San Diego Mortgage Advice
Why should I get pre-qualified and pre-approved?When we speak to potential homebuyers we are often asked, "Why should I get pre-qualified and pre-approved for a mortgage before I begin searching for a home?" Interestingly, one of the most common comments we get from new clients goes something along the lines of "I would like to know how much home we can afford." Of course, this makes sense to allow our clients to maximize the value / benefit they can and wish to afford in shopping for a home. Choosing among the many houses that may be available is hard enough. Making a choice from the myriad of mortgages that are offered in today's market can be mind blowing. So many decisions! There are simply too many variables--credit history, income, debt, special mortgage programs and variations in mortgage qualifying requirements to try include in this writing. We can recommend a highly skilled mortgage consultant to assist you when you are ready. For now, take heart. Although there are literally hundreds of different mortgages available, they all fall into only a few basic varieties and by learning of and narrowing your choices down early with the right mortgage consultant, the process of picking the right mortgage is surprisingly simple. It is always a good idea to begin your house hunt with a mortgage pre-qualification and pre-approval. Virtually every lender will be able to process a pre-qualification and a pre-approval for you. We invite you to fill out the form to receive a pre-qualification. How much home should I buy? How much can I afford?This answer must consider your income and the amount of your debt load. As a rough rule of thumb, most home buyers will assign approximately one third of their gross monthly income to the cost of their housing payment (to include home owners insurance, property taxes and, association dues). This rule of thumb applies in the case of fixed rate loans or loans that are variable but initially fixed for a period of three or more years. On true variable loans it is wise to dedicate a lower percentage of your income to your total monthly housing payment to account for possible upward adjustments of payments in future months. Wise financial advice also dictates that your total credit payments (car payments, credit card payments, student loan payments and the like) plus the proposed monthly mortgage amount not exceed approximately 36%-45% of your gross monthly income. The wide difference in this percentage accounts for your personal comfort level and remaining disposable income as well as the tolerances of these percentages that will vary with from loan to loan and lender to lender. To receive more information on mortgages and begin the application process, click here. Fixed Rate or Adjustable? Which is better?One of your first decisions should be between a fixed rate (the interest rate remains constant through the life of the mortgage) or an adjustable (the interest rate is adjusted--either up or down--at specified times during the mortgage term). Adjustable Rate Mortgages (ARMs) will have an initial interest rate lower than fixed rates but will adjust upward (unless rates really fall!) usually after the first year. They may be a good choice if you are sure that you will not be owning the home for an extended period (more than 5-7 years) of time. Advantages--Fixed
Advantages--ARM
Disadvantages--Fixed
Disadvantages--ARM
How do I know if I am getting a good deal on a mortgage?In a word: compare. Trying to chase down the "best" priced loan is probably a fleeting pursuit but if you can determine a handful of lenders that are competitive and reputable, you will have done your diligence and can make a choice from that group confidently. If a particular lender verbally quotes a rate substantially lower or cheaper than the range of other lenders, be suspicious. Ultimately, the money for conventional home loans has a common source... Wall Street. The Internet mortgage companies typically offer the best rates on "paper" because they have eliminated the mortgage consultant (loan officer) and pass, at least a portion, of those savings on to you. An experienced loan officer / mortgage consultant, however, is an advisor and advocate providing the homebuyer valuable assistance. This loan officer's assistance can very often save you tremendous headaches and his/her advice can save you money in making the right loan choice. Conclusion being, price is only one element to consider when choosing from whom you will obtain your mortgage financing. Points or No Points?A large component of your mortgage decision has to do with one of the first charges associated with your loan--even before you make your first payment--the "points" attached to the mortgage. A point is 1% of the loan amount, paid to the lender or the mortgage broker at closing (in cash). Points are an upfront fee that lenders accept in exchange for a lower rate of interest. Sometimes you will find points further designated as origination points and discount points... the assumption being that the origination point is the profit of originating the loan to the lender or broker and the discount point is the cost of buying down your loan's interest rate. Simply look at discount and origination points as "points" and consider them versus a zero point loan. A loan without points will then be written at a higher rate of interest. There will be some comparisons you will want to make between loans and payments that require points and those that do not. The concern is if you pay points, how long will it take to break even (get your upfront money back) and what is the possibility that you will refinance or sell your home and move to a new one during that period (in which case the upfront money has been spent and lost). I often hear the terms Government Loan and Conventional Loan. What is the Difference? Conventional: A "traditional" mortgage, not directly insured by the Federal Government. Most conventional loans at or below $333,700 are administered through Fannie Mae or Freddie Mac (private corporations but regulated by the government). Those loans over that amount are designated "jumbo loans" and are funded by the private investment market. Whether fixed or adjustable, jumbo (above $333,700) or conforming (at or below $333,700), the bulk of mortgages obtained FHA: Insured by (but not funded by) the Federal Housing Administration (FHA) a division of the U.S. Department of Housing and Urban Development (HUD), and designed for, in general, low- and middle-income borrowers and many first-time buyers. There are, however, limits (which vary from county to county) to the maximum loan amount. FHA loans have somewhat more relaxed qualifying standards than conventional loans but loan size limitations make FHA an unusable option in some expensive housing market areas. FHA is an example of a Government loan program. VA: For those qualified by military service, the Veterans Administration (VA) insures (but does not fund) with lower down payment requirements (as low as 0 down) and somewhat more lenient qualifying guidelines. VA is another example of a Government loan. Other common loan questions explained.What is a No-Document ("No-doc") Loans: No-doc mortgages are generally a wise choice for self-employed people, who do not wish to provide the extensive paperwork often necessary to verify their income. The benefits of a no-doc mortgage include a shorter application process since you are not required to provide normal income, employment and sometimes asset documentation and verification. However, no doc mortgages generally will be at slightly higher interest rates and are offered by fewer lenders because of the increase lending risk factors associated with less verification requirements. What First Time Buyer Programs are available? What will my loan closing costs be? This will, of course, vary from lender to lender and from program to program. There is much to consider when shopping for a loan and rate and points are simply two of the cost considerations during loan shopping. Lenders also offset administrative costs, which can be substantial, with additional fees and you should ask for the total of all lender fees in addition to points and rate. Example of additional fees are Processing Fees, Tax Service Fees, Underwriting Fees, and Bank Wire Fees. What is an appraisal? Will I need one? An appraisal is an opinion of value of the home you want to purchase. Every lender will require some sort of appraisal before the loan is made. The common misconception of appraisals is that they tell you what a house is worth and what it will sell for. Only the open market at any given time can do that. An appraisal simply compares a subject house to other houses in as close a proximity and likeness as possible as possible to the subject house. |
