Home Financing Guide from DMV Properties

Financing

Call or Email Paul Stagnitto now for all your Mortgage and Refinancing needs.

pstagnitto@equityunited.com
(301) 802-5436

When attempting to secure a mortgage loan, there are many factors that need to be taken into account. Every buyer has their own unique financial situation, what works for some doesn't for others. Should you choose a conventional 30 year fixed or would an ARM be more suitable for your lifestyle? It's a Broker's job to put you (the client) in the best possible situation.

As with any undertaking in life, you should do your homework and be a well educated consumer. With our years of experience in the Washington DC, and near by Virginia and Maryland areas, we have brought together this collection of finance resources for you. Below is some information that might come in handy when the time comes to shop for a mortgage.

In addition to the information we have gathered on this page about financing, we would also suggest you look at our guides for home buyers and home sellers. They contain things you should know through out the whole process of finding or selling a home. Also, if you do not want to try buying or selling on your own, we have created a Realtor Guide with information to help you pick the right realtor to assist you in the Real Estate world.

FICO SCORES: Lenders look to your ability to pay a loan back (do you have enough stable income?), and what is your credit rating (FICO score). FICO scores run from a low of 300 to a high of 850 (best score). The rates quoted by most lenders are normally for the highest FICO score applicants (760-850 range).

WHAT'S IN YOUR FICO SCORE: This is the breakdown for your total score:

Payment History: 35%

Amounts Owed: 30%

Length of Credit History: 15%

Types of Credit Used: 10%

New Credit: 10%

WHAT DO YOU DO FIRST: Contact your Broker for a free detailed analysis of your Credit Scores and a full explanation of the contents. Or you can order your credit report and score. You can purchase the report with a FICO score from any of the three major agencies listed below.

Equifax
http://www.equifax.com
1 (800) 685-1111

Experian
http://www.experian.com
1 (888) 397-3742

Trans Union
http://www.transunion.com
1 (877) 322-8228

Pre-Approval: Knowing how much you can afford is the second step. Sellers will be much more receptive to potential buyers who have been pre-approved. With a Pre-Approval, the buyer supplies the Broker with enough information to determine how much the buyer is able to borrow. This is put in writing and presented with the offer.

Types of Mortgages

Fortunately for buyers, there are a variety of mortgages to choose from. It is in your best interest to investigate each of them to determine which is the best for your situation. You probably won't qualify for all of them. In fact, you may only qualify for one. But if you do qualify for more than one, you may save yourself money (and worry) in the long run if you do your homework before signing on the dotted line.

Another thing to keep in mind when doing your research is that rates vary with the location. The Washington DC, Virginia, and Maryland area that we work in has different numbers than Southern Michigan or Northern California would. When gathering information on the internet, make sure that the rates you are working with are appropriate for where you are planning to buy or sell.

Fixed-Rate Mortgages
Adjustable-Rate Mortgages
FHA and VA Loan

Fixed Rate Mortgages

Since most home loans are for a period of 30 years, if you want a payment you can count on for that long of a period of time, a fixed rate mortgage may be what works best for you. Once your loan amount and interest rate are calculated and locked in, a fixed rate mortgage will guarantee that you will have the same payment over the life of the loan. Making extra payments to principal will allow you to pay your loan off sooner.

This may not always be the best choice, however. If interest rates are very high at the time you take out your loan, with a fixed rate mortgage you'll be stuck with that high interest for the life of the loan (unless you choose to refinance). Conversely, if interest rates are very low, you'll come out the winner with interest rates that will stay low no matter how high interest rates go in the future.

The following are the advantages and disadvantages of the varying lengths and terms of fixed-rate mortgages:

15-Year Fixed-Rate:

Pay off the loan in half the time of a 30-year loan.

Equity builds up more quickly than in a 30-year loan.

Payments are higher

20-Year Fixed-Rate:

Pay off the loan in 2/3 the time of a 30-year loan.

The overall interest paid is considerably less than for a 30-year loan.

30-Year Fixed-Rate:

The most common choice of financing, especially for first-time home-buyers, as it's the easiest of the fixed-rate loans to qualify for. Monthly payments are lower than for 15-year and 20-year loans. This can prove especially helpful if you do not have a lot of "padding" between the amount you can afford to spend and the monthly payment for your desired property. The 30 year Fixed-Rate program is more desirable if you plan on staying in the same home for several years, since equity builds more slowly than for shorter-term loans.

Adjustable-Rate Mortgages (ARMs)

Typically, ARM interest rates are tied to a specific financial index (such as Certificate of Deposit index, Treasury or T-Bill rate, Cost of Funds-Indexed Arms or COFI, or LIBOR [London Interbank Offered Rate]) and your payment will be based on the index your lender uses plus a margin, generally of two to three points. Get the formula used by your lender in writing and make sure you understand what it means.

Fortunately, the amount an ARM can increase is limited. There are "caps" on how much your lender can increase your rate, both for a period of one year and for the life of the loan. Plan ahead, and have your lender calculate what the maximum payment would be if your rate went to the highest amount allowed by the cap for your particular mortgage. If you are not confident you'll be able to pay that amount on a monthly basis, perhaps you should reconsider this type of loan.

Government Loans

Another mortgage option available to some people is a government loan, providing that you meet the qualifications for these loans.

VA Loans: Veterans may qualify for a loan from the Veterans Administration. There is a limit on the amount you can borrow, so this option works best for those buying a lower priced home.

FHA Loans: The Federal Housing Association offers loans to lower-income Americans. Look for the phrase "FHA approved" when looking at ads for homes.

Also, do not forget to look through our Buyer's Guide, Seller's Guide, and Real Estate Agent Guide.

Take a closer look at all the neighborhood details and Homes for Sale that Rockville, Bethesda, Chevy Chase and The Greater Washington, D.C. Area just to name a few have to offer.