What to expect when buying a home:
First Time Home Buyer Guide
When a homebuyer is pre-qualified, he or she has provided the lender with the basic information to determine which loan program the homebuyer may qualify for. Whereas, when a homebuyer is pre-approved, the lender has collected, verified and presented the information needed for underwriting and approval.
Your interest rate is the monthly cost you pay on the unpaid balance of your home loan. An Annual Percentage Rate (APR) includes both your interest rate and any additional cost or prepaid finance charges such as the origination fee, points, private mortgage insurance, underwriting and processing fees (your actual fees may not include all of these items). While your interest rate is the rate at which you will make your monthly mortgage payments, the APR is a universal measurement that can assist you in comparing the cost of mortgage loans offered by different mortgage lenders.
Closing costs include items like appraisal fees, title insurance fees, attorney fees, pre-paid interest and documentation fees. These items are usually different for each customer due to differences in the type of mortgage, the property location and other factors. You will receive a good faith estimate of your closing costs in advance of your closing date for your review.
If you have a fully amortizing mortgage, portions of your monthly mortgage payment go toward loan principal and interest. Interest-only mortgage payments include only the interest that is due on the outstanding principal balance. If your mortgage carries mortgage insurance, a portion of your monthly mortgage payment will pay this also, unless the lender has paid your mortgage insurance or you have paid your mortgage insurance upfront. If you have set up an escrow account for your mortgage, then portions also go toward your property taxes and homeowners insurance.
Private Mortgage Insurance is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Private Mortgage Insurance is generally required for a loan with an initial loan to value (LTV) percentage in excess of 80%. In most cases, this will mean that you will have to pay Private Mortgage Insurance if your down payment is less than 20% of the value of the home you are purchasing or refinancing. The cost of the mortgage insurance is typically added to the monthly mortgage payment.
Absolutely. PRMI provides a variety of options to lock in your interest rate. Locking your rate means that the lender is agreeing to provide you with your mortgage at that particular rate, and that it won’t go up (or down) between the time you lock it and the time that you close on your home. If your mortgage is fixed-rate, your interest rate will remain the same throughout the life of the loan. Mortgage interest rates fluctuate constantly, and you don’t want to start shopping for a house operating under a certain interest rate assumption, only to be unpleasantly surprised that interest rates have risen during your house hunt.
Rates are based on a variety of factors such as the loan purpose, your credit history and ability to repay, the value of the collateral and the loan amount.
FHA loans are government-insured loans through the U.S. Department of Housing and Urban Development, also called HUD. FHA loans offer an excellent start to first-time home buyers, with options such as a low down payment or a low closing cost option.
- Low down payment is required
- Your own personal savings are not required to pay down payment or closing costs. Gift funds may be used instead
- You can buy an existing home, or build a new one
- Some geographic limitations apply
An escrow account is a separate account that holds funds for the purpose of paying bills such as homeowner’s insurance and property taxes. The lender collects the funds to be deposited into the account each month along with your monthly payment and then pays the bills for you when they come due. By taking the annual amounts charged for homeowner’s insurance, property taxes and other annually paid items and dividing them by 12, a payment amount is determined and is added to your monthly principal and interest payment. Spreading the cost of these expenses over 12 months makes it easier for you to budget those expenses and you won’t have to come up with additional cash when bills are due. For some loans, escrow accounts are a requirement.
Your mortgage payment due date is listed on your monthly billing statement or coupon. A late charge is assessed if the payment has not been received and processed by the date noted. It is very important that you establish and maintain good credit by making sure your payment reaches us by the due date each month. Late payments can affect your credit record
Home Buyers Guide from Prequalification to Closing
Throughout the home buying process, your Loan Officer will be with you every step of the way. To start, your Loan Officer will let you know exactly what documentation is needed to proceed. These are records such as paystubs, tax returns and your credit report. Your loan officer also will provide some documents that you will need to complete and sign. With this information, your Loan Officer will pre-qualify you, giving you an idea of how much home you can afford. This first step is important, setting the platform for the rest of the home buying process by granting you negotiating power with potential sellers as you search for the perfect home.
After pre-qualification, you will move forward in searching for the home of your dreams. Most home buyers will do so with the help of a real estate professional, who will show you homes that meet your personal requirements within the price range determined during the pre-qualification process.
Congratulations, you have found the house you wish to buy! Next, you must make a written offer. The seller may accept your offer outright or there may be some nego tiating involved. Once the seller accepts the offer, it becomes a legally binding purchase agreement.
Once you have made a legally binding purchase agreement, you are able to apply for your mortgage loan. You will need to prove your identity, document your income and assets, and show that you are able to repay your mortgage. Required documentation includes:
- Pay stubs and W2’s
- Tax returns (if applicable)
- Investment and retirement income documentation
- Bank statements
- Purchase agreement
When all documentation has been verified and your application has been approved, you will then decide on the interest rate and terms of your mortgage.
After the underwriter approves the loan, your Loan Officer will schedule the closing during which you will sign all final paperwork to complete the loan transaction. The closing will be scheduled at a time and place convenient for you. During this final phase, you’ll have plenty of documents to review and sign. The closing attorney will go over all of them with you and answer all of your questions.
Many other lenders use different loan processes. Primary Residential Mortgage has decades of experience that have helped us refine our process to ensure an excellent and smooth experience. Thank you for choosing us for your mortgage needs. We are eager to help you every step of the way.