Mortgage basics

Looking to buy a home?

Home loans are available through several types of lenders such as mortgage companies, credit unions, brokers, to name a few. Whether it is a purchase or a refinance, costs may vary.  Shopping, comparing and negotiating can save you thousands of dollars over the course of your loan.   Before you commit to a lender, you want to make sure you find a lender whom you feel comfortable with and who will work along with you through the mortgage process.

Questions you may want to ask when selecting a lender include:

Does the financial institution service the loan?

If using a broker, how do they get compensated?  A broker may be compensated in the form of “points” paid at closing or there might be an add-on to the rate.  This could affect your closing costs and/or your monthly payment.

1. What type of loan works best for you?    In order to determine what loan is the best for you, the lender should ask pertinent questions about you in regards to income, job history, and money available for purchasing a home.  By doing this, it will help to narrow down what mortgage product works best for you and pre-qualify you.   A pre-qualification ensures your realtor that you are ready to move forward in your search for a home.

There are different mortgage programs available based on your down payment, credit and income.

** Fixed Rate Mortgage  –  a fixed rate mortgage has a set interest rate with terms ranging from  15, 20 and 30 years.   The rate will not change for the duration of the loan.

** Adjustable Rate Mortgage – has an initial interest rate at start but the rate adjusts over time.  It is important to keep in mind that when the interest rate adjusts, this will affect your monthly payment.

** FHA Mortgage – can assist you with closing costs and requires less dollars down

** SONYMA Mortgage – a first time homebuyer program which has income limits and a down payment assistance loan to reduce the amount of money needed to close. More information here.

2. What are the Interest Rates & Annual Percentage Rate

Interest rates change daily – when can you lock and for how long?  Is there a charge to lock the rate?

Annual Percentage Rate (APR) – this is a shopping tool.     The APR takes into account the interest rate, points, broker fees as well as certain charges that the borrower is required to pay in connection with obtaining a mortgage.

Lenders offer a multitude of interest rate structures, fees, mortgage insurance and points. Knowing a loan’s APR tells you what the true cost of borrowing is because it includes all of the fees directly related to the loan, not just the interest payments.

3. A standardized computation such as the APR provides you with a bottom-line number you can easily compare to rates charged by other potential lenders.What are the costs – These are the fees paid at closing.   Every lender or broker should be able to give you an estimate as to the fees you will incur on your purchase.   These fees can vary lender to lender.  Fees may include appraisal, credit report, processing, attorney, recording mortgage/deed, mortgage tax, title insurance, flood report, taxes /insurance (escrow).    Appraisal and credit report fees are usually paid shortly after application.

4. PMI and Down Payments – If you are putting less than 20% down, PMI (private mortgage insurance) will be required.   Lenders require the borrower to purchase PMI to protect the lender if the borrower should default on their loan.    The cost of PMI is included in your monthly mortgage payment.   Minimum down payments depending upon the type of mortgage you qualify for can range between 3 – 5%.

5. Escrow – an account set up by the servicer or lender to collect taxes and insurance. When making your payment each month, a portion of these dollars is set aside in a separate account to pay taxes and insurance upon due date.

 

Jean M. Chmylak

Mortgage Originator

For more info or resources on buying a home, click here.