Escrow, PMI, credit scores, property taxes, closing, if you’re not well-versed in mortgages, all the different terms can be mind-boggling. The residential mortgage process can be confusing if you’ve never taken one out before. The best thing you can do before you go into the home-buying and mortgage process is to educate yourself.
If you have somewhat of an idea of what the process looks like, you’ll know what to expect and won’t be caught off-guard. Check out this guide to how residential mortgages work in Palm City.
Determining What You Can Afford
Before you do anything, it’s wise to figure out how much you can comfortably afford. A mortgage lender may approve you for a loan that is much higher than you really want, so don’t be tempted to spend more than you feel comfortable spending just because you are approved for that much.
The general rule of thumb is to spend no more than about 30% of your monthly income on housing costs. This includes everything encompassed in housing though, including mortgage, taxes, insurance, monthly maintenance, and fees (such as HOA or condominium fees).
Applying for a Mortgage
Once you know what you think you can afford, it’s time to apply for a mortgage. You can shop around to get rates from a few different lenders in the Palm City area, as not all lenders will offer you the same interest rate. Once you apply, expect to have to provide a lot of documentation.
Your lender is going to want documentation of your income and employment, your tax returns, retirement account statements, statements detailing payments such as student loans, bank statements, and any other document that the mortgage underwriter requests before they will approve you.
To make the application process smoother, try to gather your financial documents ahead of time. That will make the entire process go quicker. Once you apply, you will discuss with your mortgage officer the type of loan that works best for you. Not all mortgages are created equal, and there are certain ones that might be better for your financial or life situation.
Conventional loans are the most common type of mortgage loan. You pay the same amount every month for 15 or 30 years and you can get one in some cases with as little as a 3% down payment. You typically need a good credit score for a conventional mortgage and you will have to pay something called private mortgage insurance (PMI) until you reach 20% equity.
FHA loans are backed by the federal government, so you do not need as much of a down payment. You may also be able to get an FHA loan with less-than-stellar credit. You must put at least 3.5% down, but you can get one with a credit score less than 600. You will pay a bit more for this, though, as FHA loans require two mortgage insurance premiums, which cannot always be canceled.
VA loans are another type of government-backed loan and are meant specifically for members of the US military (either active duty or veterans). They do not require a down payment, nor do they require mortgage insurance. Closing costs are also capped, making it affordable for military personnel.
Adjustable Rate Mortgages (ARMs)
Adjustable-rate mortgages (ARMs) typically have a fixed rate for a number of years, such as 3 or 5, and then the rate will increase based on market conditions. These loans will typically cap how high the rate can be, so you don’t end up in financial trouble once the rate increases.
ARMs are good if you are only going to be in the home for a few years, but they are risky. If you decide to stay in your home longer, you’ll be at the mercy of the market conditions or you’ll have to refinance to get a better rate (or a conventional, fixed-rate mortgage).
Once you decide the best type of mortgage and apply for it, you will need to lock in your rate with your Palm City lender. Once you do that, it is typically good for a certain amount of time, so you don’t want to lock in your rate too soon. Once you lock in your rate, your mortgage application will go to an underwriter, who will examine all of your documents and make the final decision on whether you will be approved for the mortgage and can close.
Be prepared during the underwriting process to answer any questions the underwriter may have or provide any additional documentation they may request. You will need to move quickly to provide anything additional, so your rate lock doesn’t expire.
The key to moving through this process successfully is a good loan officer who puts together an application package that is complete and thinks of things the underwriter may ask for before they ask.
Understanding Your Monthly Payment
Your monthly payment will typically include more than just your mortgage. The payment will include:
- Mortgage principal and interest
- PMI (if you have it)
Many mortgage companies will require you to have an escrow account for your taxes and insurance.
This means that you pay a portion of them every month along with your mortgage and they are held in an escrow account. When your taxes are due or your insurance premium is due, your mortgage company pays those bills directly from your escrow account. In Palm City, you also need flood insurance if you live in a flood zone.
You can use a mortgage calculator to figure out exactly what your payment will be each month.
Your Residential Mortgage Guide in Palm City
Hopefully, this residential mortgage guide gave you a better idea of what to expect when taking out a mortgage in Palm City. Do your research, find a trusted lender, and enjoy your new home.
If you are ready to start discussing mortgages, contact us today. We offer a variety of different loan types and make everything easy with an online application and borrower portal.