Home Buyer's Guide

Buying a home is the single largest investment most people ever make. Although the purchase of a new home may at first seem overwhelming, the security and comfort of owing a home along with all the financial benefits are powerful inducements to owning a piece of the American dream. The benefits include:

• Wealth building: Every time you make a mortgage payment, you build up equity in your home. Over time, this built-up equity can become a valuable asset and becomes a part of your overall wealth portfolio.
• The tax advantages: The interest part of your mortgage payment is usually tax deductible. Please consult with your tax advisor to see if you qualify for this deduction.
• Eliminate landlord/tenant hassles: No more rent increases and non-renewed leases.
• Freedom to make your own changes: You are free to decorate, renovate or remodel your home as you see fit. Keep in mind you must comply with local zoning codes and Homeowner’s Association requirements (if any).

The financial and personal rewards of homeownership are clear, as long as you prepare for the responsibilities that come along with homeownership and choose a mortgage product that is right for you. Prosperity Mortgage Loan Officers are here to help you make the right financing decisions.

A mortgage is a loan made to help you finance a home. It indicates that a specific amount of money will be loaned at a specific interest rate for a specified period of time (the term of the loan). In addition, you agree to make timely payments throughout the life of the loan.

Mortgage payment- Typically, your mortgage payment can be divided into four parts (principal, interest, taxes and insurance (PITI).

• Principal – The amount of the payment that goes towards paying down the loan amount. Since, for most loans, part of your mortgage payment gets applied towards principal, over time, your outstanding principal balance will go down.
• Interest – The interest rate lenders charge is the cost of the borrowed money. The interest and principal payments equal your monthly mortgage payment.
• Taxes – The local government where the home is located will assess your home and determine its real estate taxes. Most lenders will collect this as part of your monthly payment and then pay your local government on your behalf. This is commonly referred to as tax escrow.
• Insurance - Homeowner’s insurance (or Hazard insurance) covers you in the event of damage to your property caused by fire, wind, or other hazards (carefully check your policy to determine coverage).
• Private Mortgage Insurance – Depending on your loan program and down payment amount, mortgage insurance may be required to protect your lender in the event you fail to repay your mortgage.

When it comes to paying for a home, don’t be intimidated by the word “mortgage”. You have a number of financing options available. Here are the main ones you should know about:

Conventional Mortgage
A conventional mortgage is a loan to purchase property made between a lending institution and a borrower without a third-party participant, such as the FHA or VA. Most types of conventional loans are paid off over 15, 25, or 30 years. Conventional Mortgages can have a fixed rate or adjustable rate. In addition, conventional mortgages can be conforming or non-conforming.

Terms of a conventional loan vary among lenders, but basically a loan can be obtained with a down payment as low as 0% of the purchase price. When the down payment is less than 20%, it is often necessary for the loan to have private mortgage insurance (PMI) or be self-insured to protect the lender.

VA Loan
If you or your spouse is a qualified veteran, you can apply for a VA loan guaranteed by the Department of Veteran Affairs. Under this program, eligible veterans can receive a mortgage loan up to $417,000 with no down payment. Higher loan balances may require a down payment.

FHA Loan
With an FHA loan, the Federal Housing Authority insures federally qualified lenders against any default payments by the borrower. While the down payment can be as low as 3.50% of the purchase price, the FHA charges the borrower an up-front mortgage insurance premium (MIP) fee. Prepaid interest, called points, may also be charged by the lender.

Financed Closing Costs
Many lenders today are willing to assist buyers with closing costs. In exchange for paying a slightly higher interest rate, a lender may build into the mortgage its normal charges plus pay other closing costs up to a specified amount. These plans vary widely, so study them carefully.

Balloon Mortgage
A balloon mortgage is a loan that offers a low interest rate for a set period of time, typically 5, 7, or 10 years. At the end of that time period, the balance is due in full to the lender or refinanced by the borrower.