February 27, 2018
Savvy + Co Gainesville and FBC Mortgage talk about Home Loans!
Purchasing a home, for most people will be the biggest investment they ever make. It can be fun and exciting… but it can also be scary and stressful. When it comes to the financing, buyers can get overwhelmed by choices and details. Talking these over with a Lender is, of course, a great way to get informed and feeling confident about choosing a loan that’s best for you. We understand, here at Savvy + Company, that sometimes buyers feel like they don’t know what to ask, especially if you’re buying a home for the first time. Don’t worry. We took the liberty of sitting down with one of our favorite Loan Originators, Kaity Ostrowsky, from FBC Mortgage and asking the questions for you!
1. So, in a nutshell, what are the most common different types of loans that buyers can use to help finance their new home?
Conventional, FHA, VA and USDA
2.How does a buyer know if they want to use conventional or FHA?
A knowledgeable lender will be able to let a Buyer know which loan program is in their best financial interest. FHA loans are a little easier for Buyers to be pre-approved for new financing, especially if the Buyer has lower credit score and/or higher debt ratios. Conventional financing is worth comparing, if a buyer has a credit score of 680 or higher.
3. If a prospective buyer has fair or even poor credit, are there still options available for them to finance a home?
I would definitely advise a consultation with a knowledgeable lender about options in being pre-approved for new mortgage financing. If a prospective Buyer is unsure about their credit scores, the lender can review the credit history and scores of all 3 major credit bureaus and provide advice on how to improve credit scores and/or discuss items that need to be updated or addressed prior to considering a home purchase. Creating a future plan for a home purchase is part of a mortgage banker’s expertise.
4. When is the interest rate set?
The Interest rate can be locked in after a Purchase Contract is signed. Your loan officer can lock in your rate with a quick phone call and help you make the decision about locking in your rate. I would always recommend locking in your interest rate as quickly as possible to avoid any unwanted rises in interest rates. Interest rates fluctuate daily and sometimes intraday with the U.S. markets and Global Markets.
5. Does the buyer have to have a down payment saved up or can they get a loan for that?
The down payment on a new home purchase must be documented funds in your checking, savings, or investment accounts. Borrowed funds may be an option, if the funds are borrowed against an asset that you own such as a car, home, or retirement account. You would want to discuss this option in full detail with your mortgage banker before considering these funds for a down payment. Another option for your down payment is Gift Funds. Gift Funds from a relative are an acceptable source of funds for your down payment in most all loans.
6. How much does the down payment need to be?
Down payment percentages depend on the loan program selected. For instance, VA loans for Veterans and USDA loans allow for little to no down payments. First time homebuyers can put down as little as a 3% down payment. A larger down payment, such as a 20% down payment can save you money to avoid a monthly added mortgage insurance payment in your new monthly mortgage payment. Discussing your options for down payments is something you would want to discuss in detail with your loan office/mortgage banker.
7. What is an ARM?
An Adjustable Rate Mortgage is a loan that adjusts at different time periods over the life of the loan. It is based on set timeframes and market indexes and margins. For Instance, a 5/1 ARM will have an initial interest rate that will stay the same for the first 5 years. After 5 years, it will adjust annually for the remaining 25 years of the loan. You would want to discuss the pros and cons and be sure you knew the maximum adjustment your payment could increase before selecting one of these loan programs.
8. Does the buyer get to choose if their mortgage is fixed rate or adjustable rate mortgage?
9. Some of our first time home buyers get interested in buying a home that is a “fixer-upper”. Is there a certain loan that works best for them?
Yes, there are several type of renovation loans available to buyers, but not all lenders offer a renovation program. These programs would require that you work with a licensed contractor to complete the renovations, as they are not designed for a buyer to complete the work themselves.
10. What is a PMI and when does it apply?
Private Mortgage Insurance applies when you have a Conventional Loan and have not put a 20% down payment. This is an added insurance premium that is added to your monthly mortgage payment and protects the lender against default. You may be able to eliminate the monthly mortgage insurance premium when you have 20% equity in the home. FHA loans carry MIP which is also mortgage insurance. The MIP stays on the loan for the life of the loan for FHA financing.
11. What is an Underwriter?The loan officer will advise a Buyer of their best loan program for their new mortgage financing. They will inform the borrower of the financial documents they will need for the loan approval. Once they have the necessary documentation, the underwriter will review the information and provide a final loan approval. If the underwriter determines there is any information missing in order to approve the loan, they will communicate it to the Loan Officer. The Loan Officer will then contact the Buyer to obtain this information. Once the underwriter has approved a loan, a Buyer is ready to close on their new home.
12. How should a buyer figure out what price range to shop for when house hunting?
The best way to determine the price range a Buyer should be considering is to schedule a time to speak to their recommended Loan Officer or Mortgage Banker. They are trained to determine the maximum sales price and loan program a Buyer should consider for their new home purchase. A buyer will need to have their last 2 years tax returns, last 30 days pay stubs, and most recent 2 months bank statements available to provide the best information for their pre-qualification. They will also be able to show a Buyer exactly what payment should be expected for the anticipated price range a Buyer should consider before they begin their house selection.
13. What is included in closing costs when using a lender?
Buyers and Sellers have Closing Costs when purchasing and selling a home. The lender will have fees to process and approve a loan, as well as, fees for items such as an appraisal, survey, title insurance, state taxes and recording fees. Your lender can provide an estimated cost breakdown for you.
14.Who qualifies for a Reverse Mortgage?
To qualify for a Reverse Mortgage you have to be 62 years or older. A Reverse Mortgage could be helpful for retirees with limited income. I would recommend only speaking to a certified Reverse Mortgage Specialist who offers the HUD insured Reverse Mortgage.
15. Who qualifies for VA loans?
Most Veterans and members of the Military & National Guard are eligible, as well as, surviving spouses of military members who have died while on active duty or as a result of their service. Please check with the VA or a knowledgeable lender to determine if you meet all of the requirements for a VA loan with a -0- down payment.
16. How does a buyer typically find a lender?
Your Realtor will have the best knowledge of local lenders that provide excellent service and have a great reputation for their expertise and financial guidance. It may be tempting to utilize an online lender. But, buying a home may be the most expensive item you will ever purchase and finance. You must work with an expert who you trust to guide you during this process.