I've been prequalified for a mortgage. What's the next step?
Do I need to hire a real estate agent?
While you certainly can represent yourself in real estate transactions, a qualified real estate agent brings invaluable experience, skill, and insight to the home buying process. Sellers are likely to be represented by agents looking after their interests, so it’s generally a good idea for you to have an experienced real estate professional looking after your interests, especially during negotiations.
What is a short sale?
"Short sale" refers to a transaction in which the proceeds from the sale of a home are less than the balance of the debts secured by liens against the property, and the homeowner can’t afford to pay the liens in full. Before you commit to purchasing a home as part of a short sale, be sure to consider the fact that a foreclosure on the property is still possible and that short sale properties often turn out to have a lot of structural and other problems upon inspection. Also, short sales often take a long time to complete, so you should not be in any great rush to move in.
What should my down payment be?
The larger your down payment, the lower your monthly mortgage payment, and vice versa. However, this will also depend on your credit history and the type of mortgage you choose. A standard down payment is 20%, but depending on the type of loan, the down payment can be anywhere from 0% (e.g., a VA Loan) to 3.5% (e.g., an FHA Loan) to 10% or more.
What happens after my offer has been accepted?
Once you receive the purchase contract from the seller’s agent, submit a copy to your mortgage consultant so that we can begin processing your home loan right away. If you have not done so already, now is the time to provide us with all of the necessary documents to verify proof of income and assets.
What additional costs can I anticipate as a new homeowner?
The following table includes many of the costs you have to prepare for as a new homeowner, as well as how often they will have to be accounted for. Your exact costs will depend on the price and location of your new home, the type of mortgage you choose, and other factors.
|Property Taxes ||Monthly/Annual ||$ |
|Private Mortgage Insurance ||Monthly ||$ |
|Homeowner's Insurance ||Monthly/Annual ||$ |
|Homeowners Association Dues ||Monthly ||$ |
|Utilities ||Monthly ||$ |
|Maintenance and Repairs ||As needed ||$ |
|Lawn Care and Landscaping ||Monthly ||$ |
What are the up-front costs involved in buying a home?
There are two up-front costs for which the buyer is responsible when buying a home. First there is earnest money, a nominal, good-faith deposit that demonstrates you’re serious about buying the home. This deposit usually ranges from $500 to $2,000. Then, there is the down payment, which is a percentage of the cost of the home. The amount of the down payment depends on which type of loan you are using to purchase the home, but it is usually at least 10 percent of the home's purchase price. An exception would be a government-backed VA loan, which requires no down payment whatsoever, although borrowers may certainly choose to make a down payment if they desire.
What are points?
When you borrow money through a home mortgage, you pay points at closing. Also known as “discount points,” this is money paid in exchange for a lower interest rate. You may also hear this referred to as “buying down the rate,” which can, in turn, lower your monthly mortgage payments. A "point" is equal to 1 percent of the amount of your mortgage (or $1,000 for every $100,000 you have borrowed).
What if my purchase contract closes quickly and I need my loan closed right away?
At Bank of Internet USA, we are pleased to offer a conditional close-of-escrow guarantee. We will work hard with you and your real estate agent to make sure your loan closes according to the timeline you require. For this to occur, you will have to provide all of your required mortgage documents to us on time and do your part to prevent any delays along the way.
What happens at closing?
Closing occurs when you sign all of the paperwork and are allowed to assume ownership of your new home. At this point, you will be responsible for certain applicable costs, such as title insurance, discount points, and fees for loan origination, loan applications, appraisals, housing surveys, and your first month of homeowner's insurance. Closing costs can total up to 8 percent of the purchase price of your new home.
What are Discount Points?
Mortgage rates are influenced by many factors, including the state of the overall economy, treasury 10-year bond prices, debt markets, and the Federal Reserve Board’s monetary policy, all of which change over time. As these factors fluctuate, so do mortgage rates.
Discount Points can directly affect your mortgage rate. Discount Points are fees that you pay directly to your lender at close in exchange for a lower interest rate over the life of your mortgage. As a result of this one-time payment, also known as a prepaid interest payment, you will have a lower monthly mortgage payment.
The cost of each Discount Point is equal to 1 percent of the principal loan amount. Therefore, if your principal loan amount is $200,000 mortgage, one Discount Point would equal $2,000. It is possible to break Discount Points into fractions; for example, if your principal loan amount is $200,000, 1.50 Discount Points would equal $3,000.
Whether paying Discount Points makes sense in your case depends, in part, on how long you plan to stay in your home. To help you decide whether you should include Discount Points as part of your loan process, use these steps when calculating your mortgage:
- Calculate the amount of your monthly payment at the interest rate you would be charged if you do not pay Discount Points.
- Calculate the amount of your monthly payment at the lower rate if you were to pay Discount Points.
- Deduct the lower payment from the higher payment to find the amount you would save each month.
- Divide the amount charged for Discount Points at closing by the amount you would save each month.
The result is the number of months you would have to stay in your home in order to reach the break-even point on paying Discount Points.
What makes up my mortgage?
When you enter into a mortgage agreement with a bank, you’re signing a legal contract. According to the terms of that contract, you promise to pay back the loan, plus any agreed-upon interest and costs associated with the mortgage lending process.
In order to secure the funds to purchase your new house, you use the house itself as collateral for the loan. This means that, if you fail to repay the loan, you agree that the bank can take back the house in lieu of repayment.
Principal and Interest
In mortgage lending, principal refers to the amount of money you borrow to finance the purchase of your home. You can lower this amount by making a larger down payment up front. Ideally, you will be able to make a down payment of greater than 20 percent.
The interest is the additional amount of money you agree to pay the bank in order to use the principal amount as payment for your new home. The interest rate is commonly expressed as a percentage. Your interest rate will depend on many factors, including whether you opt for a fixed rate or adjustable rate mortgage.
Together, principal and interest will make up most of your monthly payment. Through a process called amortization, the principal and interest payments will be strategically broken up so that your initial monthly payments will go primarily toward paying down your interest, while your later monthly payments will go primarily toward paying down your principal balance. The purpose of amortization is to save you money in the long term.
Taxes and Insurance
Your mortgage payment will also likely include taxes and insurance. If these are paid as part of your mortgage payment, they will be paid through an escrow account.
Property taxes are levied by your community and are calculated as a percentage of the value of your property. They are usually used for local costs such as schools, roads, and public services. Determining the taxes you will have to pay on your property is a fundamental part of the home purchase process, and you should keep this amount in mind as you consider how much of a mortgage payment you can afford.
In order to obtain a mortgage, most lenders require that you have a home insurance policy in place, which covers your home and personal property against fire, theft, and other damage and losses. If your property is located in a special flood hazard area, you will be required to carry flood insurance, as well.
There are also cases in which you will be required to obtain additional insurance before being eligible for a mortgage. If you put down less than 20 percent on a conventional loan, also known as a conforming mortgage, your lender will probably ask that you get Private Mortgage Insurance (PMI) until you have made two years' worth of payments or your principal balance is reduced to 78 percent of its original amount. This PMI protects the lender in case you default on the mortgage. If you select a loan backed by the Federal Housing Administration (FHA), you’ll also have to pay mortgage insurance. This functions the same way as PMI, except that you must make payments for 11 years or the life of the loan, depending on your terms.