Whether you're looking to buy, sell, refinance or borrow against your home, the following articles and are helpful mortgage calculators can help you determine the best option for your particular situation.
Preparing to buy a home
Preparation is key to navigating today’s market. To help you get started, we offer these tips as you prepare for buying a home.
Review your finances. A thorough analysis of your financial situation is central to the decision to buy. Calculate all of your monthly expenses, in addition to your potential mortgage payment, homeowner’s insurance, taxes and condo fees. Factor in other obligations like car payments and credit card debt. Aim to keep the mortgage payment and all other obligations below 40 percent of your monthly income and stay within your budget when considering homes.
Check your credit score. Your credit history is an important factor when applying for a loan. Most lenders rely on the Fair Isaac Corporation (FICO) credit score when reviewing your loan application. The score reflects how well you manage your debt and is calculated using data from your credit report. A lower credit score may result in a higher interest rate on your loan.
If your score is too low, you may not be approved for a loan at that time. There are a number of steps you can take to improve your credit score, including paying your bills on time, only opening lines of credit you need and keeping your credit card balances below half of your available credit. To learn more and get information about improving your credit score, visit www.myfico.com.
Organize your finances. Getting a loan requires a few different documentations including, but not limited to, pay stubs, tax returns and bank statements that are less than 60 days old. Provide copies of additional monthly payments such as car loans, credit cards and student loans. You should also bring any additional information you think will help your banker positively evaluate your financial situation.
Factor in closing costs. Once you have found a home within your budget and agreed on a purchase price, there will be costs associated with closing the sale. These costs can vary and will depend on the purchase price and whether a real estate attorney or title/escrow company will be involved in the transaction. By law, lenders are required to give you a written estimate of closing costs within three days of accepting your loan application.
Home ownership is an exciting time and Marion County Bank is here to help you with your first home, upgrading or downsizing. Visit with our home loan experts to get started with an application, or use the convenient online application available here.
Building vs. Buying a House
To buy or to build? It’s a question that faces many who enter the housing market. Whether you’re a first-time homebuyer or you’re looking for something that better fits your family’s needs, it’s a question that you’ll likely have to consider.
Advantages of Building a Home
- Customization. When you build a home, you have input on the design and can ensure the final construction includes all the features you want and need.
- Up-to-code. Newer homes are built to meet all current building codes, and you have the ability to ensure that your home includes energy-efficient features that will save you money in the long term.
- No competition. Currently, demand for existing homes is higher than the number of homes available for purchase. Homes are on the market for shorter time frames and you are more likely to face competing bids. When you build a home, you eliminate that competition.
- No need for immediate repairs or renovations. You won’t have to worry about scheduling repairs to fix issues found during a home inspection. You also won’t have to budget for renovations to add features to the home. Your new home will most likely come with a warranty, which should cover any repairs that do come up during the first year.
- Potential for higher return on investment. Typically, there is higher demand for newer homes, so if the time comes when you need to sell, the value of your home may be much higher than older homes on the market.
Advantages of Buying an Existing Home
- Takes less time. Building from scratch can take months to complete. Buying and closing on an existing home can take far less time and you’re able to move in as soon as you’ve closed on the house.
- Convenience. When building a new home, you have to consider every detail, including where to purchase land, the design of the home, and all of the fixtures and trims you want included. These decisions are already made when buying an existing home, which can make it a less stressful process.
- More room for negotiation. A real estate agent can help negotiate the price of an existing home so you get the best deal possible. There is less room for negotiation when dealing with contractors on the build of a new home.
- Can make upgrades over time. While an existing home may not have every feature you want, you can take time to make upgrades as they become necessary and as you are able to save for them.
Whether you choose to buy or to build, the experts at Marion County Bank can help you secure a mortgage loan on your new home. Contact us at 641-628-2191 to learn about available financing options.
Tips for saving for a down payment
Before transitioning from renter to home owner, you must typically save between 3 and 20 percent of the home’s value for the down payment. Below are tips to help you prepare for one of the first steps in the home buying process – saving for a down payment.
Start by determining how much you’ll need for a down payment. Create a budget and calculate how much you can realistically save each month – that will help you gauge when you’ll be ready to transition from renter to homeowner.
Establish a separate savings account. Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you’ll be less likely to tap into it when you’re tight on cash.
Shop around to reduce major monthly expenses. It’s a good idea to check rates for your car insurance, renter’s insurance, health insurance, cable, Internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts.
Monitor your spending. With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. nice meals out, movies, clothes, etc.) and instead put that money into savings.
Look into state and local home-buying programs. Many states, counties and local governments offer programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants. Talk to are home mortgage experts to discuss current programs.
Celebrate savings milestones. Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.
Your credit score impacts all areas of your financial life, from getting approved for a credit card to the rate you qualify for on a mortgage. Not surprisingly, the higher your credit score, the better. So if you’re wondering how to improve your credit score, understanding the ins and outs of how it’s calculated can help you figure out how your actions impact your rating. Below, we’ve put together everything you need to know in order to improve your credit score.
What is a credit score?
A credit score is a number determined by a credit bureau that helps lenders assess how well you’ve managed your financial obligations.
What makes up a credit score?While there’s no single formula that determines a credit score, here are some categories and their relative importance.35% - Payment history - Do you consistently pay your bills on time?30% - Amounts owed - Try to use less than 30% of the credit available to you.15% - Length of credit history - Generally, longer is better.10% - Credit inquiries - Only hard inquiries, when you’re looking to open an account or take out a loan, count here.10% - Types of credit in use - This includes credit cards, student loans, mortgages and more.
What do the numbers mean?
The higher the score, the more likely you are to repay your obligations and the less you are seen as a financial risk to creditors, prospective employers and landlords. Most credit scores rank individuals on a scale from 300-850.
How can I affect my credit score?
While there’s no single formula that determines a credit score, here are some categories and their relative importance.
Items that help your credit score:
Consistently pay bills on time and in full.
Keep your revolving account balances around or below 30% of your credit limit.
Items that hurt your credit score:
Fail to pay even the minimum on credit cards and loans.
File for bankruptcy or have an account turned over to a collection agency.
Apply for a lot of credit or exceed your current account limits.
Where can I get my credit score and report?
The three major credit bureaus produce credit reports and you can request one free report annually from each. Visit AnnualCreditReport.com or call 877.322.8228 for more information.
Below are common mortgage terms that are used throughout the home financing process:
Annual Percentage Rate (APR): This is your annual cost of the loan represented as a percentage. APR allows homebuyers to compare different mortgage programs based on their annual cost.
Adjustable Rate Mortgage (ARM): An ARM may have a lower interest rate than a fixed rate home loan. The adjusted rate may fluctuate over the course of the loan term based on the index, and mortgage payments may increase.
Appraisal: A professional opinion of market value of a property.
Closing Costs: These are the costs and fees that are due on the date of closing, when a borrower obtains their mortgage and receives the title to their property. Closing costs include insurance, taxes, and other applicable fees.
Credit Report: This report details a borrower’s credit history and current financial obligations.
Down Payment: This is the portion of the purchase price that the buyer pays.
Debt-to-Income (DTI): Lenders use this ratio to determine if a borrower can afford their monthly mortgage payment. They divide the borrower’s monthly debts by their pre-tax income.
Fixed Rate Mortgage: With this type of mortgage, a borrower’s interest rate stays “fixed” and will not change during the life of the loan.
Interest: This is the money the borrower pays a lender over a period of time as part of the mortgage agreement.
Loan-to-Value (LTV): The lender divides the amount of the loan by the purchase price, or appraised home value. For example, if a borrower’s loan amount is $80,000 and their purchase price is $100,000, then their LTV is 80%.
Principal, Interest, Taxes and Insurance (PITI): These make up a borrower’s total monthly mortgage payment.
PMI: PMI stands for Private Mortgage Insurance which is required on conventional loans with less than a 20% down payment.
Principal: This is the amount of debt remaining on a loan before interest; it is the face value amount of the mortgage.
Rate Lock: This is a commitment between you and the lender to hold a certain interest rate for a specified period of time. When you decide to lock your rate, you will receive a written confirmation from your lender.
Loan Estimate and Closing Disclosure: The loan estimate and closing disclosure requires creditors to provide clear, accurate costs to the borrower in order to keep them informed about their financial decisions.
Title: This is a document that states a real estate transaction took place and establishes the buyer as the legal and exclusive owner of the property.
Title Insurance: This type of insurance provides a real estate owner and lender with protection against any loss or damage they may experience if any claims against the title are made.
Underwriting: This is the process of evaluating a loan application to determine the risk involved for the lender.
What makes up a mortgage payment?
A typical mortgage payment consists of these components:
Principal - The percentage of your payment that goes toward the original amount of money owed.
Interest - The interest rate changes according to the economy. Based on the designated percentage rate, this is the cost charged for borrowing money.
Escrow Payment - If you made a down payment of less than 20% to buy your home, an escrow account will be set up to cover your property taxes and homeowners insurance. Each month you will pay 1/12 of your annual estimated property taxes and homeowners insurance into your escrow account. When these payments are due, the escrow account will automatically pay these.
You may have the option to cancel your escrow payments to your lender once you have built up at least 20% equity in your home and are current on payments. If you decide to go this route it is important to remember than you’ll now be responsible for paying your taxes and insurance in full and on time.
Private Mortgage Insurance (PMI) - If you made a down payment of less than 20% to buy your home, private mortgage insurance (PMI) is part of your monthly mortgage payment. PMI is paid until you’ve built up more than 20% equity in your home. If you are current on your mortgage payments, PMI will automatically terminate on the date your principal balance is scheduled to reach 78% of the original value of your home. PMI is tax deductible; talk with you tax advisor for more details.