This article was originally published by the Charlotte Agenda
Unless you’re a loan advisor, real estate agent or you like to move a lot – mortgages are complicated.
It’s a whole world of terms and loan options that you’ve never heard of. And the fun part is, it’s like you’re signing your life away for 30 years with the most money you’ve ever spent and you only understand like 25% of what’s going on.
We talked to the experts at Wyndham Capital Mortgage to demystify the world of home loans and we’ve got good news – your mortgage doesn’t have to be so intimidating.
Busting 5 mortgage myths
Whether you heard it from your parents or a coworker, there are a lot of misconceptions floating out there about home mortgages. We sat down with Wyndham Capital Mortgage Sales Manager Matt Brown to set the record straight on a few things.
“I have to put down 20% to buy a home.”
Depending on the house you’re interested in buying, a 20% downpayment can be a big chunk of change. Saving 20% has long been the rule of thumb but Brown says it’s not always necessary. “There are some mortgage options that allow you to only put 3% down.”
“I have to put 20% down to avoid PMI.”
Many people try to save up 20% to avoid paying dreaded PMI (aka private mortgage insurance) but it’s actually not that big of a deal. “There are a lot of different ways to tackle PMI. Some options allow you to avoid it altogether, even if you’re putting less than 20% down,” says Brown.
You also have to keep the housing market in mind. “As you save up for a larger downpayment, rates and housing prices could rise.” From that perspective, PMI doesn’t seem so terrible. “People spends months or years to save up and fit that goal when in reality they could have put themselves in a comfortable mortgage payment much earlier.”
“Closing costs have to be paid by me, outside of the loan.”
That’s not always the case, according to Brown. “Most lenders can give you credit for closing costs, which means you can keep cash on hand.” By working in closing costs as part of your mortgage, you can avoid another pricey out-of-pocket expense so you won’t feel like you are bleeding so much money all at once.
“I need to find a real estate agent before I get pre-approved.”
When beginning your house hunt, you might think finding a real estate agent is the first step. But Brown says “that’s putting the cart before the horse.” He recommends talking to a lender and getting a pre-approval in hand first. This can help define your home-buying budget and shows a real estate agent you are serious about buying a house.
“I don’t need to shop around for a mortgage lender.”
It’s easy to focus on finding your dream house and look at the mortgage part of it as an afterthought. But researching lenders is important. You’re making a huge purchase, so you want to make sure you not only got a good rate but also feel confident that the lender you chose will helping make the process go as smoothly as possible.
How to choose the right mortgage
Just like you are being meticulous about finding the perfect house, you want to choose the right mortgage. This means you’ll need to do a little homework ahead of time.
Start with an internet search. Don’t just look at rates, read reviews too. Here are a few tips to help you along the way.
Look at the lender’s track record for missing closing dates
There’s nothing quite like the nightmare of being hours before closing without having final approval from your lender. Worst case scenario, you miss your closing date altogether and then the seller can pull out of the deal.
Pay attention to reviews to see what the lender’s track record is for missing closing dates. “On average we get buyers final approval 6 days before the closing date,” says Brown. “We won’t commit to a closing date if we think we can’t meet it.”
Wyndham also offers a $10k closing guarantee. That means, if they somehow miss the closing date, they will pay you $10,000. “We are confident in our turn around time.”
Pay attention to lender fees
Some lenders charge extra fees, like processing, underwriting, application, credit report, tax service, and flood certification fees. That’s the last thing you want when you’re already paying for a house. Ask about fees upfront so you aren’t blindsided later in the process and, ideally, look for a lender who doesn’t charge any fees.
(Pro tip: Wyndham doesn’t charge any lender origination fees.)
Skip the physical paperwork with a lender who uses e-sign
If you’ve never purchased a house before, spoiler alert: you’re gonna have to sign A LOT of paperwork. It’s a pain in the butt. It’s 2019, sign your mortgage like it. Get a lender who uses e-sign.
Wyndham uses e-sign for their closing paperwork, which means you can sign the papers from the comfort of your own home. Or from anywhere. It’s legit.
Pick a lender with good reviews
This seems like an obvious thing but it’s still worth saying – pick a lender with the best reviews. You’ll be tempted to choose a company with the a really low rate and iffy reviews but that’s a bad move.
The home-buying process is already super stressful and the last thing you want is a lender who isn’t communicating with you or who misses your closing date. There’s something to be said about quality customer service.
What comes first: the house or the pre-approval?
Ok, you’ve decided to buy a house. Now it’s time to find the perfect one, right? Not so fast.
While you might be tempted to call up your real estate agent and start booking showings, there’s something you’ll want to do first – get a pre-approval letter from a mortgage lender.
So what exactly is a pre-approval letter?
This is basically a letter from a mortgage lender that shows how much money you’ve been approved to borrow for a home loan.
Why do I need that?
Matt Brown from Wyndham Capital Mortgage recommends getting a pre-approval letter ahead of time for a few reasons.
(1) It helps you better define your budget and narrow down your home search.
(2) It shows a real estate agent that you are a serious buyer.
(3) When it comes time to put down an offer, it makes you look more appealing to sellers.
How do I get one?
Once you choose a mortgage lender, you can typically call them and go through the pre-approval over the phone.
Isn’t an online pre-qualification the same thing?
There are tons of websites out there that offer “pre-qualifications” but this is not the same thing as a pre-approval. Basically a pre-qualification is more of a loose estimate of the loan amount you will qualify for and not as legitimate in the eyes of a seller.
9 confusing mortgage terms, defined
From escrow to ARMs, the mortgage world is filled with mysterious terms you’ve never heard before. Here are 11 of them, defined in a way you can actually understand.
(1) Fixed rate mortgage
Definition: This type of mortgage has an interest rate that is set at the beginning and it stays the same all the way through the life of the loan.
(2) Adjustable rate mortgage (aka ARM)
Definition: This type of mortgage typically starts out at a lower, fixed interest rate (maybe for a few years, depending on the terms with your lender) and then it’s adjusted in intervals over time.
Definition: Basically just a schedule of how the loan will be paid over time.
(4) Debt-to-income ratio
Definition: This is how much income you bring versus how much debt you have. Lenders use this to figure out how much of a monthly payment you can afford and also how risky you are as a borrower.
(5) Private mortgage insurance (aka PMI)
Definition: When you can’t put down 20% on a house, sometimes lenders will require you to pay PMI until you reach 20%. This helps cover the lender in the event that you would default (aka can’t pay) on the loan. Usually it rolls up into your monthly mortgage payment.
Definition: Simply the portion of your home that you truly own. Your equity increases the more you pay down your loan or if your home’s value goes up.
(7) Origination fee
Definition: Some lenders require borrowers to pay a fee with their mortgage. Lenders like Wyndham don’t make you pay this fee so it doesn’t matter.
Definition: You’ll hear the word escrow used in two different ways in the mortgage world. First, you may hear it between putting the offer down on the house and closing. This is when you put down your earnest money and they hold it, until closing, in escrow. You don’t need to know where or what it is but just know they are holding it there.
The second time you may hear the word escrow is after you close on the house and start paying your mortgage. Lenders will collect monthly payments and then hold them in an escrow account to pay for things like home insurance and annual property taxes.
Need help navigating your own home buying journey?