The More You Know: Mortgages

When you hear the word “Mortgage”, what sort of reaction do you have?  For most people, it is the following:

 

Me though?  I love ‘em!  That, however, is because I get to work with them every day. Well, I should say, I get to work with the people who work with our members regarding mortgages every day.  A common question I get from both our mortgage staff and friends and family alike is “What should I know about the mortgage process?” or “What should I know before buying a house?”  For this edition of Off the Cuff, I thought I would drop some of my mortgage knowledge on you!

In no particular order, here are some things to know before getting a mortgage:

Needing a 20% down payment is a thing of the past

The overarching narrative that has been around for years is that you need to save up a 20% down payment before you can even think of purchasing a home.  While that would be nice in theory, it is just not that easy anymore. For a $150,000 house, that’s a $30,000.00 down payment. If you’re thinking that could take a long time to save, you’re not alone. There are several recent studies that indicate it can take anywhere between 7-10 years to save that 20% down payment.  Luckily, there is a way around this requirement.  Private Mortgage Insurance (often referred to as PMI) is a tool that lenders can use to offset the need for that large of down payment.  In fact, some lenders can get away with as little as 3% down when they are using private mortgage insurance. Keep in mind, adding PMI to your loan will add to your monthly payment, but for many of our members it’s more manageable to pay a bit more on a monthly basis than to wait until they have the full 20% saved.

Look at the full menu of mortgage product offerings

The 30 year fixed mortgage has long been seen as the pinnacle product - the loan type everyone should strive for.  While it definitely has a time and place, I do not think adjustable rate mortgages and other loan options should be discounted. Someone who may only be planning to live in a house for 5 years may not need a 30 year fixed.  In fact, they may be able to save thousands of dollars in interest savings be going away from the 30 year fixed product.  It is all about a person’s comfort level.

Jargon is STUPID!

We all do it; in any industry we work in.  We love a good shortcut, so we use acronyms.  Here are some for you:  LTV, DTI, CLTV, ATR.  You catch any of those?  If you are talking with a mortgage professional and they start spouting off a bunch of letters that do not seem to go together, tell them to STOP!!  You have a right to understand what they are talking about.

Change is gonna come…

One thing you can be certain of is that things WILL change during the mortgage process, so be prepared to be flexible.  It could be something small, like needing to bring an extra $25 to closing, or something large, like finding a crack in the foundation of the basement.  Your closing date could also change.  When my spouse and I bought our most recent house, we were supposed to closing in the middle of August and ended up closing in early October.  This meant I got to live with my in-laws for an extra 2 months…

You are going to spend more money than you plan for

You thought you were all done spending money after bringing your down payment money to the closing… HA!

There will be expenses beyond what you are expecting, so you may want to save a little extra for those last minute things.  It could be something like buying new locks for all your doors, or, having someone come and professionally deep clean the house before you move in.  Or, if it is like my first house, you need to replace the furnace AND the water heater AND the AC right away.  It is important to be conscious that repairs and maintenance will come up, especially if you live in an older house.   Having some sort of savings cushion, or purchasing a home warranty, can save you a lot of heart ache. 

Home buying is a journey. There will be lots of ups and downs and things to know. We’re always here for you.

 

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Written by: Alex Krukowski

I'm a Mortgage Lending Specialist in the Learning & Development Department at Capital, which is a REALLY fancy way to say I try to know as much as I can about the mortgage industry to make sure Capital’s mortgage team does the right thing for you. These blogs come from real conversations with members and employees or my own experiences (and opinions...let's be honest.) So, I'm not an "expert" at everything at the credit union, and I'm not trying to be. I'm just a person, like you, who wants to share what I've learned along the way...and hopefully make you laugh a little, too. 

P.S. – My three daughters make sure I know everything about all the Disney princess at all times.  When I am not watching Frozen for the 5 thousandth time, I like to keep up on the Marvel Cinematic Universe, play board games or watch the Office for the 20th time.  “Sometimes I’ll start a sentence and I don’t even know where it’s going.  I just hope I find it along the way.” – Michael Scott.