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What is Prequalification for a mortgage?
Getting prequalified for a mortgage will give you a idea of what type of loan fits you best, what type of loan program, and the amount you could possibly borrow. Getting this in advance is one of the smartest thing a potential home buyer can do. It not only helps you get a better understanding of your finances and what you should budget, but setting your expectations at the right level of home you start to look for.
When you decide to get prequalified for a home, you are essentially getting an estimate of what you could possibly be able to borrow
A conventional loan is a mortgage made between a lender and a borrower with no other parties involved (such as VA or FHA). Conventional loans customarily require a 20% down payment. Down payments may be as low as 5% with mortgage insurance.
The letters stand for Veteran Administration: a branch of the US government. VA is not a lender but rather guarantees mortgages for lenders to help eligible veterans. VA loans require no down payment up to the VA maximum loan limit. VA loans can be assumed by qualified borrowers.
FHA is the Federal Housing Administration, a division of the US Department of Housing and Urban Development, and are most popular amongst . FHA does not lend money; instead, like VA, it insures mortgages allowing lenders to make loans that might not be eligible for conventional financing. Down payments are as low as 3.5%. Both fixed-rate and ARM mortgages are available. FHA loans are assumable by qualified borrowers. FHA mortgages have credit standards and other rules that are more flexible than typical conventional mortgages.
Home inspections are a buyers expense, but are not always needed. They protect the homeowner from things they cannot see, where a professional inspector might notice. You want to make sure there aren't any huge problems with the home you are wanting to purchase, therefore an inspection would make sure of that. For an existing home this is more common than an inspection for a new build. If the inspector finds things that are wrong with the home, you should be able to negotiate with the seller to either fix them or adjust the price so you can fix them after closing.
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Points are money paid to your lender that are used to lower your mortgage interest rate. One point will equal 1% of the loan amount. Example: 3 points on a 200,000 mortgage loan is equal to $6,000, which in the end would lower your interest rate.
Property taxes are determined by your home's value based on a tax assessor's appraised value of your home. It is a fixed percentage, which are paid to the county or township your home resides in. You can either pay this all upfront, semiannually, or have it lumped into your monthly mortgage payment. If you pay portions of it through you monthly payment, the property taxes will go into an escrow account to be held for when they are due.
An escrow account is simply an account for your money to be held to cover future payments for things such as homeowner's insurance or property taxes. It may be required by your lender, but is nothing to be intimidated by.
This in the end will protect you and the lender from anything bad happening to the property. It is also known as an insurance policy, and the payment is known as your insurance premium. Homeowner's insurance is most likely going to be lumped into your monthly payment and then will go into an escrow account to be held.
P&I stands for Principal and Interest, which is most likely going to be a portion of what your monthly payment is going to look like. The principal is the amount you are asking to borrow, and the interest is the cost amount collected by your lender for borrowing. These two together will make up the majority of your monthly payment. PITI is Principal, Interest, Taxes, and Insurance. All of these variables will most likely add up to your monthly payment.
Down payments is the percent of your home's price you decide to pay up front when you close of your new home. Down payments range from 3.5% to 20%, depending on your loan program.
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