1. Are there different types of mortgage loans?
There are three mortgage loans to understand: conventional, government, and nonconforming / portfolio. Think of these categories as a family’s last name; in your family, you have aunts, uncles, cousins, brothers, and sisters. Each family or loan type in mortgage lending has different terms, such as 30-year fixed, 15-year fixed, five-year arm, and seven-year arm. For example, you can have a government 30-year fixed rate mortgage, a conventional 30-year fixed rate mortgage, or a nonconforming / portfolio 30-year fixed mortgage. Conventional loans have higher qualification standards and costly price adjustments driven by the quality of a loan applicant’s financial profile. Government loan types have flexibilities that conventional loans do not have. Nonconforming/portfolio programs can be an excellent solution for buyers with some unique scenarios and more significant loan amounts.
2. Which mortgage loan is right for me?
This question is the most common for me. One loan program is not better or worse than the other, and all loan programs were created to provide opportunities for the vast difference in financial profiles and pictures of today’s consumers. Understanding what program will best fit your short-term and long-term financial goals and, most importantly, your financial picture is essential. One loan program might be highly beneficial to one borrower’s profile, while that same loan program might be detrimental to another borrower’s profile. In a nutshell, it’s about the financial profile, not the loan type or program.
3. Is a down payment required?
Inquiring about your downpayment is always intelligent. Some loan programs or types, such as the VA loan, do not require a down payment. A handful of government loan programs will allow for limited to zero down payment options. There are also a lot of benefits available through your home state where you live. States tend to compete against conditions for the population. Some states offer benefits and advantages to buying a home.
4. What should my credit score be?
It would help if you viewed your credit score as you would view your health. You don’t live your life to be in a specific health position. You work daily to make conscious decisions on what would continue you down a road to physical or mental health. Your financial health is just as important. Minimum credit scores can range from 580 to 620, but several actions can help to continuously improve that financial health and focus on increasing the credit score.
5. How much will my loan cost me out of pocket?
Understanding your preparation for a home purchase is vital! There are some specific hard costs associated with purchasing or refinancing a home. The good news is there’s a lot of flexibility on who can cover those fees. The average hard price to execute a real estate transaction is roughly 3 to $4000. It is customary to have a seller pay this, especially as an incentive to purchase a specific home. In addition to the actual hard cost of executing a loan transaction, you also have other third-party costs for taxes and insurance. The taxes and insurance roughly cost 1% of the home value and are paid at closing time. The seller can also cover these additional costs as negotiated into the contract, or the lender can offer credit to help offset these costs.
6. What is Mortgage Insurance? Do I need it?
Mortgage insurance is there to protect the lender. On a VA loan, the good news is there is no mortgage insurance. Any time you put less than 20% down on a conventional loan, you will have to deal with mortgage insurance. I say deal with mortgage insurance because there are several ways to handle this required charge. Some options could be having the seller pay for it upfront, rolling some of it into the loan amount, or spending it in part of your monthly payment.
7. What Is the Loan Estimate?
A loan estimate is a standardized document that all lenders use to communicate the details of a loan transaction from the interest rate, closing cost, taxes and insurance, monthly payment, and most importantly, if any cash is due at closing. The loan estimate is a detailed, standardized document that communicates all this information in the same format so that while a consumer is shopping from one lender to the next, they are not confused with having documents in different forms. This practice was implemented after the 2008 financial crisis. There was a lot of emphasis on how a lender communicates these crucial figures to a consumer. It was determined that having a standardized form that is the same form for every single lender helps the borrower identify if a lender is competitive or not.