Down payment:

Did you know you don’t need 20% for a down payment? Below are some of the minimum down payment amounts available on our loans. 

  • VA = 0% down
  • Conventional = 3% down
  • FHA = 3.5% down
  • USDA = 0% down

What Makes Up Your Mortgage Payment:

When searching for your dream home you will often see homes with mortgage payments advertised. BEWARE… those prices may only include principal and interest! There are a handful of expenses that you may need to calculate into your monthly payments, such as;

  • Principal
  • Interest
  • Home Owners Insurance
  • Property Taxes
  • Mortgage Insurance
  • HOA Dues
  • Private Assessments

These are the most common. Not all will apply, but some will. Read below for some examples of each.

NEW CONSTRUCTION BUYERS

Pay attention to the taxes. More than likely the year that you purchase will have very low taxes because it was assessed as a dirt lot. Make sure you have a conversation with your lender about what the current assessment is and what next years taxes are likely to be.

For example: You could purchase a home this year for $300,000 and your monthly payment is $1,500. That was calculated with a tax assessment of $40,000 for the lot only. If your taxes are 2.7% that would mean your taxes for the year would be $1,080 or $90 per month of that $1,500.

However, next year the county will assess the home at the full value of the home. If they assess the home at $300,000 and your rate is 2.7% then your annual tax bill would be $8,100 with no exemptions. That would equal a $675 monthly tax payment. Which means your monthly mortgage would increase by $585 per month!

We are not in the business of surprises. Our trusted lender, Luke, will walk you through this process and make sure you know what to expect. There have been cases where this was a surprise to a buyer and they ended up having to sell their dream home because they could not afford it with the correct tax payment (never to any of my buyers)!

Also, you are likely to receive a very good home owners insurance premium because the home is brand new. You get this premium because of the warranties, appliances, mechanicals, etc. are also brand new. Just be prepared for that premium to increase, but it most likely won’t increase as dramatically as the tax example!

Principal - this is simply the balance of the remaining loan. Like most loans, at the beginning, only a small percentage of your payment goes towards the principal.

Interest - this is the cost of borrowing money. At the beginning of the loan this is the biggest chunk of the mortgage payment.

Home Owners Insurance - this is the insurance premium that covers you should you experience a loss of some sort. Please understand your policy because it may not cover what you think it does… especially when it comes to water claims.

Property Taxes - Each year the county you live in will assess your home and place a value on it. That is the value you are taxed on. Most of this payment goes to your local school district. You can reduce your tax burden if you file for and qualify for any exemptions, such as; Over 65, Homestead, Disabled, etc. A homestead may offer you some additional protections and cap your following years assessment.

Mortgage Insurance - This is typically required when making a down payment of less than 20%. This insurance covered the lender in the event a buyer defaults on the loan. These payments can vary depending on score or other factors depending on your loan type. Often times these are between $125 - $225 per month for homes $350,000 or less. Again, Luke will walk you through these figures to help determine what is best for you and your family. There is also a single premium option where you can pay this insurance up front, which would lower your monthly payment by whatever the cost would have been. This is usually a good strategy for someone that has cash on hand and just wants a lower payment. This single premium payment will lower your monthly payment more than applying that payment to the principal.

HOA Dues - These are paid directly to the management company for your HOA for you to enjoy the benefits and/or amenities it provides. If your annual dues are $600 then your monthly mortgage payment will be an extra $50 per month.

Private Assessments - this could be something as simple as you purchased a home in a private community with private roads. Every so often they may need to resurface it and they divide that cost amount the home owners. This could also be an assessment for condo owners where the association is going to paint the exteriors. They would simply divide the cost between the members.

Down payment assistance:

DPA for short is a common discussion, especially with first time home buyers. DPA is a great tool but we have to make sure it’s the best option for you. When utilizing down payment assistance, there are options for a 3%, 4%, 5% or 6% assistance towards your down payment and funds needed for closing. It’s important to know that DPA is not free. There are costs associated with these programs and typically you will take a higher interest rate which is set by the DPA companies. If you have the ability to borrower against a retirement account, or get a gift from a family member, those options are could be the better financial decision. Lastly, DPA has credit restrictions, and income restrictions, so not everyone will qualify for the assistance.

How Your Credit Score Affects How Much House You'll Be Able To Buy...

Your credit score is now the most important factor in determining how much house you can buy, so if you are in the market for a new home, you need to understand how it affects you.

In order to make it easy for mortgage companies to determine the risk of lending to you, they are using a system called credit scoring (also called "FICO" scores).

When lenders look at your credit report, they can instantly see how much debt you have, how reliable you are with bill payments, and if you've had any bankruptcies within the last several years.

With your credit report, lenders get a "credit score" which takes all of this information and boils it down to a number between 300 and 900. The higher the number, the less of a credit risk you are seen to be, and this is how lenders decide which types of loans you will be eligible for.

As with all new things, there is controversy over credit scores.

To be eligible for some types of loans, you require a minimum credit score without any exceptions. And credit scores fluctuate over time. In fact, the mere act of applying for credit can lower your credit score.

How to make sure you have the highest credit score possible

To maximize your credit score, you should avoid applying for any new credit cards or consumer loans. Don't go to the discount store and take them up on the "No interest, no payments for one year" offer -- and avoid financing a car! 

After you buy your home and get your mortgage you can do all of these things, but before then it's a bad idea. Buying things on credit hurts your credit score, and leaves less money for your downpayment.

Lenders also look at this figure to decide how much money they will lend you, and how much interest they will charge you on the loan. That's why it's best to wait until after you've bought your home to go shopping for furniture and appliances. There is also another reason to wait.

If you learn to play by the rules of the lenders' game, you can get the best credit score possible, which improves the odds that you can get the home of your dreams.

How is my interest rate determined?

Two challenging questions that surround every loan are:

  1. How does a lender determine my interest rate?
  2. What can I do to ensure I get the best possible rate?

To answer these questions, we must consider three criteria on which a lender bases their decision.

Credit Rating – The credit score is the most important point in mortgage lending. The credit score is not the only aspect considered in lending, however in most cases it is the most crucial. Lenders will also look for multiple late payment occurrences over the last two years.

Ratios – Secondly, the borrower’s monthly obligations (this does not include utilities, phone, or items generally not reported on a credit report) are calculated and reviewed by lenders. Two ratios are determined, front-end and back-end. For most lenders, a “grade A” conventional loan is one in which a borrower has a front-end ratio less than 28% and a back-end ratio less than 36%. For example, a borrower has a gross monthly income of $4,000, a car payment of $350, a credit card payment of $55, and a new house payment of $1,000. The calculations are as follows:

  • $4,000/1,000 = 25% Front-end Ratio
  • $4,000/1,405 = 35% Back-end Ratio

Down Payment – Thirdly, the lender factors in the amount of a borrower’s initial down payment. The less money spent on the down payment means a higher interest rate charged by the lender. Simply stated, more risk for the lender equals a higher rate for the borrower. Even if a borrower has perfect credit and wants to put 0% down, their rate will generally be about ½% higher than a person who puts 10% down.

After a lender has considered the three points described above, the borrower’s application must pass the specifications set by an underwriting department for the loan to be approved.

How to Save Thousands of Dollars in Interest and Pay Your Mortgage off Faster

There are a few easy ways to make extra principle payments that can save you a ton of money in interest expenses and get you mortgage-free sooner than you thought possible. Here are a few simple strategies you can use:

1. Round your monthly payment up:

The results of this simple strategy can save you a fortune and drastically reduce the length of your mortgage.

As an example, if your monthly mortgage payments were $734 dollars a month, but you rounded it up to $800 per month, you would save more than $48,000 in interest payments, and reduce the length of your mortgage by 7.5 years!

2. Make One Time Pre-Payments Using Your Income Tax Refund:

This is an easy way to save money and shorten your mortgage. For example, if you have a $100,000 mortgage, and you have a $1000 tax refund this year, you take apply that refund to your mortgage. Over time, this will save you more than $8600 and shave 1 year and 1 month off your mortgage! That's another amazing result from a simple strategy.

3. Choose a 15 Year Mortgage:

If you can afford it, you are far better off getting a 15 year mortgage instead of 30. It won't cost you much more, and the interest savings are truly incredible.

If you have a mortgage of $100,000 at 8% interest over 15 years, your monthly payment would be about $200 more, but you'd end up saving $92,083 in interest over the life of your mortgage!

Using these strategies is the easiest way to reduce your interest expenses and shorten your mortgage period.

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