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| FAQ: Before You Apply |
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Most Common Frequently Asked Questions
I'd Like To Own My Own Home. What's The First Step?
Before you begin searching for a home and a mortgage, it's important to take a close look at the funds you have available to make your purchase. You'll want to consider:
Your present income;
Your expected income over the next few years;
Outstanding long-term debt; and
How long you expect to stay in your home.
How Do I Know How Much I Can Afford?
Essentially, the amount of money you can borrow will be determined by the size of the monthly payment you can afford. As a general rule, lenders do not allow the monthly payment to exceed 25% to 33% of gross monthly income. Some lenders have more flexible debt-to-income ratios. Watch for the best low mortgage rates. Also consider VA or FHA loans for financing your dream as well as Conventional mortgage loans. Start by taking a careful look at your current assets (including income, savings, investments, IRAs, life insurance, pensions and corporate thrift plans, and equity in other real estate, etc.) and liabilities (including outstanding loans, credit card balances, etc.). Also, think about how your income or household income, if there are two wage earners in the family might change over the next several years.
How Much Will I Need For The Down Payment?
Generally, your down payment can be anywhere from 0% to 20% of the home's value. Veterans, or those serving active military duty, may obtain loans with no down payment at all.
What Is The Importance of Pre-Approval?
Before you begin searching for a home, we highly recommend you ask your Bay Financial Mortgage Specialist about preapproval. By completing your mortgage application prior to choosing a home, you can get a preapproval letter that lets you know how much home you can afford. Getting this preapproval letter is a smart move because it lets you know exactly how much you can spend, and shows prospective sellers and real estate agents that you're a serious buyer. In addition, many sellers will require a preapproval letter prior to reviewing an offer. So lining up your financing ahead of time will help you get your offer in quickly in hot real estate markets.
Is My Interest Rate Guaranteed?
It is important to ask the lender how long they guarantee the quoted interest rate. Some lenders guarantee the rate for 20, 30, 45, 60 or 90 days. Other lenders may only agree to set a rate when the loan is approved. On occasion, lenders will not set a rate for the loan until just before closing. A longer guarantee period allows you to protect the rate for a longer length of time, which could be beneficial to you in a volatile interest rate market. Also, be sure to inquire whether long guarantee periods are available and what additional costs may be involved.
What Is The Difference Between 'Locking In' An Interest Rate and 'Floating'?
Mortgage rates can change from day to day or even more often. If you are concerned that interest rates may rise during the time your loan is being processed, you can 'lock in' the current rate (and loan fees) for a short time, usually 60 days. The benefit is the security of knowing the interest rate is locked if interest rates should increase. If you are locked in and rates decrease, you may not necessarily get the benefit of the decrease in interest rates.
If you choose not to 'lock in' your interest rate during the processing of your loan, you may 'float', or hold off locking in until you are comfortable about the rate. The borrower takes the risk of interest rates increasing during the time from application to the time the rate is locked in. The downside is that the borrower is subject to the higher interest rates. The benefit to floating a rate is if interest rates were to decrease, you would have the option of locking into a lower rate than if you had already locked in the rate.
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