Jennifer Lee Mazeika

GRI, ABR

“Home is where your story begins, I’ll help you get there.”

Step One in Buying Your First Home

Mortgage loans and their descriptions can be boring. I know at least 3 mortgage lenders that I work with regularly that could explain Mortgage Loans better than me.  But I also know when anyone is first looking to own their own home, they might be a little intimidated by the whole process and need some guidance. One area that might look overwhelming and complex is — do I qualify for a mortgage and which one is right for me?  What do I need to get the process started? Is my credit going to be a problem?  How much money do I need to have saved?

Hopefully, these are all questions any potential homebuyer is asking before they start searching for their new home.  Because some of the best advice I can give you is  – – get qualified for a mortgage before you start looking.

Getting pre-qualified for a mortgage helps you in the following ways:

  1. By knowing how much your mortgage payment could be each month, you can set a budget for your new home.
  2. In going through the mortgage application process, you will have identified any problems you might have with your credit score, employment status, and other important financial information. You will have saved valuable time that you might need when making an offer on your dream home that other potential buyers are interested in.
  3. By being “pre-qualified” for a mortgage, sellers will consider your offer more seriously.

Below is an article from Zillow.com that I sharing with you so that you will be better informed when you sit down with your Mortgage Lender.

A Home Buyer’s Guide – Mortgage Basics

Just as homes come in different styles and price ranges, so do the ways you can finance them. Figuring out what kind of mortgage works best for you requires a little research. There are many different loan types to choose from, and a great lender can walk you through all of your options, but you can start here by understanding these three main categories.

1. Fixed-rate loan or adjustable-rate loan

When deciding on a loan type, one of the main factors to consider is the type of interest rate you are comfortable with: fixed or adjustable. Here’s a look at each of these loan types, with pros and cons to consider.

Fixed-rate mortgages

This is the traditional workhorse mortgage. It gets paid off over a set amount of time (10, 15, 20 or 30 years) at a specific interest rate. A 30-year fixed is the most common. Market rates may rise and fall, but your interest rate won’t budge.

Why would you want a fixed-rate loan? One word: security. You won’t have to worry about a rising interest rate. Your monthly payments may fluctuate a bit with property tax and insurance rates, but they’ll be fairly stable. If rates drop significantly, you can always refinance. The shorter the loan term, the lower the interest rate. For example, a 15-year fixed will have a lower interest rate than a 30-year fixed.

Why wouldn’t you want a fixed rate? If you plan on moving in five or even 10 years, you may be better off with a lower adjustable rate. It’s the conservative choice for the long term, which means you will pay for the security it promises.

Adjustable-rate mortgages (ARMs)

You’ll get a lower initial interest rate compared to a fixed-rate mortgage but it won’t necessarily stay there. The interest rate fluctuates with an indexed rate plus a set margin. But don’t worry — you won’t be faced with huge monthly fluctuations. Adjustment intervals are predetermined and there are minimum and maximum rate caps to limit the size of the adjustment.

Why would you want an ARM? Lower rates are an immediate appeal. If you aren’t planning on staying in your home for long, or if you plan to refinance in the near term, an ARM is something you should consider. You can qualify for a higher loan amount with an ARM (due to the lower initial interest rate). Annual ARMs have historically outperformed fixed rate loans.

Why wouldn’t you want an ARM? You have to assume worst-case scenario here. Rates may increase after the adjustment period. If you don’t think you’ll save enough upfront to offset the future rate increase, or if you don’t want to risk having to refinance, think twice.

What should I look for? Look carefully at the frequency of adjustments. You’ll get a lower starting rate with more frequent adjustments but also more uncertainty. Check the payments at the upper limit of your cap and make sure you can afford them. Relying on a refinance to bail you out is a big risk.

Here are the types of ARMs offered:

  • 3/1 ARM: Your interest rate is set for 3 years then adjusts annually for 27 years.
  • 5/1 ARM: Your interest rate is set for 5 years then adjusts annually  for 25 years.
  • 7/1 ARM: Your interest rate is set for 7 years then adjusts annually for 23 years.
  • 10/1 ARM: Your interest rate is set for 10 years then adjusts annually for 20 years.

2. Conventional loan or government-backed loan

You’ll also want to consider whether you want — or qualify for — a government-backed loan. Any loan that’s not backed by the government is called a conventional loan. Here’s a look at the loan types backed by the government.

Federal Housing Administration (FHA) loans

FHA loans are mortgages insured by the Federal Housing Administration. These loans are designed for borrowers who can’t come up with a large down payment or have less-than-perfect credit, which makes it a popular choice for first-time home buyers. FHA loans allow for down payments as low as 3.5 percent and credit scores of 580 or higher. A credit score as low as 500 may be accepted with 10 percent down.

Because of the fees associated with FHA loans, you may be better off with a conventional loan, if you can qualify for it. The FHA requires an upfront mortgage insurance premium (MIP) as well as an annual mortgage insurance premium paid monthly. If you put less than 10 percent down, the MIP must be paid until the loan is paid in full or until you refinance into a non-FHA loan. Conventional loans, on the other hand, do not have the upfront fee, and the private mortgage insurance (PMI) required for loans with less than 20 percent down automatically falls off the loan when your loan-to-value reaches 78 percent.

Veterans Administration (VA) loans

This is a zero-down loan offered to qualifying veterans, active military and military families. The VA guarantees the loan for the lender, and the loan comes with benefits not seen with any other loan type. In most cases, you pay nothing down and you will never have to pay mortgage insurance. If you qualify for a VA loan, this is almost always the best choice.

USDA loans

USDA loans are backed by the United States Department of Agriculture (USDA) and are designed to help low- or moderate-income people buy, repair or renovate a home in rural areas. Some suburban areas qualify, too. If you are eligible for a a USDA loan, you can purchase a home with no down payment and get below-market mortgage rates.

3. Jumbo loan or conforming loan

The last thing to consider is whether you want a jumbo loan or conforming loan. Let’s take a look at the difference between the two.

A conforming loan is any home loan that follows Fannie Mae and Freddie Mac’s conforming guidelines. These guidelines include credit, income, assets requirements and loan amount. Currently the limit in most parts of the country is $417,000, but in certain designated high-price markets it can be as high as $938,250. Wondering if you’re in a high-cost county? Check online for high-cost counties in certain states.

Loans that exceed this amount are called jumbo loans. They’re also referred to as non-conforming mortgages. Why would you want a jumbo loan? The easiest answer is because it allows you to buy a higher-priced home, if you can afford it. But these loans have flexibility that conforming loans don’t have, such as not always requiring mortgage insurance when the down payment is less than 20 percent. Why wouldn’t you want a jumbo loan? Compared to conforming loans, interest rates will be higher. And they often require higher down payments and excellent credit, which can make them more difficult to qualify for.

Source for this article: Home Buyer’s Guide – Zillow.com

I would like to recommend that you contact any of the 3 locally Preferred Mortgage Lenders listed on my website. (see their link on my website’s sidebar.) Any one of them will be able to find a mortgage that fits your needs.

Don’t forget — for a free no-obligation consultation just call me at 540-537-2332 or email me at Jmazehomes4you@gmail.com.