Garbett Mortgage
How does buying a home compare to renting?
The two don't really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing.
Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that's an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it.
Whats my maximum loan amount?
The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.
What is a Mortgage?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.
What is a Loan to Value (LTV)?
The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay,$2,500 as a down payment.
The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.
What types of Loans are Available and what are the Advantages of Each?
Fixed Rate Mortgages: Payments remain the same for the the life of the loan.
- Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits
- Balloon Mortgage: offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is clue or refinanced (though not automatically)
- Two-Step Mortgage: interest rate adjusts only once and remains the same for the life of the loan
- ARMS linked to a specific index or margin
What is an ARM and when does it make sense?
An ARM is an Adjustable Rate Mortgage
An ARM may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.
What's the difference: 15 or 30 year loans?
30 Year Loan: in the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
15-year Loan: loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal.
Can I Pay Off My Loan Ahead of Schedule?
Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.
What about First-time Homebuyers?
Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.
How Can I Check my Credit History?
There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it's important to verify its accuracy. Double check the "high credit limit,"'total loan," and 'past due" columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire a free one. Contact the reporting companies at the numbers listed for more information.
Credit Reporting Companies
Company Name Phone Number
Experian 1-888-524-3666
Equifax 1-800-685-1111
Trans Union 1-800-916-8800
What if I find a Mistake in my Credit History?
Simple mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.
What is a Credit Bureau Score and How Do lenders User Them?
A credit bureau score is a number, based upon your credit history, that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.
How can I Improve my Score?
There are no easy ways to improve your credit score, but you can work to keep it acceptable by maintaining a good credit history. This means paying your bills on time and not overextending yourself by buying more than you can afford.
What is Mortgage Insurance?
Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20%.
How Does Mortgage Insurance Work? It it like Home or Auto Insurance?
Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
Do I need Mortgage Insurance? How do I get it?
You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.
What Is PMI?
PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI's usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.
What Happens After I've Applied for my Loan?
It usually takes a lender between 1-6 weeks to complete the evaluation of your application. Its not unusual for the lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information has been verified the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing with you. And after closing, you'll be able to move into your new home.
What do I get at Closing?
- Settlement Statement, HUD-1 Form (itemizes services provided and the fees charged; it is filled out by the closing
agent and must be given to you at or before closing)
- Truth-in-Lending Statement
- Mortgage Note
- Mortgage or Deed of Trust
- Binding Sales Contract (prepared by the seller; your lawyer should review it)
- Keys to your new home
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Frequently Asked Questions
- How does buying a home compare to renting?
- Whats my maximum loan amount?
- What is a Mortgage?
- What is a Loan to Value (LTV)?
- What types of Loans are Available and what are the Advantages of Each?
- What is an ARM and when does it make sense?
- What's the difference: 15 or 30 year loans?
- Can I Pay Off My Loan Ahead of Schedule?
- What about First-time Homebuyers?
- How Can I Check my Credit History?
- What is Mortgage Insurance?
- What Happens After I've Applied for my Loan?
Download Brochure
Click the "Download" button below to download a PDF of our complete Garbett Mortgage brochure. In the brochure you will find a printable Application Checklist and additional information to help you in the loan application and management process. You will also find a map and driving directions to the Garbett Mortgage office.
