Finding Your Mortgage

So, you’ve found your dream home. But somewhere in that dream is finding the perfect mortgage for you and your future. Enter 1st Source, with sage-like, personalized advice and a unique way of making it all seem simple. It doesn’t matter if this is your first house or forever house, it all starts here. We’ve put together some basic information about types of loans and some terminology you should understand.

Fixed-rate mortgages

Available in 15, 20, and 30-year terms, these loans are for those who want an interest rate and payments that won’t change. So, if you like consistency and simple budgeting, hello, fixed-rate mortgages. Note: if your loan has an escrow account that collects taxes and/or insurance, that’ll change over time and cause your monthly payment to change annually.

A bi-weekly payment program is worth considering. It’s just like a conventional fixed-rate mortgage, except payments are billed and collected every two weeks, so you pay 26 payments per year instead of 12. It’s a good way to build equity fast, but it requires automatic payments.

Low down payments? It can be tough coming up with a 20% down payment. But if you have strong credit, lenders offer special down payments as low as 3% for first-time homebuyers.

FHA

Federal Housing Administration mortgages may have down payments as low as 3.5%. They offer more liberal qualification requirements, fixed interest rates, and monthly payments. Those payments go towards taxes, insurance, and monthly mortgage insurance premiums that may change over time and cause your total monthly payment to change annually.

VA  Loans

These are available to veterans, active-duty military, reservists, and eligible family members of former service members. Guaranteed by the U.S. Department of Veteran Affairs, this fixed interest rate, monthly payment loan requires little or no down payment. They also have liberal qualification requirements like the FHA–often with lower closing costs.

Get a Lower Interest Rate

Pay “points” (short for discount points)–Prepaid interest assessed at the time of closing by the lender. Each point is equal to 1% of the loan amount and a portion is tax-deductible that year.

Lock in

Waiting to see if rates will drop is always a gamble. See if you can “lock in” a rate being offered. That said, lock-ins last for a specified time and expire if you haven’t closed by then.

Understanding Ratios

Lenders look at all your finances to figure out mortgages. Like income and debt ratios that show household income vs your debt. This also includes auto loans, credit cards, and any other loans-on top of your mortgage. An example would be if 20% of your total gross income already goes to pay your current debt, 16% of your gross income is the maximum they’ll lend you to buy a house. There are also Loan-to-Value Ratios (LTV). These are based on the value of the home compared with the mortgage amount. The down payment will impact this.

We’ve only scratched the surface of what you can do to make your dreams come true. Some loans, for example, allow your down payment to be a gift from a family member, relative or non-profit organization. So, learn more and see what works for you and, of course, you can always ask your local 1st Source for help.