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Mortgage Guide

MORTGAGE GUIDE

Whether you are a first time home buyer or looking to buy an investment property, it is important that you make an informed decision when obtaining a mortgage. There are various mortgage products to select from. Choosing the right product will strictly be based on your individual circumstances, immediate needs and long term goals.

Before you begin your search for a property, understand your financial situation. Collect and examine your spending habits for the last 12 months. In this overview, look at your recurring monthly bills, seasonal expenses and any expenses that potentially can be eliminated. With purchasing a property there are typically added expenses (i.e., taxes, insurance, water, sewer, heating, cooling, general maintenance, etc.) that may affect the life style you have become accustomed to. Being aware of the overall picture will eliminate any surprises.

For a synopsis of your overall debt obtain a copy of your credit report from the three credit bureaus (TransUnion, Equifax & Experian) as each one may list different details and rate you differently. While the lender you select will run their own credit check, it’s best that you check your reports ahead of time. By doing so you may be able to pay off small bills which in turn will slightly increase your score and your purchasing power. A lender will consider your overall debt in ratio to your income when determining the amount of money to lend you.

   TIP: Prior to applying for a mortgage it’s important not to make a big purchase or apply for a new line of credit. Take special care not to allow multiple companies run your credit as it will negatively affect your score.

Now that you have a better understanding of your finances, find a Mortgage Broker or Lender that you will be comfortable working with.

A “Mortgage Broker” is a third party that will connect a potential borrower with a bank or other lending institution to obtain a loan. Their fees vary and are typically paid for by the borrower.

A “Lender” is the institution that will directly provide the loan (money) to purchase a property.

The key is to find a good informative professional that can help you choose a suitable mortgage product based on your credit rating, finances, immediate needs and long term goals. When making your selection, the company’s reputation is important. Has the mortgage broker helped others obtain financing? What was their experience like? You want to work with someone reputable and timely. What are home owners saying about the particular lender you are considering? As per the terms of the agreement, did they deliver? Have any homeowners reported that they were later surprised by clauses they didn’t understand?

As a consumer, it’s important to educate yourself with the various products and companies available. Welcome referrals but in the end select the product that will work best for you.

   TIP: Lenders look for stable income history with 2 years of continuous employment with the same employer or at least in the same line of work.

When meeting with the Mortgage Broker/Loan Officer be prepared to provide the following detailed financial information:

1. Recent paystubs for the last 2 months
2. W2s for the past 2 years
3. Tax Return for the past 2 years
4. Any documentation to substantiate other income
5. Bank & Investment Statements for the last 3 months (include all pages)

Your financial information along with a credit check will help your mortgage professional assess your financial situation and ultimately be used to determine the amount of money a lender would be willing to lend you. Do not allow your credit to be checked until you are convinced that you are comfortable working with this person to secure your loan.

MORTGAGE PRE-APPROVAL: is a letter from a lender stating that you would qualify for a particular loan amount. It is not a guarantee that the loan is approvable nor does it lock in a rate or commit you to a particular loan. It simply helps you determine your price range prior to shopping for a property. And it shows seller’s that you are credit worthy and potentially able to buy their property.

   TIP: Along with needing a mortgage professional to help you get pre-approved & ultimately secure a mortgage, you will also need an attorney. Look for an attorney as you shop for a mortgage. A good attorney can help you decipher through all the options and read over all the documents prior to committing to a loan.

Once you find a property that fits your needs, you may have to submit updated financial information and undergo another credit check. The actual approval process will take time but be patient and work closely with your mortgage professional to get through the process as smoothly as possible.

Budget yourself ahead of time as there are added expenses that come with homeownership:

  • Credit Report (1 Time Fee)
  • Appraisal Fee (1 Time Fee)
  • Home Inspection Fee (1 Time Fee)
  • Termite Inspection Fee (1 Time Fee)
  • Origination Fee (1 Time Fee)
  • Lock-in Rate Fee (1 Time Fee)
  • Pre-Paid Points (1 Time Fee)
  • Closing Costs (1 Time Fee)
  • Title Insurance (1 Time Fee)
  • Survey Fee (1 Time Fee)
  • Attorney Fee (1 Time Fee)
  • Property Taxes Monthly/Annual
  • PMI (if applicable) Monthly
  • Home Owner’s Insurance Monthly/Annual
  • Maintenance Fees/Repairs Ongoing

Below are a few key definitions to help you as you sort through the process of finding the right type of “loan” for your purchase:

MORTGAGE: A borrower’s promise/pledge to repay a loan. Basically, it’s a lien against a property so that if a borrower does not repay the money borrowed as agreed the lender can take possession of the promised property and sell it to recover the debt owed.

NOTE/BOND: a written promise to repay a loan. The set of documents states the amount of the debt, the time & method of payment and the rate of interest.

MORTGAGOR: person borrowing the money and pledging real estate as security for a loan.

MORTGAGEE: lends the money in exchange for the note.

INTEREST: a percentage of the principal charged by a lender for the use of their money. Interest rates vary between lending institutions.

POINTS: lump sum of pre-paid interest before the signing of a mortgage to slightly lower the interest rate of the loan. Each point is 1% of the loan.

PRINCIPAL: the original amount of a loan.

FIXED RATE MORTGAGE: loan where the interest rate does not change for the full term of the loan. Typically a 10/15/20/30/40 year “fixed mortgage” term is offered.

ADJUSTABLE RATE MORTGAGE (ARM): interest rate of a loan that remains set for a period of time but then fluctuates based on economic conditions and available rates in the country; changing your monthly payment and amount due over time.

CONVENTIONAL LOAN: loan between a borrower & lending institution.

GOVERNMENT BACKED LOAN: loan insured by the federal government in the event a borrower defaults. Example of are FHA & VA Loans.

FHA LOAN: loan backed by the Federal Housing Administration. Essentially it’s a loan made by an approved lending institution but guaranteed repayment by the agency should the borrower default.

VETERAN LOAN: loan guaranteed by the Dept of Veterans Affairs against loss on mortgage loans made to eligible Veterans.

CONSTRUCTION LOAN: finances the construction of improvements on real estate. Payments are made on a schedule based on the work that has been completed.

PRIVATE MORTGAGE INSURANCE: insurance that protects the lender from loss if a property is foreclosed and the debt isn’t fully recovered. This insurance premium can be paid monthly or annually. In a conventional loan, PMI is not required if the borrower only borrows 80% of the value of the property. PMI is required for the full life of a government loan regardless of the loan to value ratio a property holds.

PREPAYMENT PENALTY: a penalty assessed if the loan is paid before the full term of the loan.

SATISFACTION OF MORTGAGE LIEN: means the note has been paid in full. According to NY Law the satisfaction must be entered in the public record within 45 days to show that the mortgage lien has been removed.

We are here to help you every step of the way to find a property that fits your needs. The mortgage information listed is strictly intended for informational purposes. For a clearer understanding of what a mortgage is and the various loan products available it is best that you consult a mortgage professional.