ADVANTAGES ƒ Generally offer lower initial interest rates. ƒ Monthly payments can be lower. ƒ May allow borrower to qualify for a larger loan amount. 4. When do “ARMS” make sense? An ARM may make sense, if you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates. 5. What are the advantages of 15- and 30-year loan terms? 30-Year: In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses. 15-year: Loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal. 6. Can I pay off my loan ahead of schedule? Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details. 7. Are there special mortgages for first time homebuyers? Yes. Lenders now offer several affordable mortgage options, which can help first time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or poor credit history, have quite a bit of longterm debt, or have experienced income irregularities. 8. How large of a down payment do I need? There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and possibly repairs and decorating. 9. What is included in a monthly mortgage payment? The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable). 10. What factors affect mortgage payments? The amount of the down payment, the size of the mortgage loan, the interest rate, length of the repayment term and payment schedule will all affect the size of your mortgage payment. 11. How does the interest rate factor in securing a mortgage loan? A lower interest rate allows you to borrow more money than a high rate with the same monthly payment. Interest rates can fluctuate as you shop for a loan, so ask lenders if they offer a rate "lock-in” which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan. 12. What happens if interest rates decrease and I have a fixed rate loan? If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees. 13. What are discount points? Discount points allow you to lower your interest rate. They are essentially prepaid interest, with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them. 14. What is an escrow account? Do I need one? Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those payments. FIRST STEPS 15. What steps need to be taken to secure a loan? The first step in securing a loan is to complete a loan application. To do so, you'll need the following information. ƒ Pay stubs for the past 2-3 months ƒ W-2 forms for the past 2 years ƒ Information on long-term debts ƒ Recent bank statements ƒ Tax returns for the past 2 years ƒ Proof of any other income ƒ Address and description of the property you wish to buy ƒ Sales contract During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase. The application process typically takes between 1-6 weeks. 16. How do I choose the right lender for me? Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. Plus, it's beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations. 17. How are pre-qualifying and pre-approval different? Pre-qualification is an informal way to see how much you may be able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house. Pre-approval is a lender's actual commitment to lend to you. It involves assembling the financial records mentioned in Question 47 (Without 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 buying. 18. How can I find out information about my credit history? There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it's important to verify its accuracy. Double-check the "high credit limit, “total loan," and “past due" columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire a free one. Contact the reporting companies at the numbers listed for more information. CREDIT REPORTING COMPANIES Company Name Phone Number Experian 1-888-524-3666 Equifax 1-800-685-1111 Trans Union 1-800-916-8800 The Annapolis MD Real Estate Specialist - With 25-Years Experience Selling Real Estate and Homes for Sale in Annapolis, Anne Arundel County, Eastern Shore and the Chesapeake Bay area of Maryland |
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Annapolis Real Estate and Relocation in Anne Arundel County, the Eastern Shore, and Surrounding Counties |
711 Bestgate Road Annapolis, MD 21401 Business: Toll Free: Cell Phone: PatOgle@AnnapolisHomes4You.com
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