As you start shopping for a home loan, your first question of each lender will probably be "What's your interest rate? How much are you charging?"
Interest rates are usually expressed as an annual percentage of the amount borrowed. If you borrowed $120,000 at 10% interest, you'd owe interest of $12,000 for the first year. With most mortgage plans you'd pay it at the rate of $1,000 a month. You would also send in something each month to reduce the principal debt you owe - and the next month you'd owe a bit less interest.
When your grandparents bought their home (putting at least half the purchase price down, by the way), their interest rate was probably around 4 or 5%. Rates stayed the same for years at a time. Then in the years following World War II, things became more turbulent. As economic changes speeded up, rates began to change several times a year. By the l980s, lenders were setting new rates on mortgage loans as often as once a week - and they still do today. When inflation hit a high in the '80s, some mortgage loans carried interest rates as high as 17% - and those who absolutely needed to buy, paid that much.
Rates dropped gradually through the 1990s, and by 2000 had reached their lowest rates in decades. Continuing into the millennium, home buyers appear to have the most favorable conditions for mortgage borrowing since their grandparents' days - and without 50% down payments either.How much home can you afford? There are several loan programs available, and depending on your credit history, there is bound to be one that is perfect for you. Here are a few examples of the most popular programs offered today:
The fixed-rate mortgage is the most popular mortgage program in use today. Fixed-rate loans offer the borrower a fixed interest rate for the life of the loan, typically for 30 years. Borrowers have peace of mind knowing that their monthly payment will not change over time. Conventional fixed-rate mortgages have underwriting requirements established by Freddie Mac and Fannie Mae, and require certain down-payment and debt-to-equity ratios to qualify. Fixed-rate loans are especially attractive to buyers who plan to stay in their home for more than a few years.
ADJUSTABLE RATE LOANS
With an Adjustable Rate Mortgage (ARM), the interest rate changes periodically, and payments can fluctuate up or down accordingly. Rates are tied to an index that reflects the cost of money at any given point in time. Generally speaking, lenders charge a lower initial interest rate for the ARM than for the fixed rate mortgage. If you are expecting interest rates to decrease in the future, or if you are trying to maximize your purchase power today knowing your income will rise in the future, then this loan may be right for you. Adjustable rate loans are attractive for buyers who expect to be in the home for a short period of time.
FHA AND VA LOANS
The Federal Housing Administration (FHA), offers loans for low-to-moderate-income home buyers. FHA loans have lower down payments, and have relatively easier qualifying requirements than conventional fixed-rate mortgages. FHA mortgages have no income restrictions and even those with lower credit scores may be considered. Past bankruptcy does not necessarily disqualify borrowers from using this program!
The Department of Veterans Affairs (VA) offers a zero-down mortgage program. To take advantage of this program, borrowers need to be among those listed as veterans and service personnel in the U.S. military. One of the biggest benefits of this program is that it eliminates the need for private mortgage insurance!
LOCAL HOMEBUYING PROGRAMS
There are often many state and local programs available. These programs offer down-payment assistance and programs for local home ownership. Learn more about these local programs, recommended lenders, and other finance options by contacting us today!
Items Typically Required to Apply for a Home Loan:
- Complete tax returns for the past two years, including all pages and schedules. If self employed, they will also need a copy of the business tax returns with all schedules.
- Two year history of addresses where you have lived
- Driver's License and original social security card
- W-2's for the past two years
- Most recent bank statements showing all pages. You can print a statement on-line if the printout shows your name, banking institution and dates. The lender will most likely ask for a letter of explanation for any irregular deposits.
- Divorce decrees signed by the judge if applicable.
- Paystubs covering the most recent 60 days and with year to date earnings.
- Existing mortgage payment statement if applicable.
- Most recent retirement account statements which name your name, institution name and dates.
- Most recent statements for any other assets, covering the past 2 months
- Copy of the declaration page of homeowner's insurance along with a paid receipt. You can only provide this once you have identified a property to purchase. Your insurance agent can usually send this to the lender on your behalf.
- A copy of the fully executed sales contract. I will provide this to the lender on your behalf.
- If applicable, complete bankruptcy petition and discharge of debtors paperwork.
For more information contact one of my preferred lenders:
Caliber Home Loans
Direct: (801) 949-2271
NMLS ID # 268048
Cell: (801) 870-5202
NMLS ID # 404565