There's a high probability you're not the first person to ask one of the questions below! Review these answers to popular home financing questions.
To figure out how much you can afford, the focus is on your taxable income plus any monthly payment on outstanding debts.
The safe and ultra-conservative method would suggest that your total monthly mortgage payment ((principal & interest, plus real estate taxes, hazard insurance, and any HOA dues) and all monthly debt payments (such as car loans, credit cards, and student loans) should be below 36% of your gross income.
However, the majority of loan programs allow up to 43% of your gross income and FHA will allow as much as 56.99%. It really depends on the overall file for FHA high debt-to-income (DTI) loans.
Although, you may be approved with a high debt to income ratio, make sure it is a monthly payment you feel comfortable with. You don't want to stretch yourself too thin and not be able to enjoy the simple luxuries or things you routinely do.
A home inspection is carried out to assess the home's overall condition. During the process, the inspector will be checking the functionality of all vital components (ceilings, floors, foundations, garage, attic, roof, walls, etc.) and systems (electrical, gas, heating, plumbing, drainage, exterior weather proofing, etc.).
The inspection results are delivered to the buyer in a detailed report, generally within 24 - 48 hours following the inspection.
A home inspection can give you assurance about the home purchase. It can make a challenging choice much easier. The results may tell you the home requires major repairs which can become a negotiating point with the seller.
Having said that, there are some scenarios when not performing a home inspection will in fact help your chances at getting your offered accepted on a house. Some prospective buyers simply do a pre-inspection before writing an offer.
This depends on a number of factors like your credit score, purchase price, income documentation, property type and usage. Once this is known the proper loan program can be chosen. Some examples are listed below.
A down payment can range from zero,"0", for the VA loan for eligible veterans, spouses, and military personnel. Other loans programs range from 3% to 5% for a primary residence. For a second home (vacation home) approximately 10% down, investment property of 1 - 4 units, it can be as range from 10% to as high as 25% down.
You need to be aware that Adams, Arapahoe, Boulder, Broomfield, Denver, Eagle, and Garfield counties in Colorado have higher FHA loan limits ranging from $575,000 to $765,600 as of 2020. Closing costs will also play a factor in determining how much down payment you can make.
If you are considering paying the lowest down payment possible, at least 5% of the down payment needs to be from your own funds or a gift from a family member. However, there are some conventional loan programs that periodically allow just 1% down.
Most mortgage loans with below 20% down need to get mortgage insurance, or PMI. Some programs simply build it into the rate.
Lenders and investors commonly demand mortgage insurance for mortgage loans with down payments of less than 20%. Private mortgage insurance, or private MI, makes it possible for you to buy a home with a down payment under 20%.
Borrowers have the option to pay the mortgage insurance monthly, in one lump sum, split premiums or as "Lender Paid MI" (LPMI). LPMI results in a higher loan fees or a higher interest rate.
MGIC and Radian, a couple of well known MI companies, provide lenders a financial guaranty if your loan end ups going into foreclosure.
A conventional mortgage is a home loan that the federal government does not guarantee or insure but it still complies to the mortgage guidelines established by Freddie Mac and Fannie Mae. A conventional loan is available on a fixed or adjustable rate.
If you have a credit score above 640, a consistent income and your debt ratios meet the guidelines, a conventional loans often offers more attractive interest rates compared to the government-insured FHA, VA, and USDA loans.
For the ex-spouse receiving alimony or child support and using it as qualifying income, you need to be able to document receiving support for 6 consecutive months, some lenders want 12 motnhs. Another condition, is a copy of the divorce decree and that the support must continue for another 3 full years. So, in the case of child support, the kid should be less than 15 years old.
For the ex-spouse paying child support, it is counted in your Debt to Income ratio unless you have less than 10 payment remaining.
A borrower who is pre-approved for a mortgage has had their income, employment, and credit verified and reviewed by an underwriter. A borrower who is pre-qualified has simply given their information to the loan officer verbally or submitted documentation but has not been reviewed by an underwriter. A pre-qualified borrower has a hiher likelihood of completing the loan than a pre-qualified borrower.
Most experienced real estate agents strongly prefer you are pre-approved before they show you properties which means you have the means to buy a property in that price range.
Keep in mind that low documentation programs do not offer pre-approvals. However, an experiencd loan officer who knows the guidelines can draft up a strong pre-qualification letter that will mimic a pre-approval.
Normal closing costs come out to around 2 to 3.5 percent of the purchase price or home's appraised value on a refinance.
Sample of Traditional Closing Fees for Denver
Credit Report - $50.00 -
Appraisal Fee - $350 – $900. Usually collected once loan is approved. Price depends on the area and value of the property.
Origination Fee – Typically 1% to 2% of the loan amount, paid by the borrower. This usually overs loan processing and placement.
Discount Points - Costs varies with financial market conditions and may range from 0 – 2 or more. Each point is 1% of the loan amount. Points are commonly paid to get a lower interest rate , or discounted rate from the lender.
Title Insurance – Varies based on loan amount. A title insurance policy is needed to protect the mortgagee against title defects that would affect the loan. Associated title fees include Reconveyance Fee, Endorsement Fee, Title search
Survey – $150 - $250. The fact is a survey is quite important. A surveyor goes out to the home and measures the metes and bounds of the parcel of land that you're under contract to buy. A map of the property will be drawn, revealing the property lines, the improvements, monuments, fences, and any recorded easements. Most properties will have an existing survey, and normally the most recent survey will be accepted by the lender if no changes have been done to the property. If a new survey is needed the cost can rise significantly.
Document Preparation – $150 approximately. This is a fee for completing and handling paperwork such as the Deed, Deed of Trust, Notice to Purchaser, and several Affidavits.
Recording Fees – $50.00 expense from the local government to record the deeds and mortgage in the county records.
Pre-paid Items – These are homeownership expenses collected in advance for loan interest, property taxes, and homeowners insurance. Daily mortgage interest is collected from the closing date until the end of the month; homeowner's insurance premium for 12 months and 2 to 3 month's advance. Property taxes of 2 to 4 month's are collected from the buyer aside from the buyer's credit from the seller.
State Documentary Fees - Tax Stamps are calculated at one penny for every thousand dollars. Subject to change.
Settlement Closing Fees – $200 approximately
The length of mortgage terms varies widely - from six months right up to 10 years. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term, the higher the rate.
While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now.
Before selecting your mortgage term, we suggest you answer the following questions:
1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
2. Do you believe that interest rates have bottomed out and are not likely to drop more? If that's the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.
3. Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
4. Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that's the case, a short mortgage term may best suit your needs.
Needless to say, you'll have financial responsibilities as a homeowner.
Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses.
The Mortgage Payment
For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as the mortgage term or amortization schedule.
Property tax can be paid in two ways - paid directly to the municipality or incorporated into your monthly mortgage payment using an escrow or impound account.
Almost all mortgage lenders require homeowners insurance is set before finalizing the loan. Homeowners insurance should be budgeted as an annual expense, similar to property taxes as bi-annual expenses."
In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a one lump sum, usually due once the school year ends.
As a homeowner, you are the one responsible for all utility bills including heating, gas, electricity, water, trash pickup, telephone and cable.
Maintenance and Upkeep
You will also have to cover the cost of painting, leaky roofs, electrical and plumbing, landscaping and snow removal. A well-maintained property helps to preserve your home's market value, and the neighborhood. If you make certain renovations it might add to the value of your property.