Shearson Mortgage - Mortgage FAQ - General Questions: Buying a House

Dear Sharon,

I want to compliment you and your staff for the wonderful treatment I received in the refinancing of my home. All of you were so kind...

Frequently Asked Questions


GENERAL QUESTIONS

v	Buying a House

	What should I know about buying a home?
	How much house can I afford?
	How do I compare loans?
	What are the components of a monthly payment?



	What should I know about buying a home?

		Here are some tips that could save you a lot of time, money and trouble. Plan ahead. Establish good credit and save as much as you can for the down payment and closing costs. Get pre-approved online before you start looking. Not only do real estate agents prefer working with pre-qualified buyers; you will have more negotiating power and an edge over homebuyers who are not pre-approved. Set a budget and stick to it. Our Online Calculator can help you determine a comfortable price range. Know what you really want in a home. How long will you live there? Is your family growing? What are the schools like? How long is your commute? Consider every angle before diving in. Make a reasonable offer. To determine a fair value on the home, ask your real estate agent for a comparative market analysis listing all the sales prices of other houses in the neighborhood. Choose your loan (and your lender) carefully. For some tips, see the question in this section about comparing loans. Consult with your lender before paying off debts. You may qualify even with your existing debt, especially if it frees up more cash for a down payment. Keep your day job. If there is a career move in your future, make the move after your loan is approved. Lenders tend to favor a stable employment history. Do not shift money around. A lender needs to verify all sources of funds. By leaving everything where it is, the process is a lot easier on everyone involved. Do not add to your debt. If you increase your debt by financing a new car, boat, furniture or other large purchase, it could prevent you from qualifying. Timing is everything. If you already own a home, you may need to sell your current home to qualify for a new one. If you are renting, simply time the move to the end of the lease.


	How much house can I afford??

		How much house you can afford depends on how much cash you can put down and how much a creditor will lend you. There are two rules of thumb: You can afford a home that's up to 2 1/2 times your annual gross income. Your monthly payments (principal and interest) should be 1/4 of your gross pay, or 1/3 of your take-home pay. The downpayment and closing costs - how much cash will you need? Generally speaking, the more money you put down, the lower your mortgage. You can put as little as 3% down, depending on the loan, but you'll have a higher interest rate. Furthermore, anything less than 20% down will require you to pay Private Mortgage Insurance (PMI) which protects the lender if you can't make the payments. Also, expect to pay 3% to 6% of the loan amount in closing costs. These are fees required to close the loan including points, insurance, inspections and title fees. To save on closing costs you may ask the seller to pay some of them, in which case the lender simply adds that amount to the price of the house and you finance them with the mortgage. A lender may also ask you to have two months' mortgage payments in savings when applying for a loan. The mortgage - how much can you borrow? A lender will look at your income and your existing debt when evaluating your loan application. They use two ratios as guidelines: Housing expense ratio. Your monthly PITI payment (Principal, Interest, Taxes and Insurance) should not exceed 28% of your monthly gross income. Debt-to-income ratio. Your long-term debt (any debt that will take over 10 months to pay off - mortgages, car loans, student loans, alimony, child support, credit cards) shouldn't exceed 36% of your monthly gross income. Lenders aren't inflexible, however. These are just guidelines. If you can make a large downpayment or if you've been paying rent that's close to the same amount as your proposed mortgage, the lender may bend a little. Use our calculator to see how you fit into these guidelines and to find out how much home you can afford.


	How do I compare loans?

		At Shearson Mortgage, we offer a number of loan products for all sorts of borrowers. Yet, you may also wish to compare our loan programs with other lenders. So here are some questions that can help you sort it all out: What type of loan will be best for me? A good lender can point out other loan options you may not be aware of. What will my closing costs be? Ask your lender for a general summation of the fees and commissions that will be required of you at closing. Will I be charged points? Sometimes a loan is only available if you pay points, so ask your lender if the loan quoted requires points. What items must be prepaid? Your lender should let you know what items, such as property taxes and insurance, must be paid in advance. How long will I be guaranteed the quoted interest rate? This is called "locking in" a rate. Ask your lender how long your rate can be reserved and if there's a fee involved. How long will the approval take? This varies, so get an estimate, especially if you're on a deadline. Does the loan have a prepayment penalty? If you think you may refinance or pay off the loan early, you should ask if there's a fee involved for doing so.


	What are the components of a monthly payment?

		Your monthly payment is the sum of four factors, commonly referred to as PITI (Principal, Interest, Taxes, Insurance). You may also be required to pay PMI on a monthly basis. Principal - The amount of the payment that is applied to the loan balance. Interest - The charge paid for borrowing money. Taxes - Property taxes. May also be paid separately to your local government. Insurance - Lenders require you to maintain adequate insurance to protect your home. This may also be paid separately. PMI (Private Mortgage Insurance) - For a detailed explanation of PMI, consult the question about Private Mortgage Insurance in this section, or see Mortgage Insurance in the Glossary.

ABOUT US

STATE LICENSING