The Truth About Financing and Mortgages—It’s Not as Scary as You Think
As a Pittsburgh area home buyer, you may feel that everyone around you is speaking a foreign language when they talk about financing your new home. Relax. Things aren’t nearly as scary as they seem, once you understand the basics. Below is everything you need to know to get the financial ball rolling, explained in plain English.
Pre-Approval
Before you even begin your home search, we’ll help you find a trustworthy, experienced mortgage advisor who will evaluate your financial situation and come up with a price range that fits your budget. The advisor will issue a letter of pre-approval, which will help establish you as a serious buyer when you submit an offer.
Comparison Shopping
It’s a good idea to consult with more than one lender or mortgage advisor when researching your first mortgage loan. Lenders offer a variety of loan products; some may fit your circumstances better than others. A word of warning: lenders who advertise interest rates that are substantially below average usually have some built-in surprises along the way.
Loan Language Glossary:
Fixed Rate Mortgage: A loan in which the interest rate and monthly payment remain the same throughout the length of the loan.
Adjustable Rate Mortgage (ARM): A loan in which the interest rate adjusts at pre-determined time intervals. When you take out an adjustable rate mortgage you will learn the maximum and minimum interest rates possible within the parameters of your loan.
Zero Down Loan: A loan which does not require a down payment.
VA Loan: A long term, low-or-no down payment loan guaranteed by the Department of Veterans Affairs. It is available to people who have served in the military.
FHA Loan: A loan insured by the Federal Housing Administration that allows qualified borrowers to obtain home mortgages at lower rates than those available on the open market. FHA loans require a 3.5% minimum down payment; that money may be given to you as a gift by a family member.
GFE (Good Faith Estimate): Your lender is required to give you a GFE of all the costs, in addition to the mortgage payment itself, associated with buying your home. These may include charges for inspections, taxes, title insurance, recording fees, attorney fees, points, surveys or property appraisals, among others.
PITI:These initials stand for principal, interest, taxes and insurance. When lenders underwrite a loan, they will factor in each of these to come up with your total monthly payment.
Seller Assistance:A program that allows sellers to pay between 3% and 6% of your down payment, depending on the type of loan.
Interest Rate Lock: A lender’s guarantee that the mortgage rate you are quoted will be the rate you receive, providing that you qualify for the loan in a timely manner.
What Not To Do When Financing your First Home
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Don’t start your home search before talking to a lender and obtaining a written pre-approval.
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Don’t take out a mortgage with an Internet only lending company, unless you have strong recommendations from friends and have thoroughly checked out the company’s credentials.
And very important...don’t make any large purchases (car, boat, etc.) when preparing to buy a home as they may adversely affect your credit score. Wait until after you have closed on your new home.