Talk with a lender & get pre-approved
I recommend meeting with a lender as soon as possible. There are lots of mortgage ‘products’ available in today’s market and knowing which one will work best for you, will help us shape the best possible offer. Factors that may affect which product is for you include your credit score, your cash reserves, your available cash for your purchase, your future income, your current income, and your overall financial goals. Additionally, when we submit an offer, sellers will want to see a letter of pre-approval so they know that you are capable of buying their home.
Finding a lender you can trust
In the home buying process you need to find an experienced, local lender. You begin the mortgage process at the same time you begin looking for a home, so you know the value of the home you can qualify to purchase. I can recommend a trusted, qualified list of lenders. They either need to be someone you know and trust or someone that I know and trust… the internet is not a place to “shop” for a lender. They WILL NOT get you to the closing table! They will only cause complications!
Getting Pre-Approved
In order to become pre-approved, a lender will need to review at minimum your current financial information, your credit score and your current income. Although it was a common occurrence to receive a pre-approval over the phone in years past, changes to current lending and disclosure practices will likely require that you have one or more face to face meetings with your lender and provide a series of requested documents. So chat with your lender about what they would like to see at your first meeting and bring those documents with you. This will make the process much more efficient.
We recommend that before you begin your house hunting, you begin the loan pre-approval process. Getting pre-approved requires that a lender verify your financial information, and it serves as their commitment to lend a specified amount based on that information. It will give you a number of advantages.
· When you find a property, sellers will take your offer more seriously given that you have a lender that has committed to backing your offer:
· It does give the assurance that you’re looking at homes you can confidently afford to finance. Your efforts will be focused on properties that match your financing abilities.
· You’ll have an edge over other buyers who aren’t pre-approved. In situations where there are multiple offers on a property, this can be the difference between having your offer accepted or losing the property to another buyer.
We’re eager to help you get pre-approved either through our mortgage company or any other company.
Your Monthly House Payment
1. What makes up my monthly house payment?
a. Principal on your home loan
b. Interest on your loan
c. Taxes (property taxes)
d. Insurance (homeowners)
2. How will I know what a home costs each month before I buy?
If you’ve met with your lender, I can communicate with him about your loan and can calculate what your approximate monthly payment will be on any home.
3. How does a down payment affect my monthly payment?
The bigger your down payment, the less your monthly payment, though all lenders offer loans with no down payments. When your down payment is less than 20% of the sales price of the home, some lenders charge PMI or MIP (private mortgage insurance or mortgage insurance premium), to protect themselves in case you miss payments on the loan. A common strategy to avoid paying for PMI is to use a “combo” or “piggyback” loan, with a first loan at 80% of the price of the home, and a second loan to cover the remainder of the purchase price.
Viewing a Good Faith Estimate
If your lender is able to get a good handle on your financial situation, you may also be able to review a good faith estimate at your meeting (otherwise you may need to meet with your lender later to review this important document). A good faith estimate discloses the closing costs, prepaid items and other charges you will be required to pay at closing. It also shows how much money you will need to bring to the closing table and an estimate of your monthly payment. Make sure to keep this document handy because we will want to review it together and discuss how the information it discloses will help us shape the best offer on a home for you…. Note that some lenders do a better job than others at disclosing ALL costs of a transaction (even those they don’t control like homeowner’s insurance). If you do decide to shop around and are comparing good faith estimates, please let me assist you and make sure that you are making an apples to apples comparison.
Loan Application
If you have not already met with your loan officer to make the formal loan application, you need to do so as soon as possible. This is the next step after a pre-approval is received, but it is also an extension of that same process… simply continue the pre-approval process further into a FULL MORTGAGE APPROVAL. Remember, you agree to do this within a certain time frame specified in the purchase agreement.
The loan officer will give you the specific items to bring with you to the session in order to speed up the application and loan process. The fee for the appraisal and credit report is “sometimes” collected at this time (bring your check book)
The option of whether to ‘lock’ in an interest rate versus ‘float’ for a while to see where the money market heads is a difficult decision to make. Your loan officer will be able to give you the risks and benefits of each alternative. If you elect to ‘float’ be sure to check back with the lender frequently to see if a change in the market indicates a decision time. If you elect to ‘lock’ in the rate, be sure that the ‘lock’ period extends past the projected closing date.
The following is a list of loan officers that are currently active in the Greater Indianapolis area
Kenra Humble, FlagStar 317-625-8443
Ryan Schulte, Tucker Mortgage 317-259-6000
Michael Strawn, First Mortgage of Indiana 317-574-9292
The list is provided to you as a convenience and does not constitute an endorsement or recommendation of the companies or a warranty or guarantee of the quality of their service. Feel free to refer to me or you personal bank for additional loan companies.
Financing Methods
Fixed-Rate Mortgage
The interest rate stays the same for the entire term of the loan usually, 15 or 30 years, so the interest and principal portions of your monthly payment remain the same. Your payments are stable and predictable, but initial interest rates tend to be higher on a fixed-rate mortgage than on adjustable-rate loans.
Adjustable-Rate Mortgage (ARM)
The interest on an adjustable-rate mortgage is linked to a financial index, such as a Treasury security, so your monthly payments can vary, up or down, over the life of the loan- usually 30 years. Some adjustable-rate mortgages have a cap on the interest rate increase to protect the borrower.
The lower initial payments on ARMs make it easier for buyers to qualify.
Adjustable-Rate Mortgage Terms
· Adjustment Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.
· Annual Percentage Rate (APR): The total finance charge (interest, loan fees, and points) expressed as a percentage of the loan amount.
· Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.
· Conversion Clause: A provision in some ATMs that enables you to change an arm to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages. This conversion feature may cost extra.
· Index: A measure of interest rate changes used to determine changes in an ARMs interest rate over the term of the loan.
· Margin: The number of percentage points a lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Upfront costs of buying a home
Application fee - Approximately $350.00, this is paid to the lender for the appraisal and credit report. The cost will vary from lender to lender.
Earnest Money - This is typically 1% of the sales price. This check will be written when the purchase agreement is written. It will be delivered to the listing agent at the time of acceptance of the offer. At this time it will be cashed. This money will be credited to you at closing.
Home inspection - Home inspections range between $350-$450. This is paid at the time of the home inspection.
Homeowners insurance - The cost can range from $550-$1500. The lender will require 1 year of homeowners insurance paid up front. You will need to bring a copy of the policy and paid receipt to closing.
Closing Costs - Detailed explanation of closing costs are outlined in Final Mortgage Application