Frequently Asked Questions about Real Estate Financing

Worried about rising mortgage rates?  A 2-1 buydown could make a home purchase more affordable.

This type of financing agreement offers a lower interest rate for the first two years of the mortgage, typically a 2% discount in the first year and 1% in the second year.

For example, if you lock in a 6.5% 30-year mortgage with a 2-1 buydown, the first year’s rate might be 4.5%, while the second year’s rate would be 5.5%. After that, the rate would go up to 6.5% for the remainder of the loan.

Sometimes motivated home builders or sellers will offer to cover the cost of a 2-1 buydown as an incentive.

Interested in learning more about 2-1 buydowns and other homebuyer incentives we’re seeing in the market? Reach out for a free consultation!

What is Amortization?

Amortization of a mortgage refers to the process of paying off your home loan in regular monthly payments over a fixed period of time, usually 30 years.

Do you know what kind of mortgage you have? Do you know whether your payments are going to increase over time? 📈

“Amortization” is the term used for the schedule of mortgage installment payments over a period of time. Typically, a buyer’s amortization schedule is one payment per month over 15 or 30 years.

📢 Important:

📝 There are both adjustable and fixed-rate mortgages. With an adjustable rate, the lender can increase the rate on a predetermined schedule, which would impact your amortization schedule.

📝 With a fixed rate, your payments with remain the same for the life of the loan, unless you refinance or there are changes to taxes or insurance.

What is an Assumable Mortgage?

A home loan that allows the buyer to take over, or assume, the seller’s mortgage at the original terms, including interest rate.

 Mortgage rates have remained stubbornly high.

But did you know that homebuyers can take over certain types of mortgages from the seller—at their original interest rates? These loans are called assumable mortgages.

Many fixed-rate mortgages can be assumed; most variable-rate loans cannot.

If you have an assumable mortgage with a low interest rate, it could be a selling point for your home. However, there are some important factors to consider. Reach out for a free consultation to learn more!

What is a conforming loan?

A conforming loan is one that is limited to $647,200 for most of the U.S., which means you may be able to avoid the stricter requirements of a jumbo loan.

Loan limits vary over time and by location so you should check with your lender or Realtor for the latest information.

Other loan types include jumbo loans, FHA, and VA.

What is a Conventional Loan?

A conventional loan is any mortgage loan that is not insured or guaranteed by the government. Conventional loans can be conforming or non-conforming.

A number ranging from 300-850 that’s based on an analysis of your credit history.

Your credit score helps lenders determine the likelihood you’ll repay future debts.

You’ll need a score of 620 or better, but you’ll get better financing rates with a score of 720 or higher.

Debt-to-Income (DTI) Ratio is a financial term that compares a person’s recurring monthly debt payments (credit cars, car loans, etc.) to their gross monthly income.

Lenders use the DTI ratio to assess a person’s ability to manage the payments and repay the money they have borrowed.

It is generally calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.

A lower DTI ratio is preferable as it shows you have a good balance between debt and income.

A Deed of Trust is like a mortgage. It is an agreement between a borrower (you) and a lender (a bank or other financial institution).

What is The Deposit 🤔

The Deposit is an amount of money from the home buyer to the home seller, paid in good faith to show dedication to purchasing the property. 🏡

IMPORTANT FACTS 👇🏼

💰The amount varies by market
💰Goes towards the purchase of your home
💰Protects the seller if a buyer backs out
💰A buyer may get this money back – due to failed inspections or contingencies

Our best advice? When it comes to buying in a low inventory, competitive market, it’s essential to partner with a Buyer’s Agent who understands how to make your offer stand out to sellers 🥊

Contact our team for a ✨ free consultation ✨ to learn more about how to write a winning offer!

What is the FHA?

The FHA (Federal Housing Administration) is an agency of the US government that provides insurance for mortgages. The FHA also sets rules and standards for lenders.

What is an FHA Loan?

An FHA loan is a loan that is backed by the Federal Housing Administration. It is designed to help people buy a home who may not have the money to make a big down payment.

A FICO score is a type of credit score that indicates a person’s creditworthiness.

Named after the Fair Isaac Corporation, which created the scoring model, a FICO score ranges from 300 to 850.

Financial institutions use this score to determine the likelihood of a person repaying their debts.

The higher the score, the lower the perceived risk.

It is calculated based on various factors, including payment history, amounts owed, length of credit history, types of credit used, and new credit.

Maintaining a high credit score can help individuals secure loans at competitive interest rates.

What is a Home Equity Loan?

A home equity loan — sometimes called a second mortgage — is a loan that’s secured by your home.

Unlike a HELOC, a home equity loan is a fixed amount. You receive a lump sum of money which is often used to purchase the home. It may also be used to consolidate other debt like credit card debt, at a lower interest rate.

What is a Jumbo Loan?

Conforming loan limits are $647,200 for most of the U.S., so anything above this would be a jumbo loan.

Jumbo loan requirements are stricter and there are more requirements you will need to satisfy.

Find out more about jumbo loans here.

What is a Mortgage?

A mortgage is a loan that a person or persons take out to buy a house. The borrower pays the lender back over time with interest.

The interest rate on a mortgage loan you pay to borrow that money when buying a home.

The lower the rate, the better.

BTW, the “t” is silent, so pronounce it “morgage”.

What is a Pre-Approval Letter? 🤔

📄 It is a letter from a lender indicating you qualify for a mortgage of a specific amount.

Getting Pre-Approved

📃 You’ll fill out a mortgage application, provide documents, and bank statements, get a copy of your credit report, etc.

Getting pre-approved is what you need to do before starting a home search. The person selling your dream home will want to make sure you really are qualified to buy. Most sellers aren’t willing to accept your offer with only a pre-qualification.

What is getting Pre-Qualified? 🤔

You contact a lender, provide a bit of financial information to them, and they tell you about how much you can afford to buy. That’s about it. It’s usually done over the phone, and your credit report is not needed at this point.

WARNING! 🔥 It’s NOT a promise of a loan. You are not guaranteed any particular interest rate. And you are not ready to purchase a home. What you have is an idea of what you may be able to buy. It’s a starting point, and a good way to start planning.

You’ll want to get a Pre-Approval Letter from your lender before you start shopping for a home.

One of the first steps in purchasing a home is getting either pre-approved or pre-qualified for a mortgage. Unless of course, you’re buying with all cash. 😁

It’s very easy to get confused between the two things. So, should you get Pre-Qualified or Pre-Approved for a mortgage loan?

Without getting into too much detail, we’ll give you just the essentials in understanding the difference, not the complete procedure for each.

Pre-Qualified

This is the simpler of the 2 processes. You contact a lender, provide a bit of financial information to them, and they tell you about how much you can afford to buy. That’s about it. It’s usually done over the phone, and your credit report is not needed at this point.

WARNING! 🔥 It’s NOT a promise of a loan. You are not guaranteed any particular interest rate. And you are not ready to purchase a home. What you have is an idea of what you may be able to buy. It’s a starting point, and a good way to start planning.

Check out Investopedia for a more in-depth explanation if you’re curious. https://www.investopedia.com/articles/basics/07/prequalified-approved.asp

Pre-Approved

This one is where the rubber meets the road. Paperwork, and plenty of it. You’ll fill out a mortgage application, provide documents, bank statements, get a copy of your credit report, etc.

It takes more time and there are more questions. It’s best to start with plenty of time before you plan to start looking for a home. That way you can deal with finding the papers you thought were in that one file cabinet, get your updated investment info, and try to fix any credit issues you may have.

Getting pre-approved is what you need to do before starting a home search. The person selling your dream home will want to make sure you really are qualified to buy. Most sellers aren’t willing to accept your offer with only a pre-qualification.

Again find out more here. https://www.investopedia.com/articles/basics/07/prequalified-approved.asp

Conclusion

Save yourself some heartache, heartbreak, and hair-tearing-out. Get pre-approved before shopping for homes.

Better yet, call me, Libby Guthrie at 925-628-2436 and I’ll answer your questions about getting started, and if you like, I’ll connect you with the right lender for your situation.

Just so you know, before my 30+ years as a real estate agent and broker, I spent 15 years in mortgage banking. I know what I’m talking about and I love to share my expertise with you and your family.

Contact me today, share this article with a friend, and please, share on your favorite social site. Thanks!

What is Private Mortgage Insurance (PMI)? 🤔

This is insurance that helps protect lenders if the borrower doesn’t pay back their loan. 💰

You usually need PMI when you put a down payment that is less than 20% for a regular home loan. 🏡

PMI lets lenders give loans with smaller down payments. However, it costs the borrower more money each month for their mortgage.

How Much Does Private Mortgage Insurance (PMI) Cost?

The cost of this insurance can vary depending on factors like the amount of your down payment and your credit score.

Generally, PMI costs between 0.3% to 1.5% of the original loan amount per year. So, for a $500,000 loan, the cost would be between $1,500 and $7,500.

This cost is usually divided into monthly payments and added to your mortgage payment.

Do I have to Pay PMI forever?

No! Your mortgage lender will stop charging you for PMI automatically.

This happens either after you’ve paid off half of your loan term, or when you’ve built up enough equity in your home — meaning you own at least 22 percent of it, or when your LTV (loan-to-value) ratio drops to 78 percent.

If your lender doesn’t automatically cancel the PMI, you can simply request them to do so.

What is a Settlement Statement (aka HUD-1)? 🤔

A settlement statement, also known as a HUD-1, is a document that lists all the costs associated with buying or selling a home.