Buying a home is an exciting experience that is also one of the largest financial decisions potential home-buyers will need to make. We’ve compiled the most common mortgage loan questions we receive from our members and asked one of our mortgage experts to provide answers in our new Ask a PFFCU Mortgage Expert post:
Ask a PFFCU Mortgage Expert
Q. When is the right time to purchase a home? Does it make sense to buy or rent?
A. There are several things to consider before you decide whether you should rent or own.
- How long do you plan to live in the area?
- Will your home life change in the next 5 years? (marriage, children etc.)
- What is your credit score?
- Are you in a secure career?
- How are you managing your overall debt vs your gross income?
- How much can you afford for a down payment & closing costs?
There are pros and cons to both renting and owning a home. Consider the above questions. If you like the community, have a stable career, plan for future life changes, and have your credit card debt under control, buying a home may be a more feasible option. This could save you money in the long run and build your equity and credit for your future.
If you are planning on traveling or moving in the upcoming years, haven’t found your dream job and are still working on paying down your debt, you may want to stick with renting and spend some time preparing your finances for that new home purchase in the future.
Q. What steps do I need to take to buy a home?
A. Steps needed to buy a home include:
- Apply for a pre-approval
- Search for your dream home, PFFCU now partnered with HomeAdvantage® helps you find a real estate agent, search properties, and more!
- Be up front and clear on your wants and demands
- Make a fair and educated bid based on pricing in the neighborhood, start low and move up, consult your realtor
- Inquire about a Home Warranty
- Calculate your down payment
- Decide if you want to pay points to lower your rate
- Find a qualified inspector to do a home inspection, attend the inspection and get a detailed report with any repair estimates
- Negotiate closing credits if any repairs need to be completed
- Have the property appraised
- Lock in your interest rate and terms
- Get a list of closing costs and review this with your lender
- Attend the closing, sign the contract and MOVE IN!
Q. Why is it important to get a pre-approval?
A. A mortgage pre-approval is important to give you a realistic estimate on what you can afford and what you will be qualified for. A pre-approval is typically good for four months, so you have plenty of time to search for your dream home. Once you have your pre-approval you can meet with a realtor and shop around for a house that fits within your budget and pre-qualifications.
Q. What is a “Rate Lock-in” or Rate Lock?
A. Rate lock-in, also known as rate lock, is an agreement between a borrower and a lender that guarantees a certain interest rate on a mortgage loan for a specified period of time.
Q. What are different types and terms of mortgage loans offered by PFFCU?
A. Mortgage loans offered by PFFCU include:
- Conventional – A conventional loan is one of the most common mortgage loans. It is not insured or guaranteed by the federal government. A conventional mortgage loan usually requires a higher credit score and lower DTI (Debt to Income) but can offer better rates and terms for those who qualify.
- Home Ready – The program allows you to put as little as 3% down, requires mortgage insurance with the ability to cancel when your home’s equity reaches 20%.
- 15yr vs 30yr – This number represents the length of years you have to pay back your mortgage loan. A 15-year term typically offers lower interest rates, however, the monthly payment is higher since the full amount is compressed over a shorter term. Each situation is different. If you can afford a higher monthly payment and need a lower interest, the 15-year term may be best for your situation. If you don’t mind paying a slightly higher interest rate and need a lower monthly payment, a 30-year term may be more beneficial.
- Fixed Rate – A fixed rate mortgage gives you the advantage of locking your rate in for the entire term of the loan. This is beneficial because if mortgage rates increase you will have peace of mind knowing that your rate will not go up. However, if mortgage rates drop your rate will not decrease unless you decide to refinance your mortgage.
- Adjustable Rate–With an adjustable rate mortgage loan your interest rate will change or “adjust” after your set term for your loan. For example, if you have a 7/30 ARM this means that after the initial 7 years, your rate will adjust yearly based on the WSJP rate. Usually this occurs on a yearly basis following an initial period of remaining fixed.
Q. How much money do I need for a down payment?
A. For a conventional loan you may put down as little as 3-5%. You can also choose to put down 20% which will help you avoid paying PMI.
Q. What is PMI?
A. PMI Stands for Private Mortgage Insurance. It is a type of mortgage insurance that you may be required to pay if you chose to make a lower down payment. PMI protects the lender in the event that you default on your mortgage and the home ends up in foreclosure.
Q. What are Closing Costs?
A. Closing costs are the expenses, over the price of the home, which buyers will have to pay in order to close the loan and complete the home buying process. The lender will provide you with an estimate of these costs. They typically consist of any fees, taxes, insurance, and negotiations made by the buyer and seller. There are many variables that determine the amount of the closing costs such as, location of the property, amount of the purchase, etc. Therefore an exact figure cannot be given in advance.
Q. How much house can I afford?
A. To figure out how much home you can afford you want to calculate your annual income vs. any credit card debt or monthly bills (outside of rent\mortgage payments and utilities). Also, calculate how much you will have available for a down payment. You can typically put down as little as 3.5%. The more you put as a down payment, the lower your monthly costs will be. Another contribution would be homeowners insurance, taxes and PMI if needed. These will be added into your monthly payment. Once all the calculations are laid out, you can determine the price range of homes that are affordable to you based on your budget.
Q. What benefits are available to me as a first time home-buyer?
A. Currently PFFCU offers $500 off closing costs, now through April 30, 2019. There is also no application fee to apply. You can also earn a cash reward up to 20 percent of the buyer’s agent’s commission if you use PFFCU’s HomeAdvantage® program.