Home Mortgage Q&A: Tips and Advice from the Experts

March 19, 2021 | by Guest Posts

Categories: Financial Education, First Time Buyer, Homeownership

This is an abridged guest blog post (see the full version here) by Rocio Espinoza, a writer for Porch.com, a website dedicated to simplifying the way homeowners take care of their homes. This article gives a nod to our homeownership programs, while also providing other valuable information for our readers.

Buying a home can be challenging for a first-timer. If you are thinking of buying a home, there’s a lot you need to know. When you buy a home, you will need to get a mortgage loan unless you have the cash to buy it outright. A mortgage is a loan that is used to purchase or refinance a house. To help you understand a bit more about the process, we reached out to home loan experts and asked everything you need to know. Read on to about home mortgages.

How are mortgage rates determined?

While 2021 began with mortgage rates at a record low, the interest rate you ultimately receive is determined by a combination of factors, some of which you can’t control. What can you control? Your credit score, loan-to-value ratio, and the type of mortgage you use. What can’t you control? The economy and mortgage lender operating costs.

Mortgage rates rise and fall every day. When the economy is slowing down, unemployment is rising, and inflation is falling, mortgage rates tend to move lower. If the economy is strong, jobs are growing, and inflation is rising, then rates typically move higher. The stock market and economic data like the pace of home sales and new housing construction can also impact rates.

Mortgage rates also vary by lender because each one has different operating costs and tolerance for risk. When mortgage shopping, it makes sense to get quotes from several lenders because big banks, online lenders, and credit unions each charge different rates and fees.

 -Linda Bell at Nerdwallet

How do down payment assistance programs work?

Down payment assistance, commonly referred to as DPA, is financial assistance you can receive from a nonprofit or government entity to help you with your down payment. We encourage both first-time and repeat home buyers to research DPA options before they buy a home.

In general, there are three types of DPA:

• Grants (never have to be repaid)
• Deferred forgivable second liens (do not have to be repaid as long as you don’t sell or refinance your home for a specific time, usually between three and five years)
• Second liens (have to be repaid when you sell or refinance your home)

Mortgage loans that come with DPA often have a slightly higher interest rate than mortgage loans without DPA, which means a slightly higher monthly payment. But many homebuyers find that the benefits of having immediate access to their down payment far outweigh the costs of a slightly higher monthly payment. Plus, the extra money you save on your down payment equals more money for furniture, repairs, and other costs of owning and maintaining your home.

Most DPA providers require you to work with one of their participating lenders and provide a long list of lenders to choose from on their website. The lender can help you determine if DPA is right for you and what type.

To qualify for DPA, you’ll need to meet specific income, credit, and sales price requirements. If you are buying a home in Texas, we encourage you to learn more about our DPA programs here. Homebuyers not located in Texas can find a list of DPA programs in their area using this free tool offered by Down Payment Resource.

-Sarah Ellinor at Texas State Affordable Housing Corporation

What are your top three tips for finding the best mortgage lender?

• Shop Around. Ask 2-4 lenders for a full written quote or an official loan estimate that gives you the full picture based on your specific needs. Having multiple options provides you with more certainty that you are getting a good deal. 

• Look Beyond The Interest Rate. Many home buyers focus on the interest rate when shopping for a mortgage. However, every mortgage company has different fees, credits, or discount points associated with their interest rates. Be sure to compare each lender’s annual percentage rate (APR) and their total closing costs as well. 

• Ask The Right Questions. The service your mortgage lender provides is just as important as the price you pay. Make sure you choose a lender who will guide and advise you throughout the process, like a concierge. If the lender you’re considering is responsive, proactive, and pleasant to work with, that’s a good sign! 

-Ryan Dibble at Flyhomes

What’s included in your monthly mortgage payment?

A simple way to remember what is involved in your Mortgage Payment is a mortgage term called “PITI”. This stands for Principle & Interest, Taxes, and Insurance. Some additional costs can be included in one’s mortgage liabilities but not typically included in the mortgage payment.  Nonetheless, these additional costs are important to understand, as it is calculated in your mortgage liability and can affect your qualification for a mortgage.

• Principle & Interest: The principle is the portion of the funds that will balance your mortgage, while interest is what the mortgagor charges to borrow from the original loan. As a borrower, you typically have the option to make an additional Principle payment each time you make your monthly mortgage. Doing this will help eliminate the balance down and save you interest throughout the loan’s life.
• Taxes: Mortgage lenders will calculate your estimated county tax for the subject property. Each state/county may have its own tax percentages, including potential fees associated with county development called mello roos. These fees can increase the tax liability for a borrower. Buying your dream home without considering mello roos costs can potentially disqualify your eligibility to purchase the home. Therefore, it would be a good idea to get in touch with a seasoned lender to determine whether a property you are interested in can meet your eligible tax liabilities to qualify for a loan. And see if you qualify with an additional cost outside the standard tax rate.
• Insurances: Your home insurance and potential mortgage insurance are also calculated into your loan payment.  Home insurance can vary in price from company to company, but the good part is that you can shop for this cost. Mortgage insurance (MI) may be included in your loan if you do not put in a 20% down payment. Each loan type has its own different costs associated with mortgage insurance. Don’t worry though, if you do not have 20% to put down on a home. If you qualify for a conventional mortgage, it is possible to have your MI removed once your home reaches 80% loan to value (LTV) or less.
• Potential Additional Costs: Lastly, if you are purchasing a Condominium or a Town House / Planned Unit Development (PUD), you will likely have association fees included in the cost of your overall mortgage liabilities. Please know that this is not typically included in your mortgage payment, but each lender must use this cost to determine your eligibility for qualification.

Finally, while there are mortgage calculators online, these tools only provide an estimate and do not substitute for the actual cost associated with your mortgage payment. Therefore, it is advised to get in touch with a seasoned lender that can help you determine the most accurate costs associated with your future home purchase or refinance.

-David Coronado at All Western Mortgage

To read the full article, which includes more information about mortgage payments, mortgage taxes and insurance, and more, click here.

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On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.