Seller pay all or a portion of these.
You can estimate your actual PITI (Principal+Interest+Taxes+Insurance) by using an online mortgage calculator. Here are a few:
Mortgage Providers - some people are very happy using their main bank as their lender. We've seen good results from some banks, and not so good from others. You have many choices when looking for a loan.
You can check online providers also, but of course we like local mortgage brokers/lenders. Why? You can talk to them in person to ask questions, their underwriters may be local too, and they often show up to your closing to make sure everything goes smoothly. We like the personal service, it's no extra cost to you, and we know generally that the process will be as easy as possible on you.
There are many factors that make up the purchase of a loan, and none may be greater than the knowledge of a good lender. We have a number we like,
see a list of them hereIf you have any questions, please call. We're happy to help (and of course there's not cost to you).
As your real estate agents, we want you to be comfortable in purchasing your home, which can be a very stressful time. Call us, and we can go over the steps necessary to start the home buying process. Remember, we're on your side every step of the way!