What can I afford?
You’ll first need to determine what’s affordable. Keep in mind, when you’re buying a home, you’ll have upfront costs—down payment, closing costs—and you’ll need to be prepared for these expenses. We’ll go through more details in the Qualify for a Mortgage section and you can use our Mortgage Calculator to help estimate what you can afford.
What do I need to start?
Before you get serious with your search, you’ll want to get your financing in order and call your Choice Lending Professional. We’ll go through these steps in detail, but it’s a good idea to start gathering your financial records (pay stubs, W2s, bank statements, etc.) and have them ready. Have a co-borrower? Their information will be required too.
How much do I need to put down?
At one time, lenders may have required a 20% down payment to buy a home. Today, there are options for homebuyers who can’t afford to pay that much upfront. Choice Lending Corp has mortgage programs that allow down payments as low as 3% of the purchase price. One important thing to note, if your down payment is less than 20%, you may need to pay what’s called Mortgage Insurance (MI) each month until you reach 20% equity in the home. Ask your Choice Lending Mortgage Consultant about specifics for MI cancellation.
What about my credit?
You should take a look at your credit report before you start the home buying process. This is the time to clean up any past issues and make sure there are no inaccuracies or mistakes. To qualify for a mortgage, you’ll need to meet the minimum credit qualifications (which may vary by program but you typically need a minimum credit score of 620). If you’re not in that range, you may need to spend time rebuilding your credit or come up with a larger down payment (i.e., 10% vs. 3%).
Find more information about how important your credit is, how to repair credit issues and how to understand your credit score contact Choice Lending Corp today.
What's included in my monthly payment?
Your mortgage payment typically includes PITI:
- Principal – What you borrowed (also referred to as "amount financed")
- Interest – What the lender charges you to borrow the money used to purchase or refinance the home
- Taxes – What you pay in property taxes to your local city/municipality and sometimes county; and
- Insurance – What you pay to insure your home from damages (fire, natural disasters, etc.). There is also Private Mortgage Insurance (PMI) which is usually required on most loans when your down payment is less than 20%. PMI is paid monthly until you reach the 20% equity threshold.
NOTE: in some cases, your monthly payment might also include the fees paid to a homeowner's association on your property (HOA fees).
What is an escrow account?
Taxes and insurance are usually held in an escrow account and paid by the mortgage company when they are due (a portion of your monthly payment goes to fund the escrow account). This can be beneficial—especially for first-time buyers or buyers without significant savings—as you set aside a small amount each month instead of having a large, semi-annual or annual out-of-pocket expense. But, it does increase your mortgage payment and reduce your cash flow each month.
Some mortgage programs require an escrow account and some let the homeowner pay their insurance and taxes directly. Always check with your Choice Lending Loan Officer to see what's covered in your monthly payment.
What are the types of loans?
Choice Lending Corp provides various financing options to cover a multitude of different mortgage needs. Mortgage programs vary but they usually fall into these categories:
- Fixed-rate mortgage – Interest rate remains the same for the life of the loan providing you with a stable and predictable monthly payment
- Adjustable-rate mortgage – Interest rate is flexible and subject to adjustments—either on specific dates (3-, 5-, 7-year adjustments) or based on market conditions. An adjustable rate mortgage may provide you with a lower rate in the beginning of the loan; however, the payment may increase over time
- Government guaranteed mortgages – Both the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and United States Department of Agriculture (USDA) offer loans to help homeowners with income restrictions or those who are currently in the military or a veteran respectively. Typically these loans have lower down payment requirements and less restrictive qualifying guidelines, but they do require you to meet certain criteria.
Pre-qualification vs. pre-approval?
Sometimes these terms are used interchangeably, but they're actually very different:
This involves providing your us with some basic information—what income you make, what you owe, what assets you have, etc. They'll look at your overall financial situation and be able to provide you with a preliminary estimate of what loan terms for which you may qualify.
When you get pre-qualified, we will also review your credit report and make a determination if you can qualify for a mortgage—we'll provide the mortgage amount for which you may qualify. Pre-qualifying can help you have an idea of your financing amount (and the process is quick and free), but we will not verify all the information provided which will determine if you actually qualify for a mortgage.
This involves completing a mortgage application and providing the lender with your income documentation and personal records. A pre-approval takes longer than a pre-qualification as it’s a more extensive review of your finances and credit worthiness. At Choice Lending Corp we do not charge for an application fee.
Pre-approval is a bigger step but a better commitment. If you qualify for a mortgage, your Loan Officer will be able to provide: the amount of financing; potential interest rate; and you'll be able to see an estimate of your monthly payment (before taxes and insurance because you haven't found a property yet).
Why get pre-approved?
It saves you time by letting you search for homes within your pre-approved, affordable price range. Also, you're letting sellers know you're a serious and qualified buyer. Often, if there's competition for a home, buyers who have their financing in place are preferred because it shows the seller you can afford the home and are ready to purchase.
One Last Thing
The mortgage process has become very document intensive. Almost every aspect of the borrowers profile must be documented and verified. To make the mortgage experience more manageable it is highly recommended that you get yourself organized in advance and be ready to provide whatever documentation is requested. See a below a short list of items needed to qualify.
- Copy of Drivers License and Social Security Card (s)
- One Full Month of Current Paystubs For All Borrowers
- Two Most Recent Bank Statements: All Accounts and All Pages
- Past Two Years Tax Returns: 1040’S, K-1’S and/or Corporate Returns
- Past Two Years W2’S and 1099’S from All Employers
- Copy of Award Letters from Social Security and/or Retirement Pension
- Copy of Most Recent Retirement Account(s): 401K, PERS, Stocks and Money markets
This list only covers the basics and your Choice Lending Professional will outline just what you will need to qualify for your mortgage. Call us today; we will guide you through to closing as quickly and effortlessly as possible.