FINANCING

• Down Payment
  A Buyer’s down payment is the amount of cash paid towards the purchase of real estate. The total purchase price is the combination of both the Buyer’s cash down payment and the mortgage obtained from a Lender. For example, if the purchase price of a home is $500,000 and a Buyer puts down 20% or $100,000, the mortgage amount would be 80% or $400,000.
  
  There are different types of financing that require different types of down payments. With the wide range of financing programs available today, Buyer’s can even elect to obtain 100% financing with no money down.
  
  Conventional financing includes 30 year and 15 year fixed rate mortgages and Adjustable Rate Mortgages (ARM), allows for a minimum down payment of 5%. The down payment usually increases in increments of 5% because of Private Mortgage Insurance (PMI) rates. PMI is an insurance policy provided by a private company to protect the lender against any losses resulting from the home buyer defaulting on the mortgage. As your cash down payment increases, the PMI rate decreases. At a 20% down payment you will completely eliminate the necessity for PMI.
  
  

  FINANCING

  • Down Payment
    A Buyer’s down payment is the amount of cash paid towards the purchase of real estate. The total purchase price is the combination of both the Buyer’s cash down payment and the mortgage obtained from a Lender. For example, if the purchase price of a home is $500,000 and a Buyer puts down 20% or $100,000, the mortgage amount would be 80% or $400,000.
    
    There are different types of financing that require different types of down payments. With the wide range of financing programs available today, Buyer’s can even elect to obtain 100% financing with no money down.
    
    Conventional financing includes 30 year and 15 year fixed rate mortgages and Adjustable Rate Mortgages (ARM), allows for a minimum down payment of 5%. The down payment usually increases in increments of 5% because of Private Mortgage Insurance (PMI) rates. PMI is an insurance policy provided by a private company to protect the lender against any losses resulting from the home buyer defaulting on the mortgage. As your cash down payment increases, the PMI rate decreases. At a 20% down payment you will completely eliminate the necessity for PMI.

  (For more information about how to calculate PMI click here).

  • Deposits or Earnest Money
    An offer to purchase real estate is usually accompanied by an earnest money deposit paid by either cash, check or wire transfer. The Buyer’s Real Estate Agent is responsible for holding the un-cashed check until the Seller accepts or declines the offer. If the offer is declined, the check is returned back to the Buyer. If the offer is accepted, the monies will be deposited into an escrow account by the next business day after acceptance is received.

  The amount of the deposit or earnest money is directly related to the sales price of the property. The deposit money also conveys to the Seller the serious intention of the Buyer to purchase the property. At closing, the deposit money is applied towards the Buyer’s down payment or closing costs. The Escrow Company will prepare a Final Closing Statement which identifies the allocation of funds and calculates closing costs.
  
  If the transaction is cancelled through no fault of the Buyer, the deposit is returned back to the Buyer less any costs incurred during escrow up to the point of cancellation. If the Buyer is found to be in default of the sales contract then the deposit may be forfeited. The sales contract outlines specific terms regarding the deposit. There are certain contingencies in the sales contract devised to protect the Buyer’s deposit. Contact us for more information.

  • Types of Mortgages
  • Conventional Loans
    Changes in financing has resulted in the growth of different mortgage instruments. In the past, most all home purchases were financed with the use of the standard fixed rate mortgage. Times have changed and today about 20% of all homes are now financed by Adjustable Rate Mortgages (ARM's).
    
    The normal fixed rate mortgage can be referred to as a monthly amortized, direct reduction loan. By definition, this means that equal monthly payments for the loan are used to pay off the amount owed by first paying interest on the loan due since the last payment was made and then applying the remainder towards pay off the principal. The two most important characteristics of the fixed rate mortgage are 1) the borrower has consistent monthly payment amount and knows exactly how much is due each month, and 2) the amortization allows for the periodic reduction of principal.

  (Insert Amortization Graph to further illustrate)

  (Click here to use our Mortgage Calculator)

  The direct reduction of principal is also important because it allows for a significant savings in the total amount of interest a borrower would have to pay if interest were instead calculated on the entire amount of principal. In other words, as time goes by you pay more principal and pay less interest. For the fixed rate mortgage, the monthly mortgage payment stays the same from first payment to last.
  
  An ARM loan is a mortgage loan with an interest rate that is periodically adjusted according to a predetermined index. Depending on which option the Buyer selects, these periodic adjustments to the interest rate can occur every 6 months, every year, or in multiple years. The most common period of adjustment is annually. An example of an index used to determine the interest rates is US Treasury indices such as the one year treasury securities index. The index must be an index beyond the control of the lender and verifiable by a buyer. A "margin" is then added to the index which establishes the interest rate for the mortgage. "Caps" are used to limit the amount that the interest rate can increase or decrease each adjustment period, and over the life of the loan.
  

  There are many other mortgage programs available to Buyers today. Contact us to find out how you can learn more about these programs.

  • VA Loans
  • Federal Housing Administration
    Mortgages
  • VA Loans
    In 1944 Congress enacted the Servicemen’s Readjustment Act which authorized the Department of Veteran’s Affairs (VA) to provide a guarantee on loans to eligible veteran’s returning from World War II. Originally, the guarantee was for the first 50% of the loan amount or $2,000 whichever amount was less. Since then, this amount has been increased to the current guarantee of $50,750. Once the VA has the house appraised, a Certificate of Reasonable Value (CRV) is issued that establishes the basis on which these figures are calculated. The interest rate is no longer set by the government and the payment of discount points is negotiable. This program was designed to allow a veteran to buy a home with no money down. In addition, the VA identifies certain non-recurring Buyer’s closing costs that cannot be paid for by the Buyer. Since the Buyer is not allowed to pay these costs, in some instances the Seller agrees to pay for these closing costs. In other situations the Lender agrees to absorb these costs to lessen the burden to Sellers. Federal Housing Administration
    Mortgages
    On June 27, 1934 the National Housing Act created the Federal Housing Administration (FHA). The goal of FHA was to improve the housing standards and conditions in the US and to insure mortgages to enable an adequate home financing system. The insurance programs that the FHA operates provide protection against losses resulting from mortgage foreclosures.

  FHA offers both fixed rate and Adjustable Rate Mortgages (ARM). The most commonly used FHA financing is the fixed rate mortgage. In addition, down payment requirements depend on the loan amount and are approximately 4-6% of the sales price or appraised value (which ever amount is less). There are maximum mortgage amounts allowable with FHA financing for the purchase of single family homes and town homes. The FHA provides a list of FHA approved condominiums, town homes and duplexes. Contact us to find out more information on the loan limits for FHA.

  • How to Apply for a Loan
  • The loan application process can be very time consuming and detailed. The Lender will request documents from you to obtain a solid picture of your financial situation. Information regarding your income and expenses will be required to accompany your Loan. These documents may include:
  • Most recent pay stubs
  • Most recent bank statements
  • W-2 for the past two years
  • IRS tax returns for the past two years
  • Debt information (i.e. outstanding loans, child support, credit cards, etc.)
  • Not everyone has perfect credit. The important thing is to be honest with your Lender up front so that you can work together to find the best solution. There are special financing programs designed to help people with minor “hiccups” in their credit reports.
  • You may want to check with the credit reporting agencies and request information on your credit report to insure that the information is accurate and up to date. You can visit http://www.freecreditreport.com to obtain a free credit report.