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Mortgage Home Buying FAQ
For most people, buying a home is the biggest financial transaction they’ll make in their lives. To help you through the process, Starion has compiled a list of the most common questions and their answers.
A house is a long-term commitment. You need to decide what works best for you, financially, geographically and emotionally. Financially, besides paying you mortgage, taxes and insurance, you need to pay for utilities, maintenance and repairs, along with tools such as lawnmowers and snowblowers. Also remember that property values can decline.
You also won’t have the freedom of packing up and leaving on short notice as renters can. However, the advantages of buying a home include:
Home loans can be very complex. It’s likely that you’ll have several financing options, all with different features. If you get a mortgage to help buy your home, you’ll repay more than you borrowed. How much you repay is determined by several factors, including your interest and loan amount. Generally, keep these elements in mind:
Interest rate: Percentage of your loan amount charged to borrow money to buy your home. Rates are based on current market conditions, your credit score, down payment and the type of mortgage you choose
Discount points: One point equals 1% of your mortgage amount. If you qualify, you may be able to pay one or more points to lower your interest rate. A lower interest rate means lower monthly mortgage payments. Points can be tax deductible but check with a tax advisor on deductibility
Origination charge: The amount that includes all charges (other than discount points) that all loan originators (lenders and brokers) involved will receive for originating the loan. It covers items including fees, document preparation, underwriting costs and other expenses
Loan term: The amount of time you have to pay off your mortgage balance. Shorter loan terms typically mean higher monthly mortgage payments, but often have lower interest rates. And if you pay off your mortgage balance within a shorter term, you may pay less in total interest than with a longer-term mortgage.
Remember that interest rates only tell part of the story. The total cost of a mortgage is reflected by the interest rate, discount points, and origination charges. This total cost is known as the annual percentage rate (APR), which is typically higher than the interest rate. The APR enables you to compare mortgages of the same dollar amount by considering their total annual cost.
Mortgage payments are typically made up of four elements, called P-I-T-I (Principal-Interest-Taxes-Insurance).:
Principal: The part of your payment that reduces the outstanding balance of your mortgage
Interest: The part of your payment that pays for the cost of borrowing the money
Taxes: The part of your payment that goes toward property taxes. Starion typically collects a portion of these taxes in every mortgage payment, holding the funds in an escrow account to make tax payments on your behalf as they become due.
Insurance: The part of your payment that pays for homeowners or hazard insurance, which provides protection against property damage due to wind, fire or other risks. Like taxes, insurance costs are typically collected and paid from an escrow account.
Other expenses such as mortgage insurance, flood insurance, and homeowners association fees may also apply, depending on your location, property type, loan type and loan amount
As in any large financial transaction, it depends. Many first-time homebuyers make the mistake of looking at homes outside their price range before calculating how much they can afford. The first step is to collect all your financial information and begin estimating what you can spend. A mortgage payment calculator is available below, but you can also contact your Starion mortgage banker to help get the process started
You can prepare by:
You should also estimate what you can spend:
Deciding to rent or buying depends on many factors, particularly how fast prices and rents rise and how long you stay in your home. To develop a sense of which has more advantages, start with how much rent you are comfortable paying. You’ll also need to take a look at your income, debt, general living expenses (like groceries and gas), and social spending to see how much you can afford to lease.
To develop realistic personal expectations, play with a budget and get a sense of how much money you’re spending on necessary expenses (debt, groceries, medical care) versus discretionary interests (travel, dining out, hobbies). Because each person’s debt levels and goals differ, only you can determine what you are personally comfortable spending and whether renting or buying works best for you
Your Starion mortgage banker can help answer this question. The right type of mortgage for you depends on:
Starion offers several types of mortgages, including fixed, variable, jumbo and bridge. Learn more about the types of mortgages Starion has available.
Essentially you cannot start the mortgage process without locking in an interest rate and loan program. Starion will hold your interest rate held for you for a period of time while you are waiting to close. There are four components to a rate lock:
Refinancing a mortgage can save money for many homeowners, but not always. Refinances have many of the same costs a regular mortgage has, so getting a lower interest rate could cost more than keeping your current loan. Carefully consider your financial situation and what you want to accomplish by refinancing. Whether or not refinancing is a good option for you depends on a number of factors.
A best practice is to start with a preapproval from your lender. It tells real estate agents and home sellers you have access to a specific mortgage amount. Real estate agents and sellers rely on preapprovals to identify serious offers. Then there are some general steps that are followed, though there may be others:
Make an offer.
Working with your real estate representative, determine the appropriate amount for your initial offer based on comparable home sales, market value, condition of the home, and your closing date
Put your offer in writing.
Handle all negotiations in writing to make sure both parties understand the terms of the agreement. If you do negotiate verbally, follow up in writing
Submit a deposit.
This "good faith" deposit demonstrates commitment to the transaction
Finalize your purchase contract.
The contract is a legally binding contract between the buyer and seller describing all the terms of the transaction
Depending on your state, an attorney, real estate agent or title company may help negotiate and draft the contract.
Your loan officer will need you to provide documentation that helps determine your whole financial picture. Take advantage of our mortgage document checklist [PDF] to collect your files.
Typical down payments range anywhere from 2 – 25% of a home’s value. The more you put down, the better. For example, when you put down more than 20%, you won’t need mortgage insurance. Also, larger down payments reduce monthly payments. Ask your Starion mortgage banker about your options. There may also be first-time homebuyer programs that can help with down payments.
First-time homebuyer programs are designed to help those new to the home-buying market afford a house with a low or no down payment plan. These are usually funded by a state program. By doing this, states encourage growth in the housing market. All the states served by Starion offer first-time homebuyer programs. You can ask your Starion mortgage banker or your real estate representative for more information about qualifying.
Yes. Many people pay off their loans ahead of time to reduce their debt load.
You can have a mortgage without an escrow account, but we do not recommend it. Escrow is used to pay property taxes and insurance premiums. When you use an escrow account, we collect the money for the taxes and insurance as part of your payment and send those payments on your behalf when they become due. If you choose not to have an escrow account, you will have to make those payments on your own.
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