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As a first-time buyer, what is the best way to get started in purchasing a home?

The first step is to figure out how much you can afford. There are a number of calculators on our website to assist you with that process. Many borrowers prefer to get pre-approved by a lender, which will guarantee a maximum purchase price to the borrower. Also, pre-approved borrowers generally receive preferential treatment from the seller's realtors. Since the seller knows the borrower is pre-approved, it can oftentimes lead to a reduced purchase price.

Is it necessary to get pre-qualified before shopping for a home?

While not necessary, it is highly recommended that you are pre-qualified before making an offer. It can be frustrating for both buyer and seller to make or receive an offer on a home only to find out later that you will not qualify for it. It is advantageous to know what you can afford before you begin shopping.

What is the difference between loan pre-qualification and pre-approval?

A pre-qualification occurs when a prospective buyer discloses, either verbally or by providing documentation of their income, assets and credit so that a loan agent may determine the loan amount that a borrower could likely qualify for based on standard lending guidelines. A pre-approval involves an underwriter (the lender's risk evaluator) actually reviewing a prospective buyer's loan application with a formal credit determination occurring that is subject to an appraisal, title report and purchase contract, along with whatever supporting documentation the underwriter may request.

Will the lender require a Property Appraisal, and do I need one?

Real estate appraisal, property valuation or land valuation is the practice of developing an opinion of the value of real property, usually its Market Value. The need for appraisals arises from the heterogeneous nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location - which is one of the most important determinants of their values.

A real estate appraisal is generally performed by a licensed or certified appraiser. Appraisal information is typically conveyed on a standardized form, such as the Uniform Residential Appraisal Report.

How much of a down payment does it make sense to make?

There is no easy answer to this question. The higher your down payment, the less interest you will pay over the life of the loan. However, interest on home mortgages is tax deductible, and a higher down payment would mean you would be giving up that potential tax savings.

The answer to this question is oftentimes determined by your current financial situation: e.g. just because you have the funds for a large down payment doesn't always mean you should withdraw funds from current investments to make it. The best advice we can give you is to consult with a financial advisor or tax consultant, allowing them to review your situation and advise you.

Is it possible for relatives to give me a gift for a down payment?

Yes. A portion of the down payment may be gifted, depending on loan type, so long as the relative is not expecting repayment of the funds. The lender will likely ask the donor to sign a statement stating that the gift funds are not expected to be repaid.

What are "points", and how do I know whether I should pay them?

Points, sometimes also called "discount points", are a form of pre-paid interest. One point equals one percent of the loan amount. By charging a borrower points, a lender effectively increases the yield on the loan above the amount of the stated interest rate. Borrowers can offer to pay a lender points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment in exchange for this up-front payment.

Paying points represents a calculated gamble on the part of the buyer. There will be a specific point in the timeline of the loan where the money spent to buy down the interest rate will be equal to the money saved by making reduced loan payments resulting from the lower interest rate on the loan.

Selling the property or refinancing prior to this break-even point will result in a net financial loss for the buyer while keeping the loan for longer than this break-even point will result in a net financial savings for the buyer. The longer you keep the property financed under the loan with purchased points, the more the money spent on the points will pay off. Accordingly, if the intention is to buy and sell the property or refinance in a rapid fashion, buying points is actually going to end up costing more than just paying the loan at the higher interest rate.

Points may also be purchased to reduce the monthly payment for the purpose of qualifying for a loan. Loan qualification based on monthly income versus the monthly loan payment may sometimes only be achievable by reducing the monthly payment through the purchasing of points to buy down the interest rate, thereby reducing the monthly loan payment.

Discount points may be different from origination fees or broker fees. Discount points are always used to buy down the interest rates, while origination fees are sometimes fees the lender charges for the loan or sometimes just another name for buying down the interest rate. Origination fee and discount points are both items listed under lender-charges on the Closing Disclosure (CD) Settlement Statement.

The difference in savings over the life of the loan can make paying points a benefit to the borrower. If you intend to stay in your home for an extended period of time, it may be worthwhile to pay additional points in order to obtain a lower interest rate. Any significant changes in fees should be re-disclosed in the final Loan Estimate (LE).

Also directly related to points is the concept of the ‘no closing cost loan’. If points are paid to acquire a loan, it is impossible at the same time for a broker, bank or lender to make a premium for a higher rate. When a premium is earned by making the note rate higher, this premium is sometimes used to pay the closing costs.

What is a rate lock?

A rate lock is a means for the borrower to lock in the lender’s current interest rate. Typically, a rate lock will last 30, 45 or 60 days, If a rate is locked in, it cannot rise if economic activity increases rates, but it also cannot fall if rates decrease.

Can I borrow money for my down payment?

It is possible to borrow money for a down payment, depending on the circumstances. Please contact one of our mortgage loan officers for assistance.

What does it mean to “close” a mortgage loan?

Real property in most jurisdictions is conveyed from the seller to the buyer through a real estate contract. The point in time at which the contract is actually executed and the title to the property is conveyed to the buyer is known as the “closing.” During the closing process, you should expect to sit with a Settlement Agency in your area to review and sign the final documents, including the Deed of Trust, that will transfer the ownership of the property to you.

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