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Purchase A Home with the Best Mortgage Loan

Buying a home is likely to be the largest, most significant purchase of your life. So while it is part of the "American dream," it can be equally as exciting as it is stressful for many people. Securing the right home purchase loan involves the consideration of many factors, several of which are mentioned below.

Down Payments + Principal

Down payments represent the amount of cash investment that buyers have available to put towards the purchase price of a home. Depending on the type of loan, there may be restrictions on the down payment, such as the length of time for which the cash has been in the buyer's possession, the source of those funds, whether the funds were a gift or not, etc.

Furthermore, often times prospective home buyers estimate their down payment requirements by simply multiplying the percentage of down payment by the value of the home, which can be incorrect. Involving your lender early can help you with understanding how much of a monthly payment you can afford, how to calculate the down payment needed and ultimately the maximum purchase price of a home.

The principal is the final loan amount needed to secure the home purchase. The principal may or may not include all of the closing costs rolled up into the loan or not.

Is it better to have cash reserves, pay down other unsecured debt or build up a down payment?
How do closing costs influence minimum down payment requirements, if at all?
Can I still buy a home with bad credit, or have those opportunities passed by?
Can I still buy a home with no money down today?

Types of Mortgage Loans

• Conforming Loan (aka. Conventional) - loan with regional principal limits, typically around $417K but as a high as $729K; characterized by lower interest rates than non-conforming loans
• FHA loan - typically the type of loan for first-time home buyers, purchasers with less than perfect, or buyers with between 3% - 10% down
• Fixed Rate - the rate remains constant throughout the life of the loan providing homeowners with a predictable monthly mortgage payment
• ARM (adjustable rate mortgage) - a low, favorable rate is locked in for a specified number of years, after which the rate is set to automatically increase to an unspecified rate dependent on the current rates at the time of adjustment
• Interest-Only mortgages

Length of Term

The duration of the loan is specified by the number of months or years for which the contract is scheduled. If payments are made exactly according to the schedule, mortgage loans are calculated to expire when the final payment in the series is processed. The standard length of term for a mortgage is 30 years, but other common terms are 20 and 15 years, with 40 year terms becoming more popular.

Interest Rates + APR

If you're not careful, you might confuse or otherwise not fully understand the difference between the two. The interest rate represents only the rate itself, whereas the APR more accurately represents the "true" cost of the loan by accounting for the added costs of lender fees and spreading those fees out across the life of the loan. In this sense, the APR provides an accurate measurement of the cost of the loan over the entire length of term. Always compare both the interest rates as well as the APRs when competing lenders submit mortgage rate quotes to you.

PMI (Private Mortgage Insurance)

Associated with home purchase mortgages with a down payment of less than 20%, private mortgage insurance protects the lending institution against financial losses associated with nonpaying borrowers and foreclosures. While PMI protects the lending institution, the borrower pays for it. PMI is normally added on top of the monthly mortgage payment.

As the LTV (loan-to-value) ratio reaches 80%, so that 20% equity is established, the private mortgage insurance may be eliminated through a licensed appraisal's report. Before contracts are signed, you should verify potential opportunities to eliminate PMI with your lender, and then keep track of your home's growing value.

Locking in a Rate

Interest rates can vary from day to day, which means that as a savvy consumer you will want to pay close attention to interest rate tables or establish enough rapport with your lender to make sure you are immediately notified of favorable interest rate drops when home purchase offers are in play. At some later point in the home buying process you will work with your lender to lock-in your low interest rate.

Locking in a rate means that the interest rate for your loan is now set and will not change, regardless of the market fluctuations which occur after the rate has been locked.

Locking in a rate too early in the purchase process however, could provide you with a false sense of security if the rate expires prior to the loan closing. Work in tandem with your lender to ensure that the lowest possible rate is locked in for your loan at the appropriate time.

Closing Costs

A rather vague phrase, closing costs is an umbrella term that encompasses any and all costs associated with the process of funding a mortgage loan and buying a house. Likely to be included in this group are the appraisal, credit report, underwriting, flood certification, taxes, application, rate lock, broker, processing and origination fees. Additionally there may also be inspection, lawyer and administration fees.

Although your lenders will provide you with a "good faith estimate" documenting projected fee amounts in order to help you assess the total costs of buying a home, often times these estimates are less accurate than they feel they should be because there are simply so many factors and variables to include. Ask your lender for a "good faith estimate" with generous allotments just to be on the safe side.

411 LoanDESK

Lender411 assists you in finding the right loan by providing you with our unique LoanDESK dashboard; a service platform not found elsewhere. When you're ready to start, simply launch the LoanDESK feature and enjoy its enormous benefits - FREE!. Within the LoanDESK platform:

• You are matched to lenders according to your specific criteria
• Your questions are answered and messages are exchanged safely, securely and privately
• At the end, you can confidently make a decision on the loan that is right for you!
  

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