Mortgage Frequently Asked Questions
There are a lot of questions about mortgages. Here are answers to the three most common mortgage questions:
1. What is a mortgage?
A mortgage is a loan that secures real property with a legal agreement. When a home buyer decides to purchase a home, she may not be able pay for entire purchase up-front. Consequently, she can make a legal agreement with a lender.
For example, the bank lends the money and charges interest. It is one of the most common ways for a home buyer to purchase a home. Conveniently, this allows a buyer to buy a home without needing to pay for the entire purchase up front. The bank lends the money at interest. Usually, the lender secures the loan with the property being purchased. Once the buyer pays the debt in full, the lender removes the lien and conveys to the buyer. Subsequently, the buyer who holds the title to the property “free and clear”.
2. How much mortgage can I afford?
A buyer can estimate to spend between 25% to 43% of their gross monthly income on a monthly mortgage payment. To clarify, there are additional costs of home ownership outside of your mortgage payment. In other words, a you need to plan for some wiggle room to be able to cover these costs.
For example, these costs may include utilities and any HOA fees. The main information a lender will utilize include your assets, liabilities and income. The lender uses this information to calculate home much mortgage you can afford. Additionally, a lender will evaluate a buyer’s credit score in order to meet the standards of the type of program available to the buyer.
Assets are things that you own. Lenders evaluate two types of assets: liquid and non-liquid. First, liquid assets include checking and savings accounts or items that can easily be converted to cash such as stocks, bonds and other securities (including most retirement funds). Second, non-liquid assets include real estate, cars, jewelry or businesses owned. Finally, liabilities (debt) are the monetary obligations that you pay regularly: e.g., loans for other real estate and/or cars, credits cards, alimony or child support, union dues, etc…
As for income, lenders will look for proof of steady income. A self-employed borrower need not despair, lenders will typically review tax returns and use the adjusted gross income reported to help evaluate the income. A mortgage calculator (opens in new window) is a great tool to help you estimate what a mortgage scenario.
3. What are mortgage rates?
Mortgage rates are the interest rates a lender charges to borrow money. This is also called a “note rate.” The annual percentage rate (APR) includes note rate, any points paid for the rate, mortgage fees and other charges paid to get the loan. The APR is the cost you will pay each year to borrow the money, expressed as a percentage rate. But rates vary by lender and programs. Rates can change daily. Keep in mind, a rate can be fixed or adjustable.
A good lender will take time to help you evaluate and weigh which options are best for your home financing strategy. Please feel free to check out my frequently asked questions or connect (opens in new window)with me to start the conversation. Above all, I aim to provide professional, responsive and knowledgeable experience to help you find the right home finance solution for your needs.