How do I know which type of loan is best for me?
Your financial goals, income, and expenses are the factors a loan officer would use to determine the best loan product for you. Some people need the low initial monthly payment of an adjustable-rate mortgage, or "ARM," so that they can get more house for their money. Others like the stability of a fixed-rate loan.
How important is your credit report?
You don't have to have perfect credit to obtain a mortgage loan, but if you have a number of late payments you will need to provide a letter explaining why those payments were late. It is a good idea to check your credit score several months before you apply for your loan.
What is PITI?
PITI stands for Principal, Interest, Taxes, and Insurance. It is the total amount you pay each month to your lender, including your principal and interest on the mortgage, real estate taxes, and homeowners insurance. If you are paying private mortgage insurance or condominium/co-op association fees, these monthly payments are included in the PITI amount.
What are closing costs?
Closing costs are all the charges associated with the transaction, including points, origination fee, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, charges for credit reports, escrow fees, attorney's fee, and documentary stamps on notes. Closing costs range from 2-6% of the loan amount.
What is private mortgage insurance?
If your down payment is less than 20%, most lenders require you to carry private mortgage insurance (PMI). Private mortgage insurance provides assurance that if you default on your payments, the lender will be able to recoup at least 80% of the money lent to the borrower. The buyer typically bears the cost of the PMI insurance for the lender.
What are Fannie Mae and Freddie Mac? Are they programs?
Both Fannie Mae, or the Federal National Mortgage Association, and Freddie Mac, or the Federal Home Loan Mortgage Corporation, are private, shareholder-owned companies that offer financial products and services for low-, moderate-, and middle-income homeowners. They are NOT part of the government, but they do have federal charters, Congressional mandates, and regulatory structure. Competition between Freddie Mac and Fannie Mae ensures that the benefits of the secondary market are passed on to homebuyers and renters through lower housing costs.
What are Conforming and Non-Conforming Loans?
Conventional Loans are divided between two types: Conforming and Non-Conforming. Conforming Loans are typically given to borrowers with higher credit scores than are Non-Conforming Loans. Conforming Loans also are generally "Fannie Mae" or "Freddie Mac" loans.
What are FHA Loans?
For many first time buyers, the Federal Housing Administration (FHA) is a program for people who have no credit history, or, if you do have a credit history, it does not need to be perfect. You can get an FHA loan with a 3% down payment, which can come from yourself, your immediate family, or even a special non-profit program that "donates" your 3%. Also, the seller can contribute up to 6% of the sale of a home, which could mean buying a home with no money down. Ask about the OWN Program, one of the non-profit down-payment assistance programs 1st Choice Mortgage offers.
What are VA Loans?
Veteran's Administration (VA) loans offer many advantages over other types of loans. Most importantly, no down payment is required in most cases. Also, there is no monthly mortgage insurance premium to pay. VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties.
What is a Fixed rate?
A Fixed Rate Mortgage requires a monthly payment amount that never changes over the life of the loan.
What is an Adjustable-Rate Mortgage, or ARM?
ARMs start out with smaller payments, good for people who anticipate moving fairly quickly, or who are starting their careers and believe they will be increasing their income shortly.
What are No Doc Loans?
No Doc, or No Documentation Loans are beneficial for self-employed individuals, contractors, and wait service staff. No Doc Loans require that no employment, income, or assets be stated on an application. These loans are usually offered at higher rates than many other loan options.