Why do you need an appraisal of the home before you get your mortgage approved?
How do appraisers determine the fair market value of a property?
What happened if I get my mortgage from another lender after the appraisal is done?
How much money do I have to put down as a down payment?
How do I determine how much money I can borrow with a mortgage?
Is it better for me to be pre-approved for a mortgage?
Should I use a real estate agent when looking for a home?
How much interest will I pay on my mortgage?
What does it mean to lock in an interest rate?
What are the different types of mortgages and how do they work?
Can I refinance my mortgage?
How does home equity work?
What are closing costs of a mortgage?
Should I deal with a mortgage broker?
Why do you need an appraisal of the home before you get your mortgage approved?
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The lender requires an appraisal of any property for which you apply for a mortgage to make sure that its value is equal to or greater than the amount of money you wish to borrow. The value is called fair market value meaning that the property is selling for a reasonable amount based on the current market conditions. You need to have a certified appraiser do the work and the lender will usually have one that they can recommend to you.
How do appraisers determine the fair market value of a property?
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Appraisers generally use a sales comparison approach to determine the fair market value of the property you wish to purchase. This is comparing the price of the property with that of the prices for which similar properties have sold for in the same area.
What happened if I get my mortgage from another lender after the appraisal is done?
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Usually lenders will accept current appraisals by certified appraisers that have been done for another mortgage provider within a reasonable length of time.
How much money do I have to put down as a down payment?
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The amount of money required as a down payment depends on the type of mortgage program you want. Usually lenders require 20% of the total mortgage as a down payment to avoid private mortgage insurance (PMI). However, there are programs you might qualify for that require vary little or no money up front. These include:
- Zero Down Mortgage. If you qualify, there are a variety of mortgage programs, including ones for veterans of the armed forces, that do not require a down payment.
- Low Down Payment Mortgage. Most lenders have programs that allow you to purchase a home with as little as 2 – 5% down. These types of programs have more stringent standards for qualification than a standard 20% down payment program.
- Piggy Back Loans. These let you put less than 20% down by taking out two loans. You borrow 80% of the appraised value or purchase price, whichever is lower, with a first mortgage and the remainder with a 2nd mortgage or home equity line of credit.
How do I determine how much money I can borrow with a mortgage?
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In order to avoid the disappointment of choosing the home you want to buy and then finding out that you don’t qualify for that much of a mortgage, you have to look at your income and expenses. When you total up all your expenses, including groceries, clothing and entertainment, you subtract that ammount from your income. This lets you know how much of a monthly payment you can afford. If you are currently paying rent, so not include the rent in the expenses, since your rent will be replaced by your mortgage payment. It is best to check with a mortgage professional to determine how much you can qualify for and/or afford. They can provide you with a pre-approval letter.
Is it better for me to be pre-approved for a mortgage?
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If you have been pre-approved for a mortgage, you know exactly what price range you can shop within for a home. Once you are pre-approved it makes it easier to get a real estate agent to work with you to find the home you want. Most real estate agents will not put a lot of effort into working with you if you are not pre-approved because they don’t know if you are really serious about buying or if you will get the mortgage from the lender.
Should I use a real estate agent when looking for a home?
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A real estate agent will actively try to find a home that suits your taste and budget. He/she will search through the listings and make arrangements for you to view the home. Although you can spend hours searching through the listings of homes for sale, you may have difficulty making appointments to see what they look like inside without a real estate agent.
How much interest will I pay on my mortgage?
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The amount of interest you pay depends on the amount of money you borrow. It also depends on the market conditions at the time. You can choose to have a fixed rate loan where the rate of interest is set at the time you sign the mortgage papers and never changes. The term of the mortgage can vary anywhere from 10 years to 40 years. Each month a portion of your payment goes toward reducing the mortgage balance and a portion is interest paid on the remaining balance. As time goes on, each month a larger portion goes toward reducing the mortgage balance and a smaller portion is interest. The rate will not change for the term you choose, usually five years, even though you have the mortgage for 25 years. At the end of the five year term, you renew the mortgage rate and the interest rate may be higher or lower. A variable rate mortgage means that the interest rate fluctuates each month. You have a base amount that you have to pay on the mortgage, plus the interest rate, which will vary each month. When interest rates are high, many homeowners choose this route, so they can lock in at a lower rate when it decreases. However, it does make it difficult to budget because of the differing payments each month.
What does it mean to lock in an interest rate?
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When you lock an interest rate you are protecting yourself against changing mortgage rates during the application and approval process. You lock a rate for a period of time and you must complete the approval process and close your loan within the lock period. If you are unable to close your mortgage before your rate lock period expires, you could be subject to a different interest rate than you initially locked. Prior to locking a loan you should have your mortgage provider explain the terms of the mortgage lock they are providing and what happens if they are unable to close the loan within the lock period. Each mortgage provider can have a different policy regarding locking an interest rate. By locking a loan you can protect yourself from rising interest rates but you can also lose out if interest rates drop during the lock period. Some lenders may offer a float-down option that will allow you to lower your locked interest rate if the opportunity presents itself. Make sure you receive written documentation that details the terms of your rate lock.
What are the different types of mortgages and how do they work?
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The different types of mortgages are:
- Balloon mortgages. With this type of loan the payments and interest rate is fixed for a 35 year term, but you actually have to pay the mortgage off in full in five or seven years.
- Bi-Weekly payments. You save money on the interest with a bi-weekly payment mortgage because you make 26 payments a year instead of 24. The payments are lower so they can fit into your budget easier.
- FHA loans. The Federal Housing Administration does not provide you with the mortgage, but it does guarantee the loan, making it easier for you to obtain a mortgage.
Can I refinance my mortgage?
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Most homeowners refinance their mortgage at various times during the life of the mortgage. You can refinance the mortgage for a variety of reasons including debt consolidation, for home improvements, to reduce your monthly payment resulting from lower interest rates or to pay for college tuition or other financial needs that you might have.Refinancing will extend the length of time it will take you to pay off your mortgage and could increase the amount you owe and your monthly payment.
How does a home equity loan work?
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A home equity loan typically is taken out in addition to a first mortgage. The terms of a home equity loan can vary from lender to lender. Often a home equity loan is useful when you want to borrower money at various times and don’t want to pay interest unless you are using the money. A home equity line of credit allows you to borrow up to a pre-set limit and you only make interest and/or principal payments when you borrow from the equity line. You usually are given checks that you can use for any purpose and your repayment period begins when the check is cleared through your account.
What are closing costs of a mortgage?
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In addition to the mortgage itself, there are costs involved in getting the paper work completed. These include lawyer’s fees, title insurance on the loan, a title search and other charges that are incurred in the processing of obtaining your mortgage. In addition to these costs, you might have to pay home owner's insurance as well as property taxes.
Should I deal with a mortgage broker?
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Mortgage brokers typically have access to many more lenders than banks. A mortgage broker takes your application and can determine which lender has the best offering for you. They are able to provide several options to you and the actual lender for each option can be different. This can offer you greater access to mortgage options than if you were working with one bank with limited sources of mortgage programs.