Common Buying Questions
- What is a Monthly Mortgage Payment Comprised Of?
- What are the Initial Costs of Buying a Home?
- What Information Do I Need to Apply for a Mortgage?
- What Happens at Closing?
- How Large of a Loan Should I Apply For?
- How Long Does it Take to Buy a Home?
- What’s the Difference Between Being Prequalified and Preapproved?
- What is an Appraisal?
- What are the Tax Benefits of Owning a Home?
- What is an Impound/Escrow Account?
Your monthly mortgage payment includes a payment on the principal balance of your loan as well as the interest payment. If applicable, your monthly payment may also include hazard insurance, mortgage insurance, flood insurance and property taxes.
Several factors need to be considered, including the cost of the house and the type of mortgage. In general, you need to have enough money to cover three costs:
Earnest Money – This is the deposit you make when you submit an offer on the home. Your real estate broker will put your this money into an escrow account and if your offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is rejected, you will have your money refunded.
Down Payment – This is usually between 3.5% and 20% of the total cost of the home that must be paid when you go to settlement. The amount of the down payment can vary based on your income, credit history, the cost of the home and the type of mortgage you choose. In some cases your lender may have a zero-down payment loan option. Traditionally, buyers who are getting an FHA loan only need to put down 3.5%.
Closing Costs – Closing costs generally range between 1-3% of the loan value. These costs include points, title insurance, escrow and lender fees. At Crestline Funding, we have a variety of loan products with no closing costs.
You should have the following:
1.) Social security numbers of those applying for the loan
2) Copies of your bank statements for the past 6 months
3) Evidence of additional assets like stocks and bonds
4) Last two paycheck stubs
5) Previous two years of tax returns and W2s
You will meet with your closing agent who will have several documents for you and the seller to sign. While the closing agent will give you a basic explanation of each document, you may want to consult with your agent to make sure you know exactly what you’re signing.
Lenders usually go by two rules of thumb when evaluating how much of a loan a borrower can realistically afford.
1. Your maximum monthly mortgage payment should not be greater than 28% of your pre-tax income.
2. Your maximum debt load (including your mortgage) should not be greater than 45% of your total pre-tax income.
These ratios are general rules of thumb on a traditional fixed-rate loan. Your lender can give you more information about other types of mortgages, such as FHA or VA loans, which have different qualification standards.
You can expect the process to take anywhere from three to six weeks on average from the day you get pre-approved for your loan. This can obviously change depending on how well your home search goes and dealings with the seller. As a direct lender, Crestline Funding has a streamlined mortgage process that can get people funded much faster than your average big bank.
When making a purchase offer on a home (unless you are buying in cash) you need to have proof that you are qualified for the loan. To do this you need to show a letter to the seller and/or their agent.
Prequalification – This means you have spoken with a lender and the lender is willing to provide a written statement that they believe you will qualify for a loan. It only takes a few minutes and can be done over the phone. This is not as strong as preapproval.
Preapproval –You get preapproved for a loan by submitting a formal loan application that is then verified by the lender. Preapproval makes you look like a cash buyer in the eyes of a seller and gives you more negotiating power.
An appraisal is a detailed analysis by a licensed appraiser of the market value of the home you want to purchase. Lenders will require an appraisal as part of the loan approval process.
In most cases you can deduct the mortgage interest and property taxes from your taxable income. In some cases this can make the after-tax cost of home ownership less expensive than renting. However, there may be tax implications if you later sell the home at a profit. Please consult your tax advisor for further information.
An escrow impound account is an account that can be set up with your new home loan that will pay your property taxes and/or insurance for you by collecting 1/12th of the annual property taxes and/or insurance along with your mortgage payment. This account is set up at the loan closing and is designed to make sure that your property taxes are always paid on time and your insurance is always current.