91°F
weather icon Partly Cloudy

Seven questions to ask yourself before taking out a mortgage

You shouldn’t rely on luck as you’re financing your new home, but knowing the answers to these seven questions can’t hurt.

What if I have bad credit?

FICO credit scores vary from 300 to 850. Lenders judge an applicant’s ability to pay, in part, on his or her credit score. Anything above 700 is considered a good score. Fair is typically 650 to 699, and anything below 600 is considered bad credit in the lending industry.

“FICO scores are the credit scores used by 90 percent of top lenders to determine your credit risk,” according to myFICO.com.

So it would go to reason that you need a score of 650 or more, right? That’s not the full picture. Applicants can typically qualify without great credit, but the loan terms are likely to be less favorable.

“What is the minimum FICO score? Depending on the program it can be 620 for conventional and as low as 580 to 600 for a Federal Housing Administration (loan) depending on the contents of the credit.” said Kari Phillips, senior loan officer with Southern Fidelity Mortgage.

FHA is a great option for first-time homebuyers without great credit because it is easy to qualify and requires a lower down payment, but requires private mortgage insurance.

What about a down payment?

Lenders require down payments to invest a homebuyer in the property. The more money the homeowner invests in a property the less risk the bank takes because it provides less upfront money and because, in theory, the homeowner is less likely to walk away from that down payment money.

Also, the loan-to-value ratio is better because the home is worth more than the loan amount. Think of it this way: If the bank has to foreclose the home for nonpayment, the house will be worth more than the remainder of the loan.

A conventional home loan (the industry standard) requires a 20 percent down payment, so that’s $40,000 on a $200,000 home purchase. But there are other options. Check into an FHA loan, which typically requires as little as 3 percent down ($6,000 for that same house) but carries with it stricter stipulations for the appraisal and inspection processes.

Still too steep? Some banks offer loans that require no down payment based on your credit rating and other qualifying factors. Contact your bank for more information.

Curious what different down payments, purchase price and interests rates will cost you? Try a mortgage calculator to figure out the details.

What’s the difference between interest and APR?

In simple terms, “interest rate is the actual note rate of your loan. The APR considers all costs associated over the life of the loan,” Phillips said.

The Consumer Financial Protection Bureau explains it as the interest rate is the cost each year for just the loan, but the APR includes points, fees and charges as well as the cost of the loan.

So, for the lowest monthly payment or if the plan is to only own the home for a few years, go with the lowest interest rate. For the lowest overall cost of the loan or if the plan is to stay there for 30 years, go with the lowest APR. But it’s best to use both rates when comparing loans.

What are PITI and PMI?

Home loans are a regular alphabet soup. Know the acronyms and don’t be afraid to stop someone and ask them to explain. Two common ones you can expect: PITI and PMI.

PITI is short for principal, interest, taxes and insurance. This is what you can expect to pay on each month.

PMI is private mortgage insurance, which is not always required. PMI is common when a down payment is under the 20 percent threshold, which makes the bank loan slightly more risky. The insurance is to protect the bank and the loan, not the borrower.

Should I get an ARM?

An adjustable-rate mortgage has the benefit of being really enticing in the short term. But the great rates available right now aren’t guaranteed over the long term.

Depending on the structure of the loan, Phillips said, an ARM’s rate can change every three to seven years and end up costing an arm and a leg.

“An ARM is only fixed for short period of time, and a fixed rate is fixed for the full term of the loan. I would only suggest an ARM in a very stable interest rate environment and if you were not planning on staying in the home very long or refinancing after a short term.” Phillips said.

Points: What are they and should I buy them?

Points are a method of reducing the interest rate on a loan and the cost of points and amount of benefit vary on the lender and the loan.

“If you pay points that means you are paying to get a lower interest rate and it depends on the market at the time and how much money that is going to save you,” Phillips said.

In the simplest of terms, a lender could offer a point for $2,000 to reduce the interest rate by 0.5 percent.

The trick is to do a cost-benefit analysis. Try a mortgage point calculator to see if it’s worth the initial investment.

“It’s usually not worth it,” Phillips advised.

What are LE and CD?

What makes an alphabet soup worse? Changing acronyms. What were the commonly recognized GFE and HUD are now the LE and CD. Head swimming yet?

No worries. It boils down to this: When the loan process begins, the lender supplies a loan estimate, which outlines expected costs for the loan. When it’s all done and you’re ready to sign on that dotted line, the closing disclosure shows what those costs actually are. When comparing this documents — which you should do — the costs should be very similar.

“Be prepared for a long-term commitment,” is Phillips’ best advice. “Home ownership is a serious commitment and comes with a lot of responsibility so be sure you are ready for that.”

Don't miss the big stories. Like us on Facebook.
THE LATEST
3 can make a quorum for HOA board

Let’s assume that you have a full board of five directors and at a duly noticed board meeting only three directors can attend.

Changes in law will affect how associations can tow vehicles

Senate Bill 212 was changed. It affects how associations can tow vehicles in the community. The existing law states that a vehicle may not be towed until 48 hours after affixing a notice to the vehicle that explains when it will be towed (with the exception of vehicles that are related to health, safety or welfare, i.e. parking in front of fire hydrants, etc.).

RESALE HOME SALES May 29-June 3

Editor’s note: Listings include the resale home’s parcel number. The address listed is the homebuyer’s mailing address and not the actual location of the resale home. About 90 percent of these addresses reflect the home purchase. Check the parcel number to make sure. Also, a few transactions do not reflect the market value of the homes. The information is provided by Accudata, a local research firm. For the complete listing, visit RJRealEstate.Vegas.

New Nevada laws that will affect HOAs

There were not too many laws passed in this last legislative session that affected our local homeowners associations. Here are some that did.

BHHS partners with Adwerx to offer Realtors new program

Berkshire Hathaway HomeServices Nevada Properties, in partnership with Adwerx Enterprises, has launched a new platform, called Brilliantly Simple to immediately advertise its real estate listings online. The platform automatically creates digital advertising programs for each home, including custom ads that are optimized for social media, apps and websites.

Homeowners have right to see HOA financial records

Per Nevada Revised Statute 116.31175 (1a), upon written request, you are entitled to receive financial statements from your association. Please send a formal specific request of what financial statements that you would like to receive.

High land costs affect developments

For all the job growth and expansion in the Las Vegas economy, a lack of land and its high cost is restricting growth in the valley, experts told the Southern Nevada real estate and development community.

Local home prices stuck at $300,000

For the third straight month, the Greater Las Vegas Association of Realtors, GLVAR, reported that local home prices are hovering at $300,000, while the number of homes on the market continues to increase.

Fair Housing Law requires accommodations for disabled

The Fair Housing Law requires accommodations for the disabled. Based upon your email, the homeowner would have a strong claim against the association if the homeowner was forced to remove the motor home, or if the association were to fine the homeowner because of the therapy equipment. Take the time to meet with this homeowner and see if there are any other viable alternatives.