Mortgage Basics

The time has come for you to buy your first home. With the excitement of a new space and home design comes the importance of understanding the financial process to finance your perfect home. One of the most common financing options is a Mortgage. A mortgage is when a bank or lending institution provides you with the funds so you can purchase the home of your dreams. This money must be paid back over a predetermined time frame; if not paid back, it gives the lender the right to take your house.

From the home seller to a home inspector and most importantly, the lender, there are many players involved in the mortgage lending and home sale process. A mortgage can take 60 to 90 days on average, or sometimes longer because of the people involved and the amount of documentation needed. People often choose to get prequalified for a mortgage, so when looking for homes, they know how much they can comfortably afford.

There are two main types of mortgages to choose from, fixed-rate and adjustable rate. A fixed-rate mortgage can typically make it easier for homeowners to budget because it is a set rate of interest that does not change. Because adjustable-rate mortgages start out at a lower rate this will allow borrowers the opportunity to afford more of a home, but it can also be more of a risk because of possible interest rate increases once the fixed-rate portion of the adjustable-rate mortgage has been completed. An adjustable-rate mortgage is set below the market rate on a comparable fixed-rate loan. Typically, an adjustable rate is cheaper for the first 5 to 10 years as compared to a fixed rate, but it can fluctuate.

To learn more about Mortgages, be sure to attend one of our virtual Mortgage Seminars. Click here to register.

Here’s how the process of being granted a mortgage rate works:
You’ll start by filling out an application, submitting the requested documents (Contract of sale, pay stubs, W2’s, tax returns, bank statements, etc.), and paying an application fee if required. After submitting your application, many things occur behind the scenes. In the beginning, the lender will order an appraisal and flood hazard search for the property you are trying to purchase because that property becomes the collateral for your mortgage. The lender will then verify the documents you provided and run a credit report to determine if you qualify for a mortgage based on your monthly debt-to-income ratio. A debt-to-income ratio compares your gross monthly income with how much you owe monthly including your new mortgage plus property taxes and homeowners’ insurance. Most lenders tend to look for an outcome below 43%. Finally, the lender will determine if your mortgage is approved based on all the factors mentioned, your application, credit history, appraisal, and down payment amount.

Mortgage Rates
It is suggested that when it comes to mortgage rates, you spend time shopping around to find the best fixed-rate mortgage or adjustable rate mortgage that will fit your lifestyle. According to U.S News, a good mortgage rate is equal to or lower than the current national average.

Rate Locks
A rate lock is when your interest rate is set at application and is guaranteed not to change over a pre-determined time frame. A typical rate lock can range from 30 days to 90 days. Additional fees or a higher interest rate may apply for longer rate locks. It is critical to remember these rates cannot change even if the market increases or decreases. You are obligated to pay the interest rate you locked in unless a float-down provision is included. Float down is the option to reduce your rate for an additional fee if the market interest rates fall during that period.

Want to dive deeper into mortgage financing? Join us for a free virtual Mortgage Seminar. Click here to register.

Refinancing
People refinance their home for multiple reasons – lower monthly mortgage payments could save money over the life of the loan, home improvements, children’s college and erasing high-interest consumer debt are just a few. However, any reason comes down to the same big picture to save money. When you refinance your home, you are trading your old mortgage for a new one and possibly a different balance. Your lender or bank will pay off your old mortgage with your new one, so you can enjoy any savings captured moving forward.

Home Equity Lines of Credit and Home Equity Loans
According to The Wall Street Journal, a home equity line of credit acts like a credit card; you spend money as you require. A home equity line of credit comes with a credit limit tied to the amount of equity you have built up. It is crucial to remember that with a home equity line of credit if you don’t repay the loan, you run the risk of losing your house. To prevent forgetting to make a monthly payment, banks such as First National Bank LI can open a checking account where automatic payments are withdrawn every month.

Home Equity Loans
A home equity loan is a second mortgage that most people use when they have a large expense to finance. You borrow a set amount upfront and repay the lender over a fixed amount of time. The amount of money you can borrow is typically limited to a certain fraction of the equity in your home.

Learn More: Join us virtually for Mortgages 101 LIVE with a member of our Lending Team on Tuesday, December 6th at 5PM (EST) on Zoom!
Let First National Bank LI teach you the basic steps taken when applying for a mortgage. Sign up today for our Virtual Mortgage Seminar. We’re excited to connect!

Mortgage Registration