Whether you’re purchasing a home or refinancing your mortgage, you can look to Priority Plus for trusted advice and exceptional service. Our mortgage program includes:
All mortgage loans are serviced through our partner, State Financial Network, a full-service mortgage company serving credit unions in the greater Northeast.
If you are looking for competitive mortgage financing from a lender you can trust, stop by our office or contact us at 302-633-6480.
Fewer than 10 percent of homebuyers purchase their homes with cash, so chances are you’re going to need financing. Anyone can get a mortgage loan, but not everyone can get a good mortgage loan. The best way to get a low interest rate (and to avoid a default later) is to not borrow more than you can afford.
Calculate Your Debt-to-Income Ratio
The general rule of thumb is that your mortgage payment should equal no more than 28 to 33 percent of your gross income. And your total debt (i.e. your anticipated mortgage amount plus your car loan, credit card balances, etc.) should not surpass 36 percent of your gross income.
Determine Your Down Payment
Look at how much cash you have saved up for a down payment. The larger the down payment, the lower your monthly payments can be.
Test Yourself
Do a “practice run” for two months by saving the difference in your anticipated monthly mortgage payment—don’t forget to add 15% for taxes—and your current rent payment. See if you can maintain the lifestyle that you are accustomed to while not neglecting savings activities such as college funds for the kids or your IRA. If you find yourself falling short you may want to consider a smaller mortgage.
Adjustable-Rate Mortgages (ARMs)
Adjustable-rate mortgages are 15- or 30-year loans with monthly payments that change over the term of the loan due to increases or decreases in the interest rate.
Regular ARMs
Adjustments are made at pre-negotiated periods of time (six months, one, three or five years) based on changes in the “index.” The index is set when you apply for the loan. One example would be the Prime Rate. Fixed percentage points, the “margin,” are then added to the index (e.g. Prime + 1%). The sum of the two is added to the existing rate at the time of adjustment. Most ARMs have rate caps to protect you if there is a drastic increase in the index. These may be in the form of limits per adjustment or a lifetime limit for the loan.
Advantages: Margins remain static over time. The introductory rate is usually low.
Disadvantages: You cannot anticipate rate changes. The interest rate has the potential to become higher than with a fixed rate loan.
Fixed-Period ARMs
Fixed-period ARMs start out like fixed-rate loans. The loan maintains a fixed rate for a period from three to 10 years before it adjusts. The most common terms are 30 years with the first adjustments at the 3rd, 5th, or 10th year milestone, then adjusting annually from there. These would be called 3/1, 5/1 or 10/1 ARMs. The index is usually tied to the One-Year Treasury Securities Index. You can choose to have a first adjustment cap to avoid a huge increase in payments all at once.
Advantages: Introductory rate is lower than with a 30-year fixed-rate mortgage. You can enjoy a fixed rate for longer than with a regular ARM.
Disadvantages: Rates increase after the fixed period. Introductory rate may be higher than with other ARMs.
Although you should take time in your search, once you’ve found the home you want, jump on it! Remember, you are competing with other buyers. The house you like may not stay on the market for long.
Ask your agent for the seller’s terms and asking price. Then together you will write up a contract. Ask your buyer’s agent if any other contracts have been submitted and get his or her opinion of what price the seller will accept. (A seller’s agent will not disclose this information.) You can agree to the seller’s terms and price or suggest a counter-offer.
There is no standard that must be followed when writing a contract. Your agent will probably have a stock form that you can work from. In addition to the price you are offering, this document will describe your and the seller’s responsibilities as far as repairs, inspections and closing costs.
Make your contract contingent on a home inspection—even if the seller has already had one. Your buyer’s agent should be able to recommend an inspector, or you can find one on your own that is a member of the American Society of Home Inspectors (ASHI).
You can also ask for special conditions, such as an extended amount of time before your settlement date, a required minimum appraisal value, that you want the lawnmower included, etc. But, the more restrictions you add, the lower the odds that your contract will be accepted.
If your offer is accepted and signed by the seller, it becomes a legally binding contract. This does not mean that you unconditionally have the house. However, you can only back out under the conditions stated in the contract. At this time, you may be asked to submit a deposit or “earnest money” to place a hold on the home. This will prevent other buyers from submitting offers.
