How much do I need for a down payment?

Question number one when buying a home is usually “How much down payment are we going to need?” The necessary down payment is dependant upon the type of loan you receive (which can vary from 0%, as with VA loans, to 25% or more as with non-conforming loans), and how much you are comfortable paying each month. As an average, most homebuyers make down payments in the 3.5%-15% range, although your own personal situation may dictate more or less down payment. When you are factoring money for a down payment, don’t forget about closing costs, which will total in the 2%-5% range, payable in cash at the time of closing.

What is a fixed rate mortgage (FRM)?

A fixed rate mortgage carries the same rate for the term of the mortgage. The interest rate and term are fixed at the start of the mortgage. The monthly amount for the payment of principal and interest will not change during the term of the mortgage, regardless of market conditions.

What is an adjustable rate mortgage (ARM)?

The interest rate on an ARM changes up or down according to current market conditions and interest rate levels. Accordingly, your monthly payment will increase or decrease with these rate changes.

What is prequalification? Does it mean the loan is approved?

Prequalification is the initial step in securing a mortgage. A lender will analyze your current income, debt and basic credit history situation in order to qualify you for a maximum loan amount. This gives you a clear picture of your financial parameters. In preapproval, the lender verifies your income, debt and financial picture, approving the loan subject to a favorable appraisal of the property you select.

What is preapproval?

Preapproval means that the lender agrees to extend a specific amount of credit under specific terms based on an initial credit analysis, conducted by the lender. At this point, the mortgage is subject to appraisal of the property.

Can I use my IRA retirement funds for down payment on a house?

For most first time buyers, you can use the funds in these retirement accounts without penalty. According to the IRS, if both husband and wife are first-time homebuyers, they each can withdraw up to $10,000 for qualified acquisition costs penalty-free for a first home.

Should I Pay Points?

Along with the interest rate, the number of points (up-front interest) is an important consideration when comparing mortgages. Because no one wants to pay what they don’t have to, the idea of paying a couple thousand dollars never appeals to anyone. That is exactly why you should go through the mortgage process with someone who is willing to help you make the most intelligent decisions. Getting a mortgage is a process, not just a purchase. Your search should begin with consulting a First Fidelity Mortgage loan officer to help guide you through the process.

What Mortgage Options are there for those with poor credit?

Getting approved for a mortgage is not as easy as it was one year ago, but it’s not as difficult or painful as many people believe. One of the mistakes commonly made by homebuyers involves their credit report. Some buyers assume that their credit is worse than it really is, and may well have been able to secure a more advantageous mortgage. Other buyers are unaware of the problems in their credit report and need to scramble to get the problems handled. Whatever your situation, First Fidelity Mortgage can help you get approved for a mortgage.

What are front and back ratios?

Part of the mortgage application process will be the determination of how much house you can afford based on your income. The two ratios that will be computed are the front ratio and the back ratio.

Front Ratio: The total mortgage payment including principal, interest, taxes and insurance (PITI) as well as any condominium or homeowner association fees divided by your total GROSS income. Traditionally, this ratio must be below 28%. Example: With a gross income of $3,700 per month and a PITI of $973, the front ratio would be 26%.

Back Ratio: The total mortgage payment PLUS any car payments, credit card and other loan payments divided by your total GROSS income. Traditionally, the total back ratio should be below 36%. Example: With a gross income of $3,700 per month, a total mortgage payment of &973, a car payment of $212, one credit card payment of $59 and one credit card payment of $43 for a total of $1,287, the back ratio would be 35%.

What options are there for buyers with no money down and no cash for closing costs? 

Actually, quite a few. Since a mortgage payment will take a good percentage of your income, lenders will want you to be involved (meaning having your money involved) from the very beginning. There are options for low down payment (5% or less) mortgages such as FHA mortgages, and there is always the possibility that the seller could absorb some of your closing costs (which are usually 2-5% of the selling price), but to buy a home with no cash down is a rare occurrence. If you have cash for the closing costs, though, and excellent credit, there are new options in the conventional loan arena.