Home Qualifying Series Part 3
Now that you’ve worked with your lender to find your ideal loan program and qualifying amount, we can take the process a step further. It’s time to build your knowledge on what to expect as a client, and to build your lenders knowledge on your situation. It’s time to put together your ideal home transaction:
Are you looking to buy a primary home, a secondary vacation home, or an investment property?
Are you looking for a single-family home, a multi-family home, or a condo/townhome?
Which term is a best fit for you: 30 years, 25year, 20 year, 15 year or 10 year?
What will your monthly payments be? Interest rates?
We will discuss all of this and more in the article below.
Once you go through this process, we will be able to have our upfront underwriters review your file. Going through the underwriting process will not only will make your mortgage process seamless after we our under contract on a property, but it will also put you in a leveraged position with the sellers of the home you’re buying. With ironing out any wrinkles on your file upfront we are only needing the appraisal and home insurance policy once we are under contract. If rushed we can have these two items back in a week. This allows us to close loans as quickly as 8 days. We call this our Falcon Fast Closing. It also qualifies you for our $25,000 closing guarantee which essentially states if we don’t close your loan on time, we will pay the sellers $25,000 out of the lender’s pocket. The sellers will love our offer if we have either of these programs listed on our upgraded pre-approval letter. This will allow us to negotiate other things like a reduction in price or for them to pay the closing costs.
At this point, If you come across a home you’re interested in making an offer on our team is ready to go into overdrive for you. We will update the pre-approval letter and will write property evaluations that go over your monthly payment amounts and interest rates.
What will my payment amount be? How to get the lowest interest rate?
Interest rates are always changing. They are about as volatile as the bond/stock markets. It’s not even a question that they will be different at the time you’re reading this as when I’m writing this article. Securing a favorable interest rate is a priority. It’s important that you go back and read this entire series to put your credit and debt to income ratio in the best position possible to get the best interest rate.
Your monthly payment is made up of the following:
Principal and interest
Property Tax
Home Insurance
Mortgage insurance
Association Dues
Your mortgage payment is made up of the principal and interest, which we will dive deeper into later. The rest of the payment is essentially Third-Party Fees.
Property taxes are calculated and paid to the county.
Home insurance is paid to the insurance company to protect the home. (Reach out to your insurance company to see exactly what your policy includes.)
You can read more about mortgage insurance in other blog posts, but it’s meant to adjust risk for the lenders with clients who are putting less than 20% down.
Association dues are common in communal living situations such as condos or town homes. We are seeing more and more residential neighborhoods charging association dues to pay for community lawn care, snow care, etc.
Condo’s and townhome’s are a growing trend. They are typically more affordable in terms of price, which evens out the association’s dues. Association dues do pay for lawn care, snow removal, and sometimes even the utilities of the home. Most of the times these properties are centered in nice walkable locations, the property conditions are well maintained, and they are aligning with lifestyles for the young and old.
When calculating your mortgage principal and interest payment one of the biggest overlooked factors is the mortgage term.
What will my loan term be?
A typical term is the longest options of 30 years. It is pertinent to know that there are shorter options: 25, 20, 15, and 10.
Shorter term loans overall have higher payment as you’re needing to pay that loan back sooner. This will put pressure on your buying power, but the big advantage is that loan amortizes quicker, so you pay less interest.
For example, if you purchase a $400K home with a 5% down payment at a 7% interest rate you’ll end up paying $558,036 in interest over a 30-year period.
In comparison, if you did a 15-year term it would cut the interest paid to $247,156. This doesn’t include the fact that you get a lower interest rate by taking a shorter term as well. When buying a home consider taking a shorter term.
The principal and interest payment will be the bulk of your mortgage payment. The loan amount is calculated on the difference between your down payment and the purchase price of the home. Your loan amount will then be amortized based on the interest rate and the term of the loan.
To get more information on your payment please give your mortgage lender a call to discuss specific scenarios.
Now on to the last part of the series. Go read part 4 now!
