Bad questions? Too many questions? There’s no such thing when it comes to home loans. And certainly not for first time homebuyers. Your first home is important, and you’ve spent years dreaming of it. And maybe even pinning ideas for how to decorate it on Pinterest. You’re all in, and it is normal to have a lot of questions about your loan or loan process.
Simply put, there’s nothing quite like purchasing your first home. And the easier we can make it, the better. So, we’ve compiled a list of our top ten home loan questions to help you get started with some important home buyer’s know-how.
Top 10 Home Loan Questions:
What is loan-to-value?
LTV represents the relationship between your outstanding mortgage balance and the appraised value or sale price of your home. For example, the LTV of a home that sales for $275,000 with an outstanding mortgage balance of $165,000 (165,000 divided by 275,000) is 60%.
What are discount points?
A point is 1% of the loan amount. For example, 1 point on a $200,000 loan is $2,000. If you pay discount points, you can get a lower interest rate, which is ideal if you plan to live in the home for a long time. Points paid at closing may possibly be a tax deduction.
How do I select the right mortgage for me?
In order to determine the right loan for your needs, consider the following:
- What amount of liquid funds do you have available for a down payment and costs at closing?
- How long do you intend to own the home?
- Are there any derogatory credit items in your credit history?
- What are your short-term and long-term financial goals?
- Ideally, how many years would pass before the home loan is paid off?
- Are there any upcoming financial obligations or events to consider (e.g., college tuition, etc.)
- Do you have a stable income stream (base salary) or do you have a variable income stream (self-employed or commission income)?
- How much future interest rate risk and volatility are you willing to assume for a lower rate in the short term?
When it comes to loans, one size does not fit all. It is best to speak with your mortgage loan originator to find the right loan for you.
How much should I have for a down payment?
The required down payment can depend upon the home loan type (Conventional, Government, Jumbo, etc.). But we do have mortgage loan programs available that allow up to 100% financing with a minimum down payment of $500 on 1-unit properties. However, PMI is required if you don’t put down more than 20%.
What is private mortgage insurance (PMI)?
PMI is insurance that partially protects a lender when a borrower seeks to finance more than 80% of the home value. It’s included in the escrow portion of your mortgage payment.
What is the Debt-to-Income ratio?
The DTI ratio is your total monthly debt (house payments, credit cards and other loans) divided by your total gross monthly income. This ratio helps lenders determine your ability to repay the mortgage for which you are applying.
What are closing costs?
Closing costs are divided into three main categories:
- Lender fees – Fees can include origination, points, underwriting review, processing, credit report, flood certification, and appraisal.
- Third-party fees – These fees are charges by entities other than the lender. They can include fees for closing, title search, title insurance, tax certificates, and recording.
- Prepaid items – These are items collected at the time of closing and are items that accompany your loan (e.g., interest, taxes, and hazard insurance).
How will I know how much money I need to bring to closing?
Your closing disclosure will provide the final figure. We will send this to you and the title company. Upon request, your title company will provide you with the final settlement statement for your review. This will allow you to ask questions prior to closing and also give you the opportunity to obtain a cashier’s check (made payable to the title company) or prepare for your wire.
What items do I need to bring to my closing?
You’ll need a photo ID (driver’s license) and any funds needed for closing. You can bring a cashier’s check or the funds can be wired directly to the title company. As always, don’t be afraid to ask the title company any questions you have about closing.
That’s a lot of information to digest. But it’s all important and should help make your home buying process smoother.
Remember, there’s no such thing as too many questions about home loans. Especially for first-time homebuyers. And no matter the question, Guardian’s Mortgage Loan Originators(Opens in a new window) are ready to help.