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Q.
I really want to own my own home, but I'm not sure I can afford
it. Where do I start?
Q. How do I know how much house I can afford?
Q. What's the difference between a thrift, a mortgage
banker and a mortgage broker?
Q. Can a mortgage broker find me the best interest
rate?
Q. Will I pay more for my loan if I get it through a broker?
Q. Should I focus on the lenders advertising the lowest
rates rather than the type of institution I borrow from?
Q. What documents will I need to provide when I apply
for a loan?
Q. Does it make sense to pre-pay my mortgage or should
I invest that money elsewhere?
Q. I really want to own my own home, but I'm
not sure I can afford it. Where do I start?
A. Lots of people don't even consider buying a home because they're
afraid they can't afford it. But for most people, homeownership
is within reach - especially with some of the special programs for
first-time home buyers. In fact, for many, homeownership is just
as affordable as renting - in some cases even more affordable. The
best place to start is with an experienced mortgage loan officer
with a reputable lending institution. They can help you explore
all the options of homeownership.
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Q.
How do I know how much house I can afford?
A. As a general guide, you can purchase a home with a value of two
or three times your annual household income, depending on your savings
and debts. However, you may be able to take advantage of special
loan programs for first time buyers to purchase a home with a higher
value. If you'd like a general ideal of how much you can afford,
use the Mortgage Expo.Com calculator: How Much Can I Borrow? To
find out exactly how much you are eligible to borrow, ask your Mortgage
Expo.Com recommended mortgage broker.
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Q.
What's the difference between a thrift, a mortgage banker and a
mortgage broker?
A thrift is your typical neighborhood bank - mutual savings banks
and savings-and-loan institutions offering savings accounts, mortgages
and other financial products and services. Mortgage bankers are
in the sole business of lending money. Mortgage brokers are middlemen
who, by state law, work on behalf of borrowers. Brokers research
a number of lending sources - commercial banks, thrifts and mortgage
bankers - to find appropriate loans to meet the specific needs of
borrowers they represent.
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Q.
Can a mortgage broker find me the best interest rate?
A. Possibly, because mortgage brokers work with many different lenders.
They may also have access to lenders that do not have an office
in your state, but are licensed to lend money there. However, while
mortgage brokers research many lending sources, it would be nearly
impossible for them to access every single lender and every mortgage
product, simply because there are thousands out there.
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Q.
Will I pay more for my loan if I get it through a broker?
A. Not necessarily, though the broker does perform a service for
which he or she receives a fee. When a broker processes the paperwork
on a loan, it costs less for the lender to make the loan. Therefore,
lenders often discount loans to brokers. Here's an example of how
it might work: Say a borrower finds a loan on their own at a rate
of 7.5 percent with two points. A broker gets the same loan for
7.5 percent, but pays only one point. The broker may then add one
point to cover his or her fee, but the cost to the borrower is the
same - 7.5 percent with 2 points. The borrower pays no additional
cost and benefits from the broker's service. By state law, the broker's
fee and the discount the lender offers the broker must be disclosed
to the borrower.
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Q.
Should I focus on the lenders advertising the lowest rates rather
than the type of institution I borrow from?
A. You can, but remember, there is no guarantee you will lock in
at the advertised rate. Those rates may only be available for a
30 or 60-day period and it typically takes longer to close on a
loan. Interest rates can also change daily. The best way to compare
rates is to ask each lender what the rate would be if you closed
in a certain time period, for example, 90 days. And be sure to get
everything in writing. It is also possible to get a loan with a
longer lock-in period but, in that case, you usually pay a higher
rate.
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Q.
What documents will I need to provide when I apply for a loan?
A. Be prepared to provide verification of income, including your
pay stub and tax returns for the previous two years. You will also
need to provide bank account numbers and details about your long-term
debt, including credit cards, auto loans, child support, etc. If
you are self-employed, you may need to provide financial statements
for your business. Lenders want detailed information. For example,
the origin of your down payment will be queried. Be sure to inform
your lender of any changes in your employment, salary, debt or marital
status between the time you submit your application and the time
you close.
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Q.
Does it make sense to pre-pay my mortgage or should I invest that
money elsewhere?
A. Pre-paying your mortgage shortens the term of your loan which
will save you thousands of dollars in interest. As a general rule,
on a 30-year mortgage, you save $3 for every $1 you pre-pay. On
an after-tax basis, you get back $2 for every $1 you pre-pay. Pre-paying
your mortgage is an easy, risk-free investment. Even if you round
your monthly payment up to the nearest $100, it will save you money
over the long term. If you mortgage rate is 8 percent per year,
that's what you'll earn on your pre-payment. Compare that return
with what you'd earn in other comparably safe investments, like
a Certificate of Deposit (CD). Also weigh the advantages of pre-paying
your mortgage against paying off debt. If your credit card interest
rate is 18 percent, it makes more sense to pay off this higher-interest
debt rather than to pre-pay your 8 percent mortgage.
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