FAQ

In simple terms a mortgage is a loan used to purchase a piece of property. With a regular loan there is no collateral, your ability to repay the loan is analyzed and you are either approved or denied based on that. A mortgage is a bit different in that your house serves as additional collateral for the lender. For most people this is the largest loan they will ever take out, so the lender needs to mitigate their risk by including the home as collateral.

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There are a wide variety of loans to choose from, and before we discuss some of the more common options, a good first step is to ask yourself some initial questions:

• How long do I plan on living in this house?
• How will my life be different in 10 years?
• How much cash do I want to keep on hand for other investments?
• How much risk am I comfortable taking?

The most common loan type is a fixed rate mortgage. This means your interest rate will be locked in for the length of your loan. The length of the loan can vary based on what you and your lender agree to, but the most common term lengths are 15 and 30 years. The longer the term length the less your monthly payment will be. It is also important to remember that in the first few years the majority of your payment will go towards paying down the interest on the loan. As you proceed more and more of your payment will be used to pay off the principal of your loan.

Another common option is the adjustable rate mortgage or ARM. These mortgages provide a fixed rate for a set period of time (usually 3, 5, 7, or 10 years) and then after that period the interest rate is reset to be more in line with the new current rates. Often times borrowers use this type of loan to get a lower rate initially and hope that they will be in a better place to pay more down the line. There are limits to how much your rate can increase, but borrowers interested in this loan type need to work closely with their lender to make sure they understand all the details about how their loan and monthly payments could change down the road.

Other less common loans include jumbo loans for those borrowing over , VA loans for those who have served in the military, and 203k loans which include renovation costs. Be sure to speak with your lender about the different programs available and find out what works best for you.

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Nope. Not unless you’re buying land or a commercial property that is. If that’s the case then this site probably isn’t for you. Residential only!

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Private mortgage insurance (PMI) is an additional fee that gets added to mortgages when the borrower puts down less than 20%. Borrowers who put down less than 20% are seen as a greater risk by lenders, and this additional insurance protects the lender against the borrower defaulting on the loan. Once you have 20% equity in the home you are no longer required to pay the PMI since you are no longer seen as a risky borrower. It is important to know that this insurance does not cover them or their property, but instead it insures the lender against loss. Homeowners insurance is the product you will need to purchase to protect your home against extreme weather, fire, theft, etc…

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Private mortgage insurance (PMI) is an additional fee that gets added to mortgages when the borrower puts down less than 20%. Borrowers who put down less than 20% are seen as a greater risk by lenders, and this additional insurance protects the lender against the borrower defaulting on the loan. Once you have 20% equity in the home you are no longer required to pay the PMI since you are no longer seen as a risky borrower. It is important to know that this insurance does not cover them or their property, but instead it insures the lender against loss. Homeowners insurance is the product you will need to purchase to protect your home against extreme weather, fire, theft, etc…

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Researchers may one day find a cure to death, and the only certainty remaining will be taxes. That doesn’t mean you can’t reduce your tax obligation. The tax code allows homeowners to deduct their mortgage interest, and for many people this is their single biggest deduction. Homeowners can also write off closing costs, and property taxes. Of course taxes vary from state to state, and constantly change so be sure to consult a professional to make sure you get every tax advantage you can.

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For most people 3.5% is the lowest amount you can put down on a house. Veterans, and those who qualify for rural, agricultural loans can actually put down 0%. However it is important to keep in mind that anyone putting down less than 20% will pay an additional PMI on their home. Your lender will be able to discuss your finances with you and figure out what is best for your specific situation.

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There are a few different ways to lower your monthly mortgage payment, depending on your current situation. If you are still paying private mortgage insurance (PMI) you can petition your lender to cancel the insurance once you have 20% equity in the home. You may have made enough payments to get to this point, or your home could have gone up in value as a result of market fluctuations, or improvements you have completed. You will need to request a new appraisal to see if that is the case, but that small cost could save you hundreds of dollars a month.

Another common approach is refinancing. Refinancing saves you money by reducing your current interest to today’s rate. There are costs to refinancing, but if you can get a significantly lower rate those costs will pay for themselves over time.

A less common method is to make 1 extra monthly payment each year. This extra payment can be put towards your principal and take years off your mortgage. Some lenders also offer options to modify or reset your loan. You will need to speak with your specific lender to find out if this is an option for you.

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There are a few different ways to take out an additional loan or second mortgage on your home. Before we get into some of the more popular options, it is important to remember that this money comes with interest just like a credit card or any other type of loan. This interest rate may be lower, but you are also using your home as collateral which means failure to repay may result in the loss of your home. That does not mean these loans can’t be useful for an educated borrower, so let’s see what the options are:

• Home equity loan: A second mortgage for a set amount, at a set interest rate, which is to be repaid over a set period of time.
• Home equity line of credit (HELOC): A second mortgage with a fluctuating balance similar to a credit card. The interest rate on HELOC’s varies according to the market rate.
• Cash-out refinance: A refi on your current mortgage that exceeds the current amount you owe. The borrower receives the difference in cash up front to be repaid as part of the refinanced mortgage.

As for how much you can borrow that depends on your lender, and the amount of equity you have in the house, and your credit score. You will need to discuss terms with your lender, but most will approve you to borrow 80-90% of your equity.

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Legally speaking, there are no limits to the number of times you can refinance your home loan. However, that does not mean it will always be a good idea to do so. One thing you will want to keep an eye out for is prepayment penalties. Some mortgages include penalties for early payoff that could offset the gains you make by refinancing. Anytime you consider refinancing to save money there are really three variables you need to account for: Interest, costs, and time. You will need to meet with your lender and determine how much you can reduce your interest rate by, and what the closing costs will be to do so. From there you can see how many months it will take for your monthly savings to pay for the closing costs. If you plan on staying in the home longer than that time then it is probably smart to refinance to the lower interest rate.

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• Focus on structural stuff like the roof, wiring, plumbing, and foundation over minor details like paint color
• New windows, proper insulation, and efficient heating and cooling systems will save you money on utilities in the long run
• Does it pass the sniff test? Don’t rely just on your eyes, use the power of your nose as well. If you smell pet odors, cigarettes, mildew or sewage you should take that into consideration before you buy.
• Never skip the home inspection. Repeat. Never skip the home inspection.
• Make a list of needs and wants and then prioritize. You can’t always get what you want. But if you try sometimes you just might find, you get what you need.

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• References: Ask previous clients what their asking price was and what the sales price ended up being. Did they enjoy working with the realtor and feel like their best interest were represented?
• Credentials: Contact state regulatory boards to determine licensing and research any disciplinary action or complaints. Check for additional specialty designations:
  • CRS (Certified Residential Specialist): Completed additional training in handling residential real estate.
  • ABR (Accredited Buyer's Representative): Completed additional education in representing buyers in a transaction.
  • SRES (Seniors Real Estate Specialist): Completed training aimed at helping buyers and sellers in the 50-plus age range.
• Awards: NAR “Realtor of the Year” is a great achievement, but anything that shows you that the realtor has expertise in your area will be beneficial for you.
• Experience: 5 years or more in the area you are looking is preferred. Remember, you are interviewing them. You don’t have to hire anyone who doesn’t meet your requirements.
• Communication Style: Do you like to use text, email, phone, telegraph, or carrier pigeon? Whatever your preference, your realtor should adopt your style.

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• Meet with your agents to write up a purchase offer and contract. Don’t worry, most contracts will include contingencies that allow you to back out if the appraisal reveals problems, your loan doesn’t get approved, etc… Make sure you know all the points at which you can back out if you need to.
• Review the seller’s disclosure documents. This will include everything from broad information like a geographical survey and development plans to specifics like leaky windows. Review this carefully and don’t be afraid to get out if the property isn’t up to your standards.
• The appraisal provides an independent review of the property, and the surrounding area. Be sure to review it thoroughly and look at the comparables to make sure you’re not overpaying.
• An Inspection provides buyers with a thorough, top to bottom property analysis. An independent inspector will look over everything from the foundation to the roof. They will also let you know if they have any concerns and think a specialist such as an electrician or plumber may be needed. You should walk through the property alongside the appraiser to get more knowledge about your future home. Again if anything unexpected comes up you have the ability to renegotiate with the seller or walk away completely.
• Finally the lender will conduct their final review and research any potential liens on the property. This can take up to a month to complete, but at the end you will receive your official loan approval. Congratulations, you have been deemed worthy.
• A day or so before the final closing you will do a final walk through to ensure that the property is in the agreed upon condition and that any requested repairs have been completed.
• The closing is the final step in a real estate transaction. Be sure you receive the closing statement from your agent in advance so you know what amount of money you need to bring when you go to sign the paperwork. You might want to do some finger exercises as well. There are usually dozens of documents to be signed during this final step.
• Pop the champagne cork, dance around like a fool, and go buy some paint. The house is yours, make it your own and start creating memories.

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This question largely comes down to personal preference and your long term goals, however there are some things all potential buyers should consider.

Most experts agree that if you are buying a house as an investment asset you will usually need to live in that house for at least five years before you see any potential gains. By definition investments are subject to market volatility, and have the potential to both lose and gain value over time. It is usually wise to view your property as a home first, and an investment second.

Time to put those high school math skills to use, and run the numbers. A month of rent does not equal a month’s mortgage payment. Be sure to weigh the additional costs of interest, property taxes, insurance, and maintenance that come along with owning a home. On the other side you also have tax benefits, and equity to take into consideration.

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Pre-qualification is the quick and dirty version of a full on pre-approval. For a pre-qualification you supply some basic, estimated info just to see approximately how much of a loan you would qualify for.

The minimum amount for a loan to be considered jumbo varies by county, but many homes in Southern California will meet this requirement. Jumbo loans are not backed by the government, and are considered more risky by lenders. As a result, borrower requirements are often stricter for this loan type.

To get a pre-approval letter from your bank or mortgage lender you will need to complete a loan application, supply income and employment documents, and have your credit run. This lets sellers know exactly where you stand, and that you are really interested in purchasing a house. Your pre-approval letter is typically valid for 60-90 days. Get serious, get approved.

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A traditional sale takes place when the owner of the property lists the property through the local MLS service usually with the help of an agent. As the name suggests this process is the most common, and therefore has the fastest turnaround time and easiest document process.

REO (real estate owned) may be more accurately called bank owned. These properties have gone through the foreclosure process, and the title now belongs to the bank. In this scenario you will not be buying the property directly from the previous owner, but rather from its current owner, the bank. Since the bank’s asset manager did not previously live in the property they are not obligated to disclose as much information about the property as a traditional sale would. It is up to the buyer to have the property inspected. Because the asset manager is working with multiple properties at once, the acceptance phase also often takes more time when purchasing an REO property. On the plus side it is possible to find some great deals with an REO, and it can benefit you to buy from an institution who does not have years of memories and emotions involved in the sale.

Short Sale properties fall somewhere in between Traditional and REO sales. Before the current owner is foreclosed on they have the opportunity to list the property as a short sale. In this scenario you will be purchasing the property from the previous owner, who may be more inclined to take less than the asking price since their negotiation with the bank prohibits them from making a profit on the sale. The downside is that the transaction process usually takes longer than a traditional sale. Again, there are deals to be found with Short Sale properties. Hopefully you’ve chosen a great agent and they will be able to advise you on what is available in your area, and will work best for your needs.

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Buying a home is both a financial and emotional decision. Make sure you know why you are buying, what neighborhood you want to live in, and what you hope to achieve through your purchase. Is this going to be your home for life, or just a stepping stone?

Once you have decided that you want to become a homeowner you should start looking for a lender. A small difference in interest rates can save your thousands of dollars over the course of your loan, but that isn’t the only thing you need to take into consideration when choosing a lender. Don’t forget that you will be interacting with this person throughout the process. You will want to choose a lender that provides great customer service and gets back to you quickly. Be sure they are knowledgeable and able to answer all your questions without hesitation. Once you feel comfortable that you are talking to a professional ask them for a Good Faith Estimate. This is a detailed list of costs related to the home purchase. This may vary slightly from your actual costs, but it will give you a good idea of what to expect at closing.

Your credit score will have a significant impact on your loan, so you should start making any necessary lifestyle changes before you apply for a home loan. Typically borrowers with a credit score over 720 get the most favorable interest rates. The first thing you will want to do to increase your score is make sure you pay all of your bills on time, every time. You will also want to pay down your current credit card debt as much as possible. However, if you pay off a credit card completely don’t then close it out. A long credit history works to your advantage even if you no longer use that card. You will also want to avoid opening a new account or making any large purchases for a few months before you buy.

Aside from paying off your debt, you will also need to start saving for a down payment. FHA loans now only require a down payment of 3.5%, but it is important to keep in mind that the more you can put down, the lower your monthly payment will be. If you are able to put down 20% you will also have the added advantage of avoiding the additional PMI (Private Mortgage Insurance.) You will also want to have money set aside for closing costs, moving costs, agent fees, inspections, renovations, homeowners insurance, HOA dues, and property taxes.

Another critical step in the early phase is choosing a realtor. It is common to get recommendations from friends and relatives, but you should always interview several agents before choosing the one that is right for you. Be sure the agent is knowledgeable about the type of property you want to buy, and the neighborhood you are interested in. See our section on “What to look for in a real estate agent” for more details.

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