Southern Oregon Loan FYI-FAQ
Purchasing a Home in Southern Oregon
It is said that buying a home is the largest investment most families will make. At Ambient Home Lending we want you to assure you that your financial investment and your family's needs will always be considered in balance. Not only a huge investment, your home will be the place where your family grows together through good times and challenges... your choices regarding the type of loan you get can contribute to your satisfaction or an ongoing monthly reminder of a bad choice. Let's start with the basics...
What factors affect getting a new home loan?
The two things that will have the largest affect on the type of loan and payment you end up with are your Credit Score and Down Payment. Your best scenarios will come from a good mix of both.
For the average buyer, a good credit score and consistent work history is sufficient to qualify to buy a home. An excellent credit score can off-set a Borrowers lack of down payment and improve the rates and terms of the programs which will allow little or no down payment. Borrowers are well served to pay good attention to their credit score and keep it healthy.
"How do I protect my credit score?" In order to keep a high credit score, you must pay attention to what is on your report. Each person's credit score is unique and has been affected by more things than we can discuss here, but here are a few items to pay attention to if you want to maintain or improve your score:
- Don't open too many accounts
- Don't run your credit accounts up to their limits and make the minimum payments, never paying any principal.
- Never allow your payments to be received late by the creditor.
- Balance your debt so that your monthly liabilities don't exceed your ability to repay easily. When calculating your debt for conventional financing, your total debt payments should not exceed 40% of your gross income...this includes your house payment, taxes and insurance. (Figure debt ratio by dividing total monthly debt items by gross monthly income).
- Make sure all of the items on your credit report are accurate, BEFORE applying for a home loan.
"How much down payment do I need?" The classic 20% down payment of a generation ago is all but gone. Home buyers commonly use financing today either through single loans or what's commonly known as a first and second combo loan. Ambient Home Lending also offers the USDA 100% financing program.
If one loan is desired and you are putting down less than 20% you have generally 3 options, having a PMI (Private Mortgage Insurance) payment in addition to your loan payment, paying a slightly higher rate on your loan to avoid PMI or using the USDA 100% financing program.
Deciding How Much to Borrow and for How Long?
What comes first: The dream house or the Loan? Before you go house hunting, you should spend the appropriate amount of time deciding how much you can afford. There are many formulas to determine just how much you can borrow and Ambient Home Lending will help you with calculating standard qualifying ratios, but you must balance your common sense and sensitivity to your family's present and future needs. On one hand you don't want your home payment to be so big that you are stretched to do the things you and your family enjoy and are used to. On the other hand, you don't want to underestimate you and your families needs when it comes to space and versatility of the facilities of your new home which could result in serious dissatisfaction and the need to move again sooner than you planned.
There are standard ratios of home expenses which are used to determine, based on established statistics, to determine what is the "right" amount of household income you should dedicate to your house payment. For conventional financing, you should not exceed 40% approx. of your household gross monthly income in total debt payments. This percentage should include not only your home expense but all other debt items... car loans, credit cards...etc.
With the changing marketplace, increased home values and higher cost of living, sometimes those ratios don't seem very realistic. In today's marketplace, families are putting more into their homes, both at time of purchase as well as in improvements after purchase, betting that the appreciation over time will off-set the extra monthly expense.
The term of your loan (the length of the note) should be the shortest period of time you are comfortable with. Today you can choose from note periods of 15 or 30 years which are still the standards under which most are written. Recently added to those standards the market has fully amortized loans in 10 year terms, 20 year and even 40 year!
Short fixed terms which offer a long term amortization (sometimes known as a balloon loan) like 15/30 means that the loan term is 15 years, while the payment is calculated on a 30 year term. That example is offered in other combinations as well: 1/30, 3/30, 5/30, 7/30...etc. This type of amortization can be confused with an ARM product which is represented in a similar way: 3/1, 5/1, 7/1... so on.
You want to be careful to understand the difference. With one you have a early maturity, which means you have to pay it off or refinance it; with the other, the note becomes fully adjustable at the end of the fixed period. At Ambient Home Lending, we have seen, more than once, a client who did not know that their note was to become an adjustable at the end of a fixed term. Make sure you are comfortable with the information contained on your Truth In Lending which is where you will find these details.
As a rule of thumb, for the average borrower, the shorter the amortization, the lower the interest rate and the higher the payment. Make sure you are comfortable understanding the differences in terms... If not, make sure your loan officer explains it until you are comfortable. Ambient Home Lending will take the appropriate amount of time to reach your comfort zone.
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