Considerations & Questions
5 Things to Consider Before Financing Your Home
Financing a home includes many facets. To lower your total mortgage costs, select the terms tailored to your individual needs. Discuss your goals with the experts at Pierremont Mortgage today, and discover the options.
What is your budget for the sales price or monthly mortgage payment? Pierremont Mortgage can assist you in determining the cost of the home and subsequent loan amount matching your budget. You may qualify for a much larger mortgage and payment than you have considered for your new home, but it helps to know your personal budget in advance.
What funds are available for the purchase of your home? Funds may be obtained from the sale of your present home, savings, checking, or retirement accounts, or possibly a gift from family. Although some mortgages do not require a down payment, you may prefer to make either a minimum or larger down payment. Always consider closing costs (costs to obtain financing), and prepaid items (homeowner’s insurance and property taxes) when budgeting. You also may negotiate with the seller to pay all or a portion of these closing costs and prepaid items. Approximating your available funds will help you and Pierremont Mortgage review the best loan options and make an informed choice.
Where are you shopping for a home? For the most accurate total mortgage payment and cost estimate, the general location of your new home should be determined.
Are you eligible for specific types of loans? Do you have military service that offers VA eligibility benefits? You may be eligible for a VA loan in Shreveport. Are you searching for a home in a rural area? You could be eligible for a USDA-Rural Development mortgage.
What are your long term plans for this mortgage? This estimated length of ownership affects the type and term of the mortgage you choose and factors into the calculation of your total cost during the life of the loan.
In the PreApproval process, Pierremont Mortgage assists you in choosing the most beneficial details of your mortgage. Interest rates are important in shopping for a mortgage; but selecting a mortgage with the terms specific to your needs will save you money over the life of the loan.
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Which Mortgage Type is Best for Me?
There are many options available when designing your mortgage. The approval criteria may differ as well as the rates, mortgage insurance requirements, and eligibility. Collaborating with Pierremont Mortgage to help you choose the best options for your individual needs and financial goals is the smart choice.
Conventional Loans
Conventional loans typically require a minimum down payment of at least 3 – 5%. With down payments of less than 20%, mortgage insurance is required and is usually included in the monthly payment until the loan balance equals 78% of the sales price.
FHA
Federal Housing Administration is a division of the Department of Housing and Urban Development (HUD). An FHA loan requires a minimum down payment of 3.5%. An FHA loan is typically quoted with a lower interest rate than conventional mortgages, but requires both a financed upfront mortgage insurance premium and monthly mortgage insurance premiums. The approval guidelines are slightly more flexible concerning credit scores and debt ratios.
VA
The Department of Veterans Affairs offers a benefit to both past and present eligible military members. The VA loan does not require a down payment. The VA loan includes a Funding Fee for guaranty, and is typically financed in the loan. Monthly mortgage insurance is not required for a VA Loan.
USDA/RD
The Rural Development loan is guaranteed by the Department of Agriculture and offers financing for eligible rural properties. This loan does not require a down payment, but maximum income limits apply. The RD program includes an affordable upfront Guarantee Fee financed in the loan and a monthly Guarantee Fee paid throughout the life of the loan.
Term
The length of your mortgage may vary from 10 to 30 years. The shorter term mortgage allows interest savings by paying off your mortgage in a shorter period and typically at a lower interest rate. However, a mortgage with a longer term option offers lower monthly payments.
Fixed or Adjustable
Due to a low mortgage interest rate market, the majority of mortgages have fixed interest rates. However, adjustable interest rate and hybrid mortgage loans are also available. A hybrid loan offers a rate that is fixed for a short period of time, and the interest rate adjusts annually thereafter. An Adjustable Rate Mortgage (ARM) loan begins with a slightly lower rate the first year and, based on market fluctuations, adjusts annually thereafter.
What Costs Can I Expect to Pay?
When financing a home, interest is a loan expense paid monthly, but there are other expenses due at closing, including Down Payment, Closing Costs and Prepaid Items. If a down payment is required, it is paid by the buyer. Alternatively, the payment of closing costs and prepaid items is negotiable between the buyer and seller. As you narrow your search for your home, requesting an updated financing proposal will fully prepare you for negotiation with the seller. A better understanding of the costs follows.
Down Payment
The minimum requirements vary with the type of loan program chosen. Some mortgages such as the Rural Development loan or the Veterans Administration loan do not require a down payment. An FHA mortgage requires a minimum down payment of 3.5% of the sales price, whereas Conventional financing typically requires 3-5% of the sales price for down payment.
Closing Costs and Prepaid Items
Closing Costs are the costs paid to vendors to confirm the market value, condition, and ownership of your new home. Approach closing with confidence by knowing the value of homes in the local market, the condition of your new home, the status of the current flood zone for your home, and the transfer of ownership at closing has been properly completed. Beware that closing costs may vary by lenders as additional fees may be imposed.
Prepaid Items are expenses of owning real estate, and are a prepayment of your annual property taxes, annual homeowner’s insurance, and annual flood insurance if required by FEMA. Prepaid items may also include establishing your tax and insurance escrow for annual expenses.
Mortgage Interest
The interest rate varies depending on your loan type, down payment option, credit score, mortgage insurance options, and more. The total borrower cost is reflected in the Annual Percentage Rate (APR) provided by the lender. The APR is different from the quoted interest rate because the APR includes all costs of the credit paid by the buyer and averaged over the life of the loan. Knowing the APR helps when comparing mortgage options and loan programs.