May 5, 2020
Tagged As: Mortgage & Loans
So you’ve decided you want to buy a house.
Now it’s time to get down to the details. Here’s an overview of some of the most important things you need to consider about getting a mortgage – which lets you raise the funds to buy a home!
If you have more questions, browse our Mortgage FAQs or get in touch with a lender near you. We’ll be happy to help get you on the path to home ownership in no time!
What you need to know about mortgages
There are a few different types of loans, and it’s important to find the right one that suits your financial needs:
- 1.) Fixed-Rate Mortgage
- 2.) Adjustable-Rate Mortgage (ARM)
- 3.) Government-Insured Mortgage
- 4.) Jumbo Mortgage
If you value stability, and making the same payments year over year, you’ll like a fixed-rate mortgage. This loan “locks in” your interest rate for a certain period of time (often five or seven years) so it won’t fluctuate with market conditions, then it will adjust with market conditions afterwards. You can also refinance your mortgage at a lower rate in the future – if you’re willing to pay loan costs again. You might end up paying a higher interest rate overall, but this loan gives you the peace of mind knowing you’ll pay the same amount each month.
Adjustable-rate mortgage loans feature a fixed rate and payment for a set period of time. Once the initial interest rate term has ended, your monthly payment adjusts with the market, and those interest rates can change nearly every day. In a time of lower interest rates, this can be highly beneficial. But it also carries risk, as future payments could become more and more unaffordable.
Several federal agencies offer loans for prospective homebuyers, including:
- Veteran’s Affairs (VA): A mortgage made by private lenders, backed by the Department of Veteran’s Affairs, which offers no-down-payment loans and less stringent credit and income requirements.
- U.S. Department of Agriculture (USDA): A mortgage for low- to moderate-income borrowers purchasing in rural communities, which applies to many areas in Iowa. USDA loans offer 30-year fixed-rate financing with no money down.
- Federal Housing Administration (FHA): If you need a mortgage, but your credit score isn’t high enough to qualify for a conventional loan, you might be able to get a loan from the FHA. If you qualify, you can pay a down payment as small as 3.5% of the home price. However, you’ll also need to pay an annual insurance premium, which often makes these loans more expensive than their traditional counterparts over time.
This likely doesn’t apply to you as a first-time home buyer, unless you’ve got a significant sum of cash that you’re eager to spend on a home! Jumbo mortgages are those that exceed the limit on traditional mortgages, which in 2020 is $510,400. If you do need a jumbo loan, you’ll have to prove that you can assume the risk. That means extensive documentation to prove you have enough savings, a high credit score (700+), and a down payment of at least 10 to 20 percent.
How do I know if I qualify for a mortgage loan?Learn More
How do I know if I qualify for a mortgage loan?
When you apply for a mortgage, you will have to qualify to be able to borrow. Most lenders will consider your other financial responsibilities, including car payments, personal loans, student loans, and other debts, in addition to your mortgage. They don't want these expenses – plus your housing costs – to be more than about 45% of your monthly income. In short, they want to be sure you'll be able to pay your mortgage before they let you borrow.
When you’re ready to see if you qualify, you’ll apply for a mortgage pre-approval. This non-binding document won’t guarantee you a loan, but it does tell sellers that you’ve had a loan officer review your finances and determine how much money you can borrow, which can help you secure a home in your budget and accelerate the buying process. We suggest meeting with a lender to get a pre-approval before you begin the house search to get your questions answered, learn more about the home loan process, and know what you can qualify for. Some lenders may charge an application fee for their pre-approvals, but we’re pleased to offer them completely free.
What is an escrow account?Learn More
What is an escrow account?
Escrow accounts are used to pay property taxes and insurance premiums for your home. This means there is no need to save separately for those annual and biannual bills; your lender already takes care of setting that money aside by setting up an escrow account for you. An escrow account can be compared to a savings account. Money is paid directly to the escrow, where it is held until payments for annual or biannual property taxes and insurance premiums are due. In Iowa, property taxes are paid in March and September.
What if I’m turned down for a loan?Learn More
What if I’m turned down for a loan?
If you're turned down, ask why. The lender should tell you which credit report it used to check on your credit history, and you can request a copy. Because you’ve been turned down, this report should be free of charge. If there are any obvious errors, follow the instructions on the report to have them corrected and check up on your request. If the negative information is correct, and your credit history has flaws, at least you'll know the factors that may be blocking your application and can begin to strengthen your credit credentials.
You’re entitled to one free credit report each year from each credit-reporting bureau, with no strings attached (other sites may give you an estimation of your credit score, but not the full report). You can find that at annualcreditreport.com
Should I work with a real estate agent?Learn More
Should I work with a real estate agent?
Home buying and selling experiences are all unique, and require different amounts of effort to navigate the process and ultimately buy or sell real estate. There are many advantages to using a real estate agent. Here are just a few:
1. Education and Expertise
As a buyer or seller, you do not need to know every detail about the purchase and/or selling process. This is information real estate agents are well versed in.
2. Knowledge of Local Neighborhoods
Real estate agents possess a great amount of knowledge about the areas they sell real estate in. Use that knowledge to your advantage, especially if you are moving to a new town or city.
3. Handling Large Amounts of Paperwork
Purchase agreements are long and complicated pieces of paperwork, commonly over 10 pages long. Let a professional with experience sift through and decipher the paperwork for you.
4. Negotiation Skills and Confidentiality
Highly skilled and top-producing real estate agents are comfortable negotiating on a buyer’s or seller’s behalf.
5. Answer Questions after Closing
Inevitably, buyers and sellers will have many questions after closing that they may have overlooked in the excitement of closing or selling of a home. Call on your real estate agent to answer those questions.
Is a home an investment?Learn More
Is a home an investment?
From one perspective, a home is an investment, maybe the single largest one you'll ever make. Like certain other investments, real estate has the potential to increase in value over the years, so that you can sell it for more than you paid. It can also lose value, sometimes dramatically. If you need to sell when real estate prices have dropped, you may have to settle for a lower price than you'd like, or even less than you paid to buy the home. There are also fees associated with selling a house, chiefly a real estate agent’s commission, which can be four to six percent of the home’s sale price. So you should keep those in mind.
But unlike investing in equities such as stock or mutual funds, which you buy as a way to achieve your financial goals, most people consider owning a home as an end in itself. That’s why it’s all the more important to protect your home with insurance.
What kind of homeowners insurance will I need, and how does it work?Learn More
What kind of homeowners insurance will I need, and how does it work?
Most lenders will require you purchase enough insurance to cover the total loan amount, excluding the down payment.
Home insurance works the same way renter’s insurance and other forms of insurance do. You pay a regular premium for the privilege of being covered. If your home is damaged, you’re responsible for covering any repairs up to the amount of your deductible. After that, your insurance kicks in and reimburses you for as much of the damage as your policy allows. The larger the deductible, the less you’ll have to pay for each premium – but of course you’ll have to pay more out of your own pocket if your house is ever damaged.