Why get pre-approved?
Pre-approval gives you a good idea of the type of mortgage you will qualify for and the price range of homes you can afford.
It can help you:

  • Know how much you can borrow.
  • Confirm your ability to qualify for a mortgage based on your credit, financial, and employment information.
  • Strengthen your position to make an offer on a house. Sellers are usually more willing to accept offers from pre-approved buyers.

  • Pre-qualification is not the same as pre-approval

    A pre-qualification is a free test run of the loan application process that usually takes a few hours. The mortgage lender uses your credit, financial, and employment information to come up with an estimate of the mortgage you can afford. While it is a good first step to give you an idea of where you stand, and can help with planning for homeownership, a pre-qualification is only a rough estimate. When you are ready to purchase, take the time to get pre-approved. While it is a lengthier process, it is worth it.

    Private Mortgage Insurance (PMI)
    Credit enhancement required by a lender, typically  on mortgages with down payments of 20 percent or less. Generally the  borrower pays a monthly premium to offset the risk of loan losses to the lender  or investor in the event the borrower defaults.

  • Generally, if your down payment is less than 20% of the price of the home, you will be required to purchase Private Mortgage Insurance (called PMI or sometimes MI). This protects the lender if you should be unable to pay off the loan.

  • Federal law requires PMI to be cancelled under certain circumstances; for example, when you have paid off a certain percentage of your mortgage or your home's property value has increased to a certain percentage above the value of the mortgage.

    Closing costs
    Closing, or settlement, costs are fees you pay when you actually get your loan from your financial institution. These include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed, and other settlement costs. You should negotiate for lower fees the same way that you should negotiate for the best rate. Some fees, such as taxes, may be fixed but your lender may be willing to negotiate others.

  • Closing costs generally range between 2 to 7% of the property value. You'll receive an estimate from your lender after you apply for a mortgage. You must pay these costs before you move into your new home

     



Don't be confused by the many terms related to real estate. Let Expect Excellence Realty eliminate some of the confusion with our real estate glossary and mortgage basics.





What is a mortgage?
A mortgage is a lien on a property/house that secures a loan and is paid in installments over a set period of time. The mortgage secures your promise that you'll repay the money you've borrowed to buy your home. Mortgages come in many different shapes and sizes, each with its own advantages and disadvantages.

Mortgage Choices
Fixed-rate mortgages are the most common mortgage for first-time homebuyers because they're stable. Typically the monthly mortgage payment remains the same for the entire term of the loan.
What are the benefits of a fixed-rate mortgage?

  • Inflation protection.
    If interest rates increase, your mortgage and your mortgage payment won't be affected. This is especially helpful if you plan to own your home for 5 or more years.
  • Long-term planning.
    You know what your monthly mortgage expense will be for the entire term of your mortgage. This can help you plan for other expenses and long-term goals.
  • Low risk.
    You always know what your mortgage payment will be, regardless of the current interest rate. This is why fixed-rate mortgages are so popular with first-time buyers.

There are additional considerations to be aware of with fixed-rate mortgages:

  • Your mortgage interest rate won't go down, even if interest rates drop, unless you refinance your mortgage.
  • Because the interest rate may be higher than other types of loans such as adjustable-rate mortgages, you may not be able to qualify for as large a loan with a fixed-rate mortgage.
  • While your actual mortgage payment will not change, your total monthly payment can occasionally increase based on changes to your taxes and insurance. In many cases you can choose to pay these costs as part of your monthly payment through an escrow account that your lender keeps for you.

If you choose an interest-only option for a fixed-rate mortgage, the term of the loan is divided into two periods. During the first period, your monthly payment is lower because you pay only interest and no principal. In the second period, you pay both. For example, on a 30-year fixed rate mortgage, you might make interest-only payments for the first 10 years, and then pay both principal and interest for the remaining 20 years. The actual principal of the loan (the amount you borrowed) will be paid off in the second period.

Biweekly mortgages are mortgages that set up the payment differently. Instead of paying your mortgage once a month, you pay half the monthly mortgage payment every two weeks – which equates to 26 payments a year. A biweekly mortgage allows you to pay off your mortgage faster because you are making the equivalent of one extra monthly payment every year of the loan.

Biweekly mortgages are not offered by every lender and are not for every borrower; and they do require discipline since an additional payment is made every month.

Adjustable-rate mortgages (ARMs) are popular because they usually start with a lower interest rate and a lower monthly payment. However, the interest rate can change during the life of the loan.
It's important to understand the specifics of an adjustable-rate mortgage:

  • Adjustment periods.
    All ARMs have adjustment periods that determine when and how often the interest rate can change. There is an initial period during which the interest rate doesn't change – this period can range from as little as 6 months to as long as 10 years. After the initial period, most ARMs adjust the interest rate periodically.

There are additional considerations to be aware of with adjustable-rate mortgages:

  • Because the initial interest rate is usually lower than a fixed-rate mortgage, you may qualify for a larger loan amount. If interest rates are high when you get your mortgage but drop during any adjustment period, your monthly payment may decrease. But a decrease is very unlikely, so don't base your choice of mortgage on this.
  • An ARM with a low initial interest rate and an initial adjustment period after 5 or 7 years can save you money.
  • ARMs can, and often do, have interest rate increases at adjustment periods. You may have an increase in your monthly mortgage expense after adjustment periods.

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