Frequently Asked Questions Regarding Home Purchases
Here are answers to the questions that first-time homebuyers most frequently ask us:
Should I buy a home vs. renting?
Renting has advantages for most people at some point in their lives. This is especially true when you are starting out on your own as a young, single adult. But at some point, home ownership becomes the right choice.
For many, home ownership is not only a great source of pride, but can mean significant tax savings. Interest paid on your mortgage loan is tax deductible, which can mean huge savings on your taxes. This is especially true in the early stages of home ownership, when you are paying the most interest. Another big bonus to home ownership is that, unlike rent (which disappears each month), your mortgage payment goes toward your equity in the home. Your home equity works like an emergency line of credit -- you can tap into it if you need to make home improvements, pay off other, higher interest bills, or in case of unexpected expenses. If you decide you want to move after a few years, you have not lost anything. When your home sells, you walk away with the equity you have invested over your time in the home. That equity can be applied toward your next home as a down payment.
What is a mortgage pre-approval vs. pre-qualification?
When you are pre-approved for a mortgage, it means a lender has looked closely at both your credit report and your income and determined that you qualify for a loan. The lender will tell you the maximum amount of loan it will make, which loan programs you qualify for, and will discuss the interest rates it will offer for different types of loans. When you are pre-approved you can go shopping for a home with confidence about your buying power. Loan pre-qualification does not typically include an analysis of your credit report or an in-depth look at your true ability to buy a home. You can be pre-qualified by a lender, by a real estate agent or you can do it yourself. The term means that someone has taken a general look at your income and expenses and plugged them in to a debt-to-income ratio formula. Pre-qualifying yourself before you start looking for a home gives you a general idea of the price range you can afford.
How much do I need for a down payment?
How much of a down payment you're required to make will depend in part on the type of mortgage you apply for. Some first-time homebuyer programs require as little as 3 percent of the selling price of the property as a down payment. Generally speaking, most conventional lenders want a minimum of 5 percent. To avoid having to purchase private mortgage insurance (PMI), you'll need a down payment of at least 20 percent of the home's selling price.
What is a Good Faith Estimate?
A Good Faith Estimate is a disclosure required under the Real Estate Settlement Procedures Act (RESPA) that must be given to all mortgage loan applicants at the time of application. The disclosure is an estimate of all settlement charges likely to be incurred at closing.
What is a rate lock?
A rate lock is a commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.
What is PMI?
Private Mortgage Insurance protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price.
What are points?
Points are mortgage interest fees paid up front. This one-time fee reduces the initial interest rate on your home loan. Points are a percentage of your loan amount, with one point being equal to one percent of your loan. If you are purchasing a home, the amount of your points is generally deductible in the year you buy. This is true even if the seller is paying for them. Keep this in mind while buying a new home.
What are closing costs?
Costs associated with the purchase of a home that must be paid at the sale closing. This may include (but not limited to) attorneys fees, fees for preparing and filing a mortgage, fees for title search, taxes, and insurance. Closing costs usually are about 3 percent to 6 percent of the mortgage amount.
How Do I Apply?
You can apply over the telephone, via mail or in person. You can also request more information or begin a consultation with no obligation, on our website. A loan officer will be available to assist you so that completing the application takes very little of your time. We are open extended weekday and weekend hours to make it easier and more convenient for you to complete the information.
Where Does the Closing Take Place?
Mortgage Network utilizes closing attorneys and title companies located in each of the states where we conduct business. The closing location and time are established between the borrower and the closing agent at a time and place that’s mutually convenient.
For any additional mortgage questions, please contact one our knowledgeable professionals.