Step One – What can I afford
What you can afford depends on the amount of cash you have available for a downpayment and the amount a creditor will lend you. Generally, there are a couple rules of thumb:
- Your monthly payment (principal and interest) is 25 percent of your gross pay, or 33 percent of your net (take home) pay.
- You can afford 2 ½ times your annual gross income as a loan amount.
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Step Two – Types of Loans available
There is a multitude of loan types available today. In order to determine the best loan package, you should answer the following questions:
- How much cash do you have available for a
downpayment? Remember, a downpayment can be “gifted” to you be either a relative or lending institution.
- How much can you afford for a monthly payment?
- Do you foresee any significant changes in your monthly income earning potential? Do you except a raise or promotion, or will you be changing jobs in the future?
- How long do you expect to own the home? Do you intend to occupy this home or rent it?
Advantage Mortgage Service specializes in identifying what loans are best suited for your needs. The most common loans are:
- FHA Loans - Both fixed and adjustable-rate FHA loans are available, and in most states, an FHA loan can be used for refinancing. The difference is, they're insured by the U.S. Department of Housing and Urban Development (HUD). With FHA Insurance, eligible buyers can put down as little as 3% of the FHA appraisal value or the purchase price, whichever is lower. Qualifying standards are not as strict and the rates are slightly better than with conventional loans.
- VA Loans - A VA loan is simply a fixed-rate mortgage with a very competitive interest rate. Qualified buyers can also use a VA loan to purchase a home with no money down, no cash reserves, no application fee and reduced closing costs. Some states allow a VA loan for refinancing as well. Administered by the Department of Veterans Affairs, these special loans make housing affordable for U.S. veterans. To qualify you must be a veteran, reservist, on active duty, or a surviving spouse of a veteran with 100% entitlement.
- Hybrid Loans – There are many types of hybrid loans such as:
- Conventional Adjustable Rate Mortgage (ARM)
This is an ARM that is directly tied to the economy. The interest rates and monthly payments can go up or down. Usually you can qualify easier and the interest rate can be 2% or 3% lower than fixed-rate mortgages.
- Conventional Fixed Rate Mortgage
This is the most common loan. With a fixed rate mortgage the loan’s principal and interest are amortized, or spread out evenly, over the life of the loan. This gives you a predicable monthly payment for the life of the loan.
- Convertible ARMs
Some adjustable-rate mortgages allow you to convert to a fixed rate at certain specified times. This mitigates some of the risk of fluctuating interest rates, but there will be a substantial fee to do it. And your new fixed rate may be higher than the going fixed rate.
- Two-Step Mortgage
This is an ARM that only adjusts once at five or seven years, then remains fixed for the duration of the loan. Not only will you benefit from a lower rate for the first few years, but the new fixed rate cannot increase by more than 6%. It may even be lower, depending on market conditions. Then again, you also run the risk of adjusting to a much higher rate.
- Graduated Payment Mortgage (GPM)
With a GPM you pay smaller payments that gradually increase and level off after about five years. Lower payments can make it possible for you to afford a bigger home, but they'll be interest-only payments, adding nothing to the principal. This could put you in a negative amortization situation.
- Convertible Loans
Another ARM choice, the convertible loan offers a fixed rate for the first three, five or seven years, then switches to a traditional ARM that fluctuates with the market. If you strongly believe that interest rates will fall a convertible loan might be a smart move.
- Balloon Mortgages
These short-term loans begin with low, fixed payments. Then, in five, seven or ten years a single large payment (balloon) for all remaining principal is due. While this saves money up front, coming up with a large payment at the end of the loan may be difficult. Some lenders will allow you to refinance that payment, but some won't, so be sure you know what you're getting into.
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Step Three – Let the application process begin
(Click here for the online application)
The application process can be stressful, unnerving and down right intimidating if you do not have the right loan officer assisting you. All Advantage Mortgage Service Loan Officers are highly trained professionals with expertise in the application process. Our staff will assist you in completing the application and ensuring all documentation and income/expense statements are provided to the creditor.
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Step Four – Loan Approval
The loan approval process is actually a two-step process.
- Pre-Approval – Many creditors will pre-approve your application based on the information provided on the application and their review of your credit reports.
- Loan Approval – Full loan approval will be granted after all required documentation requested by the creditor has been received. This may include personal information, employment/income verification, Federal and State Tax form review and debt disclosure.
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Step Five – The final cost
Advantage Mortgage Service will review all associated costs with your loan prior to loan submittal. This will eliminate any potential circumstances surrounding “hidden charges”. There are several factors in determining the final cost of the loan. The lender will pay some of the charges and others will be included in your loan package.
- Borrower paid fees – At closing, you'll be required to pay some fees such as transfer of title, origination and appraisal, attorney services, credit report, title insurance and inspections. Your lender is required to provide an estimate of these costs within a few days after your application is received, but you can always ask for an estimate sooner.
- Prepaid expenses - Some expenses, such as first year's property taxes and insurance, must be paid at closing. Your lender will let you know what's required.
- Lender paid fees – Some lenders will assist with closing fees. Consult your Advantage Mortgage Service Loan Officer for details.
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