Financing

Buying your new home

Buying your new home has many benefits. You’ll become part of a community, experience the security of owning the roof over your head, and have the opportunity to create a home that meets your needs and style.

Your first time homebuyer benefits can include the following:

  • Build home equity – Unlike rent, the principal portion of every mortgage payment you make has the potential to grow your asset.
  • Gain potential tax benefits – Your mortgage interest and real estate property taxes are typically tax deductible when you file your income tax returns.
  • Build your credit – Making on-time mortgage payments can help you create and maintain a strong credit history.
  • Take control – Rent increases, cancelled leases and other unexpected tenant hassles will be thing of the past.

 

Basics to understand about home mortgage loans

Knowing what to expect when obtaining a home mortgage loan can make purchasing and financing your new home a very enjoyable experience. Below are some terms that you should familiarize yourself with.

  • Interest Rate – The interest rate is the percentage of the loan amount that is charged to borrow money for your new home. Interest rates are based on current market conditions, your credit score, down payment, and type of mortgage that you choose.
  • Origination charge – This charge covers items such as fees, document preparation, underwriting costs and other charges.
  •  Loan term – Your loan term is the amount of time you have to pay off your mortgage balance. Shorter loan terms typically have larger payments but lower interest rates.
  • Debt –to- Income ratio – The percentage of your monthly income that is spent on monthly debt payments. Debt to income ratio is determined based on your expected monthly mortgage payment (principal, interest, taxes and insurance) plus your other monthly debt obligations such as credit card and car payments. This is based on your gross ( pre-tax) earnings.

 

Understanding your monthly payment

Your monthly payment is typically made up of four parts.

  • Principal – The amount of money you borrowed
  • Interest – The cost to borrow the money
  • Taxes – Property taxes are charged by your local government. Typically these are included in your monthly payment and held in an escrow account that are paid on your behalf when due.
  • Insurance – All mortgage loans require that you are covered by hazard insurance. Insurance costs are typically collected and held in an escrow account and paid on your behalf when due.

Components that are evaluated during the application process

There are certain components that are evaluated on your mortgage application.

  • Income – Reliable, continuous income is required to make monthly payments. Income can come from primary, second and part- time jobs, as well as overtime, bonuses and commission.  Other sources of income can be considered as well, such as retirement or veteran’s benefits, disability,, alimony, child support and rental or investment income. All income must be stable, reliable and likely to continue for a minimum of three years.
  • Current debts and credit history – Bills, loans, credit cards and other debts must have been paid in a timely fashion.  Your credit score and history will be reviewed prior to making a decision.
  • Assets and available funds – You must have enough funds on hand for the down payment and closing costs. You may use funds from savings accounts, certificates of deposit, investments, and retirement funds. In some cases you may be able to utilize cash gifts from relatives, friends, employer, or not-for–profit organization. IN some cases you may be asked to have additional funds in your account to cover several months of mortgage, tax and insurance payments.

 

What to expect when applying for a home mortgage loan

Applying for a mortgage is not a difficult process. Below is what to expect so you can better prepare yourself for the process.

  • Income Documentation – Lenders typically require at least 30 days of pay-stubs for all borrowers. In addition, you will be required to submit your last two years of W-2 forms
  • Asset Documentation – Lenders typically require your last 60 days of bank statements. Explanation is usually required for any unusually large deposits. Quarterly statements on all retirement accounts are requires as well.
  • Credit scores – Minimum credit scores are required to secure a home mortgage loan. These many vary based on lender.
  • Verbal verification of employment – Within 3-7 days of closing, most lenders will call to verify that you are still employed. Lenders are also verifying that you still maintain the same or higher income based on your mortgage application.