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What Is a Mortgage?For most people, one of the first steps to buying a home means securing financing through a loan, known as a mortgage. While many home purchases require down payments, there are also some mortgages that can be secured with little or no down payment.
Mortgage loans are considered secure loans, which are backed by assets or collateral. Usually the collateral for a mortgage is the property that is being purchased.
There are several different types of lenders that offer mortgage loans. Traditionally, borrowers can seek loans via a credit union or a traditional bank. If you are considering applying for a mortgage through United Heritage Credit Union reach out to one of UHCU’s Loan Specialists and we can help with some of your initial questions.
The specifics of a mortgage loan, such as the length of the loan and the interest rate are called the loan’s terms. The terms of a loan can depend on several factors such as your credit score, the type of property you want to buy, the property’s location and the amount you want to borrow. When applying for a mortgage, the application may ask you what terms you are interested in, so consider what your long term goals may be when filling out your application.
It’s very important when you are applying for a loan to have good communication with your lender. For most borrowers, a mortgage may be the biggest financial decision you make, so being confident and comfortable with your lender will make the mortgage process easier. UHCU’s Loan Specialists are ready to assist you on every step of your journey - contact us at 512.435.4444 or submit an application to get started today.
Mortgage Terms and Disclosures: Learning a New Language
Purchasing a new home can be as exciting as it is intimidating. In addition to the numerous loan options and payment structures, there are mortgage-related words and terms that might be new to some. But don’t fret. We’ve provided a guide to some of the most frequently used terms to help you along the way.
AmortizationThe gradual reduction in the principal amount owed on a debt.
Appraisal FeeA fee that an appraiser charges to estimate the value of a property.
APRThe annualized percentage rate of interest charged on a loan.
Credit ScoreA number that rates the quality of an individual’s credit. The number helps predict the relative likelihood that a person will repay a credit obligation, such as a mortgage loan. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan.
Down PaymentYour down payment is the amount you pay upfront for the property. A larger down payment may lead to a lower interest rate on your mortgage. If your down payment is less than 20 percent of the house price, you’ll buy private mortgage insurance and pay the premiums as part of your mortgage payments. This insurance reimburses the lender if you default on the mortgage.
FHAIn order to increase affordable housing in the U.S., the Federal Housing Administration (FHA), provides insurance on FHA-approved mortgage loans.
FICO ScoreYour FICO score is a method of calculating your creditworthiness and is used by the three major credit bureaus.
Interest RateAn interest rate on a home loan is the percentage of the loan you pay for borrowing the money.
- Fixed Rate - A home loan with a predetermined fixed interest rate for the entire term of the loan.
- Adjustable Rate - A home loan in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of market interest rates.
Loan OfficerA person whose primary responsibility is helping you through the loan process as well as processing your loan application.
Lock PeriodThe amount of time prior to closing that you can secure an interest rate for your loan.
Market Interest RatesLenders base their interest rates on market benchmarks such as the LIBOR or the weekly constant maturity yield on the one-year Treasury bill. Lenders use these rates to compare mortgages to other investment opportunities, such as bonds or lending to the government instead.
Prime RateThe U.S. Prime Rate is based on a survey of the prime rates of the 10 largest banks in the United States. The U.S. Prime Rate is used by some financial institutions to calculate variable interest rates for credit cards. Changes in the U.S. Prime Rate influence changes in other rates, including mortgage interest rates.
Property TypeInterest rates change depending on the type of property. Single-family homes are considered less risky and have lower rates. Multifamily properties, condos, co-ops, and mobile homes are considered riskier, so mortgages for these properties often have a higher interest rate.
PrincipalThis is the amount you owe in order to pay back the money borrowed from the lender, excluding interest.
It’s worth noting that these are just a handful of terms you’ll see during the home buying process. UHCU is here to help walk you through this process and help you understand what to expect along the way to homeownership.
Equal Housing Opportunity. NMLS #630601
What Types of Loans Are There?When you’re interested in buying a home, one of the first things you should do is compare different types of real estate loans. At United Heritage Credit Union, you’ll have several options available – our loan specialists are standing by to help you choose the best loan for you. Here’s a quick introduction to several of the most common types of home loans:
With a fixed-rate mortgage, you pay the same interest rate for the full repayment term. This means your monthly base payment will most likely never change—even for long-term financing. The interest rates on fixed-rate loans are sometimes slightly higher than adjustable-rate loans, however, many home buyers value the security of knowing their payment will not increase in the future.
Adjustable-rate mortgages (ARMs), have a fluctuating interest rate, moving both up and down, based on market interest rates. There is also a hybrid ARM, where the loan has a fixed rate for a specific amount of time, after which the rate adjusts. For example, the 5/1 ARM has a five-year fixed rate, then after five years, the loan adjusts to prevailing interest rates.
Typically experienced home buyers utilize these loans as they are more likely to qualify and there can be greater risks than with other types of loans.
Conventional mortgages are ideal for most borrowers, especially those who have good or excellent credit and a good debt-to-income ratio. Such loans typically require down payments, closing costs, mortgage insurance, and points; but at UHCU we offer conventional mortgages with as little as 3% down and you should know that mortgage insurance doesn't stay on the loan for life, unlike some other types of mortgages. While it is easier to qualify for a conventional loan, the rate you qualify for will be partially determined by your credit score. But there are options for loans that are backed by the government which can help in some situations.
Federal Housing Administration (FHA) mortgage
FHA loans are insured by the Federal Housing Administration, a government agency within the Department of Housing and Urban Development (HUD). Borrowers with FHA loans pay for mortgage insurance, which protects the lender should the borrower default on the loan. The insurance increases the size of the borrower’s monthly payments. The lender, and the home itself, must be FHA-approved.
FHA loans are appealing to a lot of borrowers, such as first-time buyers with credit challenges, but their down payment requirements are minimum 3.5%, as opposed to a conventional loan with down payments as low as 3%. Additionally, if the borrower isn't putting down 20% then they must have mortgage insurance that will last the life of the loan. While credit challenged borrowers may see the appeal of FHA loans, it is good to know that they typically require a lot more documentation and work from the borrower to get approved. Your loan specialist can help you determine if an FHA loan is right for you.
Veterans’ Affairs (VA) loan
VA loans are offered to eligible, honorably discharged U.S. military veterans, active service members and spouses. Like the FHA loan, a VA loan is backed by the U.S. government; should a borrower default, the VA will reimburse the lender for any losses. This makes the VA loan very attractive for both borrower and lender alike.
To qualify for a VA loan, borrowers need suitable credit, sufficient income, and a valid Certificate of Eligibility (COE) issued by the VA. A big plus of the VA loan is that borrowers can receive up to 100 percent financing, so they aren’t required to make a down payment! Additionally, VA loans also have a streamline refinance, meaning that anyone with a current VA loan may be able to refinance quicker and cheaper than a conventional loan. Often times the VA refinance (Known as an IRRRL – Interest Rate Reduction Refinance Loan) doesn’t require the borrower to document income.
Choosing the appropriate loan is one of the most important steps in a successful home buying experience, and United Heritage Credit Union’s Loan Specialists are ready to take the journey by your side. To get started, you can apply online, or call one of our Loan Specialists at 512.435.4444!
Membership/Regular Savings account required. United Heritage Lending Policies apply. Guidelines, terms and conditions apply. Closing costs apply. Various loan programs are subject to borrower qualification. NMLS #630601. Registered Mortgage Loan Originators.
How to Choose the Right Loan?
When you’re trying to decide on whether to rent, buy, or build, our loan specialists are great at helping you decide the right next step is in your housing journey. United Heritage Credit Union’s loan specialists are ready to help you determine what’s best for your financial situation. We’ve prepared a few tips and ideas for your consideration in the decision.
How much can you borrow?
Your income, debt, and employment history all play a role in how much you can borrow. And, how much should you borrow? Lenders will look at your gross monthly income to determine how much you can be approved for and depending on the loan type, it will typically be between 43% and 50% of that gross monthly income.
One thing to note is that consumer debt will impact how much you're approved for, which includes credit card minimum payments, auto and other loan payments. Lenders will also consider the HOA payment, property taxes and homeowners insurance along with the monthly home loan payments to determine how much you can borrow. Lenders’ criteria vary, so it’s important to engage with a loan specialist early so you will know what you can afford.
How much can you put on a down payment?
With all mortgage types and deals, the rate you get depends on the level of equity you will have in the property, among other factors. If the home you are considering is valued at $400,000 and you need to borrow $320,000, 80% of the asking price, then you have a downpayment of 20% and a loan-to-value (LTV) ratio of 80%. The lower the LTV ratio, the better the mortgage rate you will qualify for. If you are able to put down enough to get your LTV under 60%, the lowest rates on the market will be available to you. Besides a lower rate, another benefit of having a downpayment of 20% or more is that your monthly payments will be lower.
If you don't have the ability to put 20% down, there are loan programs available which require as little as 3% down. If you choose to go that route, you'll need to consider the additional cost of mortgage insurance to your monthly payment, which is often required by loan programs that accept less than 20%.
How to get started?
Start by reaching out to your UHCU loan specialist, so that they can help walk through the process and help you calculate how much you can afford. And if you are ready, they can help out with a rate quote. Keep in mind that the rate quotes you may see online on various websites are estimates based on near perfect scenarios. A lender or broker will have to pull your credit information and process a loan application to provide an accurate rate, which you can then lock in once you're under contract for your home.
Fixed Rate or Adjustable-Rate Mortgage (ARM)?
A fixed-rate mortgage is the traditional way to finance a home. When you choose this mortgage, your interest rate and monthly payments stay the same for the life of the loan. With an Adjustable-Rate Mortgage (ARM), the interest rate is typically locked in for 5 years or less, then it adjusts based on a market index. Depending on the state of the market, your payments could go up, down, or stay relatively comparable.
Special Mortgage Programs
If you qualify, a Veterans’ Administration (VA) loan often requires no down payment and a competitive interest rate. Also, if you've had recent credit issues you may want to explore a Federal Housing Administration (FHA) loan, which has lower credit score requirements than other loan programs. UHCU offers a variety of loan programs, some with downpayments as low as 3%, as well as programs with no mortgage insurance or interest only programs.
Money isn’t everything
The best lender for you may not be the one with the lowest rate, and in some instances that low rate may be too good to be true. Some lenders will use it to lure you in, and when it's time to lock in the rate, it and the fees can end up being much higher than previously discussed. It can be beneficial to work with a local lender like UHCU, which is member-owned and offers personal, local service by people who live in your community. And since a credit union is member-owned, you can expect UHCU’s loan specialist to have your best interest in mind! Not to mention, UHCU typically has some of the lowest rates available.
Would you like to know more?
Contact your UHCU Loan Specialist at 512.435.4444 or visit our Home Loans page today!
Membership/Regular Savings account required. United Heritage Lending Policies apply. Guidelines, terms and conditions apply. Closing costs apply. Various loan programs are subject to borrower qualification. NMLS #630601. Licensed Mortgage Loan Originators.
APR and Interest Rates - What’s the Difference?Mortgages seemingly have their own language, and knowing what the terms mean can make a significant difference in how you understand your loan and the associated costs. Often, APR is confused with interest rates on loans and while they are similar, there are differences that can add up.
An interest rate is the value of a loan to you, the borrower. It’s expressed as a percentage rate of the overall loan amount. For example, if your outstanding principle on a loan is $150,000, the interest you’ll pay is a percentage of that principle. As your principle decreases, your interest rate will stay the same, but you’ll be paying less interest because your principle is less. On adjustable rate mortgages, the interest rates change depending on factors in the financial market. Buyers will need to take the interest rate into account to determine their budget
Annual Percentage Rate (APR)
A loan’s APR is the annual percentage rate. This is the loan’s interest rate plus certain fees that may be incurred. Those fees can be things such as closing costs, loan origination fees or even mortgage insurance. When considering the cost of a loan, buyers will need to consider the APR.
When deciding on a lender, knowing their interest rates and APR are important, and both will be used when determining which loan is best for you. If you’re in the market for a new home, we can help. Our loan specialist will work with you every step of the way. You can apply online or call to speak with a loan specialist to get started.
Six Helpful Tips for Buying a Home
When it comes to purchasing a new home, using the assistance of experienced UHCU Loan Specialists who know the process inside and out can help make the experience smooth and free of unnecessary stress. Like any regimented process, there are certain steps that simply have to be done by the book. However, there are some items that can be checked off the list early that can save you time and money down the road. Below, you’ll find a list of 6 tips and tactics for buying your home.
1. Keep Your Spending In Check
It’s important to keep your money where it is and avoid any large changes in your credit prior to buying a home, such as opening a new credit card or purchasing a new car. Be sure to speak to a UHCU Loan Specialist so that they can help you understand what to do to prepare as early as possible.
2. Get Pre-Qualified
Just like getting all of the ingredients together before making a meal, getting pre-qualified helps you know how much home you can afford. Pre-qualification also lets sellers and real estate agents know that you’re a buyer who is serious about finding a home. If it comes to negotiating on a home with several offers from multiple buyers and only one is pre-qualified, many times the bidder who is pre-qualified will come out the winner.
3. Know What You Can Afford
Knowing what you can afford is as simple as it sounds. Just like you wouldn’t purchase a gift for $100 dollars when you only have $75 to spend, the same philosophy applies when buying a home, albeit on a much larger scale. One tool that can help is a mortgage payment calculator. These are often used to get a sense of how much you can afford to borrow based on your monthly income. There are also several calculations that could be helpful in the early stages of figuring out your home budget, such as making sure your monthly payment is 30% or less of your take-home pay.
4. Planning for Your Down Payment
In general, the higher your down payment, the easier it will be to qualify for a mortgage loan and negotiate the lowest rate. In the event that your down payment is low, your UHCU Loan Specialist will be able to make recommendations to help you purchase your dream home.
5. Consider Additional Costs
In most cases, purchasing a home can involve more than just monthly mortgage payments. For example, closing costs, property taxes and insurance will most likely need to be factored in. Additionally, you may also have to budget for utilities, general maintenance, renovations, repairs, and upgrades.
6. Documents and Forms
One universal rule for helping to facilitate a smooth purchase is taking steps to ensure everything is in place. This is especially true when it comes to forms and documents. Of all the paperwork involved, the most commonly requested documents include financial statements for bank and brokerage accounts, pay stubs, and previous W2s. There is a high probability you’ll need one or many of these, so your UHCU Loan Specialist will work with you early in the process to make sure you have all the correct forms and documents.
If you would like more information or have additional questions about the home buying process reach out to a UHCU Loan Specialist or visit our website today. We’re here to help you every step of the way.