Part 2 of our guide for first time homebuyers will cover mortgages, credit, down payments and closing costs.
A mortgage is a loan secured by real estate. A lender will loan you money which is used to purchase a home with your promise to pay back the funds over a certain period of time at a cost. Mortgages can be broken down as follows: principal+interest+taxes+insurance=PITI.
Principal- the amount of money you borrow based on the sale price of the home.
Interest- the cost of borrowing money. In the early stages of your mortgage your only payment is mostly interest.
Taxes- paid by homeowners to local governments and are charged as a percentage of the assessed property value. Your tax amounts will vary depending where you live.
Insurance- financial protection in the event of a loss insurance can consist two parts.
1) Homeowners or hazard insurance protects you against financial losses on your property as a result of losses from fire, natural disasters or other hazards.
2) Mortgage insurance protects the lender against financial losses should the borrower fail to repay the loan.
Qualifying for a mortgage depends on your income and credit history. The amount you have saved may also be a factor because this can be used as a down payment.
What size loan can I get? There are two guidelines, the housing to expense income ratio and debt to income ratio.
The housing to expense income ratio compares your proposed monthly house payment to your total household gross monthly income. The debt to income ratio compares your anticipated monthly housing payment to your gross monthly earnings and your monthly debt requirements. A common ratio of lenders today is 29/41 which means you can devote up to 29% of your gross monthly income to housing expenses while your monthly housing expenses plus your monthly debt combined could be as high as 41%.
If is important to have a good credit history because this has a large impact on the amount of money you can be approved for. Your credit history can also affect the amount required for a down payment.
Down payments can vary on your personal circumstances. Their are programs available with as little as 3% down up to 20%. However, if you decide to use less than 20% as a down payment your lender may require Private Mortgage Insurance (PMI) which protects the lender in the event of the mortgage default.
Closing costs cover the amount of money you pay to close a mortgage loan aside from the down payment. Closing costs usually fall into one of three categories, out of pocket expenses, pre paid items and points.
Out of pocket expenses cover third party services that are directly charged to you, fees for appraisals, attorneys, credit reports, title and deed recording or tax services. These services will vary on the property location and home financing program.
Prepaid items include homeowners insurance, mortgage insurance and fees associated with establishing an escrow account. Escrow accounts are setup by lenders to pay property tax a insurance premiums. An escrow account is an option not a requirement.
Points are fees, with each point representing 1% of your loan amount, that cover the cost or your mortgage loan. There are origination points and discount points.
Origination points is the amount collected by the lender for making the loan.
Discount points is a fee that allows you to buy down your interest rate. Paying more discount points upfront will enable you to lower your interest rate which will lower your monthly payment.
Feels Like Home
A mortgage is a loan secured by real estate. A lender will loan you money which is used to purchase a home with your promise to pay back the funds over a certain period of time at a cost. Mortgages can be broken down as follows: principal+interest+taxes+insurance=PITI.
Principal- the amount of money you borrow based on the sale price of the home.
Interest- the cost of borrowing money. In the early stages of your mortgage your only payment is mostly interest.
Taxes- paid by homeowners to local governments and are charged as a percentage of the assessed property value. Your tax amounts will vary depending where you live.
Insurance- financial protection in the event of a loss insurance can consist two parts.
1) Homeowners or hazard insurance protects you against financial losses on your property as a result of losses from fire, natural disasters or other hazards.
2) Mortgage insurance protects the lender against financial losses should the borrower fail to repay the loan.
Qualifying for a mortgage depends on your income and credit history. The amount you have saved may also be a factor because this can be used as a down payment.
What size loan can I get? There are two guidelines, the housing to expense income ratio and debt to income ratio.
The housing to expense income ratio compares your proposed monthly house payment to your total household gross monthly income. The debt to income ratio compares your anticipated monthly housing payment to your gross monthly earnings and your monthly debt requirements. A common ratio of lenders today is 29/41 which means you can devote up to 29% of your gross monthly income to housing expenses while your monthly housing expenses plus your monthly debt combined could be as high as 41%.
If is important to have a good credit history because this has a large impact on the amount of money you can be approved for. Your credit history can also affect the amount required for a down payment.
Down payments can vary on your personal circumstances. Their are programs available with as little as 3% down up to 20%. However, if you decide to use less than 20% as a down payment your lender may require Private Mortgage Insurance (PMI) which protects the lender in the event of the mortgage default.
Closing costs cover the amount of money you pay to close a mortgage loan aside from the down payment. Closing costs usually fall into one of three categories, out of pocket expenses, pre paid items and points.
Out of pocket expenses cover third party services that are directly charged to you, fees for appraisals, attorneys, credit reports, title and deed recording or tax services. These services will vary on the property location and home financing program.
Prepaid items include homeowners insurance, mortgage insurance and fees associated with establishing an escrow account. Escrow accounts are setup by lenders to pay property tax a insurance premiums. An escrow account is an option not a requirement.
Points are fees, with each point representing 1% of your loan amount, that cover the cost or your mortgage loan. There are origination points and discount points.
Origination points is the amount collected by the lender for making the loan.
Discount points is a fee that allows you to buy down your interest rate. Paying more discount points upfront will enable you to lower your interest rate which will lower your monthly payment.
Feels Like Home
Questions or comments post a comment or email:
YOUR Personal Guide to Real Estate
Posts
No comments:
Post a Comment