How Homes.Com Can Help You Get the Right Mortgage for You
When it comes to taking out a mortgage, many buyers, especially first-time borrowers, expect it to be an intimidating experience. That’s understandable. Just as buying a home is the largest purchase most people will ever make, a mortgage is the largest loan they will ever take out.
Many buyers fear that their application for a mortgage will be rejected that and they jeopardize their chances of buying a home by not getting pre-approved for a mortgage before they start shopping for a home.
Homes.com’s state-of-the-art website is so user-friendly that it helps even the least experienced buyers understand their options and apply successfully for the right mortgage that will meet their needs for years to come. Lenders protect themselves from the risk of default by requiring that applications meet industry-wide lending standards that are more stringent today than they were during the housing boom and bust a decade ago. Homes.com’s tools answer borrowers’ questions about affordability, terms, down payments and closing costs, and design a successful application.
Homes.com not only can help you design the best mortgage but also find the right lender. More than 30 percent of borrowers do no comparison shopping for their mortgage, and more than 75 percent of borrowers apply for a mortgage with only one lender. The Consumer Financial Protection Bureau estimates that failing to shop for as mortgage costs the average homebuyer approximately $300 per year and many thousands of dollars over the life of the loan.
Finally, Homes.com’s calculators can tell you if you are better off renting or buying, and they help buyers create accurate and reliable budgets for the home buying process so that they have cash available to pay for last-minute closing costs, repairs and remodeling, and other unanticipated expenses.
How Much Will a Mortgage Cost?
From the Homes.com home page, click on the word “mortgages” at the top of the screen, which will take you to Homes.com’s Mortgage Hub. On a drop-down menu, you will see a short list of tasks. Click through to the Home Mortgage Calculator. Go to the series of tabs in the middle of the page below the blue banner to access calculators that will help you understand what you can afford under different scenarios.
Go to the central tab, “Calculate and analyze a monthly mortgage payment.” By playing around the calculator, you can get a feel for the relationships between interest rates, the size of a down payment, the term of a mortgage and how much you will have to pay each month. You might be surprised to see how much a one percent increase in interest rates will change your monthly payment. The screen defaults to a 20 percent down payment. By lowering that amount, you see how much your monthly payments will increase or fall with different down payments. You can also see how different interest rates or changing the length of the loan will affect the amount you will need to borrow.
Click on “Calculate Monthly Rate” in the upper right of the screen and select “Calculate loan balance.” You can see how the amount of your loan balance changes as you pay off your mortgage. However, it takes many years before the balances changes at the same rate as your monthly payments. Go back to the upper right of the screen and click on “Calculate loan balance” to see a drop-down topic labeled “Calculate amortization schedule.” Click on it, and you will see a spreadsheet with a line for each monthly payment you will make. Notice that the balance that you owe declines slower in the early months of your mortgage. That’s because the interest is “front end loaded” in a mortgage
How Much Can You Afford?
One of the tabs on the left-hand side of your screen helps you decide whether you are paying more for rent or monthly payments on a mortgage.
The last tab on the left takes you to a screen titled “How Much Mortgage Can You Afford?” This might be the most important calculator of all. Enter your gross annual income before taxes (the amount you would answer if you were asked how much you make a year) and enter the amount of debt you pay on a monthly basis. Be honest with these numbers. These determine two of the three benchmarks lenders use to evaluate your application: your debt to income ratio (DTI) and your loan to value ratio. Currently, the median debt-to-income ratio for all mortgages is around 26 percent, and for loan-to-value, (LTV) ratios are 72 percent.
You can improve your DTI ratio by paying off credit card debt or making more money. You can improve your LTV ratio by making a larger down payment. The LTV ratio is tricky because it is based upon the appraised value of the property, not the listing or sales price. The difference is often substantial, especially in hotter markets where prices are rising quickly. If you are making a down payment of 10 percent or less, it’s a good idea to save some cash to increase your down payment if necessary.
Play around with the affordability calculator. Use your gross annual income before taxes, current mortgage rates, your current rent, and tax rate. For “monthly debt” on the “how much can you afford?” screen, total your monthly payments for car loans, revolving accounts, credit cards, and personal loans. On that same screen, play around with different down payment amounts that are 20 percent or less than the purchase price to see what would happen to your monthly mortgage payment with smaller down payments. On the screen labeled “Calculate and analyze a monthly mortgage payment,” you can get an estimate of your monthly payment, loan balance, and amortization schedule.
Shopping for a Lender
As noted above, most homebuyers don’t shop for a lender, even though their mortgage may be the largest loan they ever take out and they’ll have to comply with the terms of the mortgage for many years to come.
Homes.com makes it easy to shop for a lender. After clicking on “Mortgages” on the home page, click on the second item in the drop-down menu, “Get prequalified.” You don’t have to stick with the lender who prequalifies you when you apply for a mortgage, but the prequalification process introduces you to lenders who are linked to Homes.com’s site.
Getting prequalified shows a prospective seller that you have a lender in mind and that lender provided a ceiling on the most they will lend you based upon your income, debt and credit score. This ceiling is not a commitment to lend you that amount. Don’t make the mistake of assuming you can borrow that amount.
To get prequalified, submit copies of your driver’s license, Social Security card, most recent two months of bank statements, most recent 30 days of pay stubs, most recent two years of W-2s and most recent two years of federal tax returns. Your request will be automatically routed to a lender.
Once they have received your purchase offer, lenders will send you a loan offer that discloses all the fees and expenses you will be charged as well as the loan rate. Compare these, ask questions, and select the lender that best fits your needs best.
A New Way to Finance Your Home
Homes.com provides you with a variety of tools designed to help you understand mortgages to help you make informed decisions. Its calculators show you how different scenarios will impact your costs and options. Making the right financing decisions at the outset will pay off in the years to come.