It's time to get down to business and talk about your down payment. This is the portion of your home's purchase price you'll be paying in cash rather than financing through your mortgage. The higher your down payment, the lower your monthly payments will be. The size of your down payment will determine whether you go for a "conventional" or "minimum down payment option" mortgage. A "conventional" mortgage requires a down payment of 20% or more. A "minimum down payment option" mortgage is for those of us with less than 20% for a down payment. Because a "minimum down payment option" mortgage is considered riskier for a lender, special mortgage insurance is required. Finally, the size of the loan will determine whether you go with a "conforming loan" or a "jumbo loan." A "conforming loan" is a loan amount up to $424,100. Anything north of $424,100 and up to $1.5 million is a "jumbo loan."
Taking on too much mortgage debt can lead to trouble. Take a close look at all your bills, not just your mortgage payments, to get the full picture. Call us and we'll be happy to work with you to determine an affordable monthly payment amount. We'll even help you figure out your Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). Here's what that means:
Gross Debt Service Ratio (GDS):
A debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment about whether a potential borrower is already in too much debt. Receiving a ratio of less than 30% means that the potential borrower has an acceptable level of debt.
GDS = Annual Mortgage Payments + Property Taxes / Combined Gross Income of all Borrowers
Total Debt Service Ratio (TDS):
A debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment of whether a potential borrower is already in too much debt. More specifically, this ratio shows the proportion of gross income that is already spent on housing-related and other similar payments. Receiving a ratio of less than 40% means that the potential borrower has an acceptable level of debt.
TDS = Annual Mortgage Payments + Property Taxes + Other Debt Payments / Combined Gross Income of all Borrowers
Pre-approval for a mortgage loan is a great way to find out your budget and flex your buying power. Give us a call at 800.XFCU.222, stop by one of our financial centers or apply online and let's get you in that new home!
Pre-approval provides the following:
- Know how much you can spend
- Your offers will be taken more seriously because sellers will know financing is lined up
- Knowing you're financially backed lets you focus on the fun part, finding your dream home!
We'll also chat with you a bit about closing costs and ensure you have the resources you need to cover all the extras involved with buying a home, such as legal fees, moving costs, inspection fees, property transfer tax and appraisal fees.
A pre-approved mortgage is your green light to move forward and look for a property. It also gives you the confidence of knowing you're looking in an affordable price range. Now you are ready to contact a real estate agent or browse available homes online. Start gathering information for the steps ahead, too: proof of your income, details regarding the home you would like to purchase and copies of the offer once it's accepted.
Now that you've figured out how much you can afford, it's time to consider a few different financing options.
Adjustable or fixed rate mortgage?
Your mortgage payment is one part interest and one part principal. That means it's affected by the current interest rates on the market. You will have to decide your level of risk tolerance. You may want to go with a fixed rate, also known as fixed term, which locks in your mortgage payment at a certain amount. If you are comfortable with a little more risk, an adjustable rate mortgage might fit. With this option, your interest rate is subject to change after the initial fixed period. We offer a wide range of mortgage options and can tailor them to fit your specific needs.
By now, you've made an offer and it's been accepted! Now we'll work together to complete a detailed mortgage application. This is where we finalize your down payment amount, discuss amortization periods, the benefits of fixed and adjustable rates, and your payment schedule.
You'll also want to gather the following documents to finalize your mortgage. Bring them to your appointment or send them to us upon request.
Documents regarding your new home
A signed-by-all-parties copy of the accepted purchase and sale agreement, including all the addenda. This document shows the full address and includes the legal description of the property, as well as the postal codes.
Documents regarding your employment/source(s) of income
- Social Security number of all applicants
- Complete address for the past two years (including complete name and address of landlords for past 24 months)
- Name, address and all income earned from all employers for past 24 months
- Copies of previous two years' W-2 forms
- Copy of most recent year-to-date pay stub
- Name, address, account number, monthly payment and current balance for: installment loans, revolving charge accounts, student loans, mortgage loans and auto loans
- Name, address, account number, and balance of all share accounts, including: checking accounts, savings accounts, stocks, bonds, etc.
- Three months' most recent statements for share accounts, stocks, bonds, etc.
- If you choose to include income from Child Support/Alimony, bring copies of court records of cancelled checks showing receipt of payment
Documents regarding your down payment
You'll need to obtain confirmation of your down payment. If your down payment is a gift, you'll need to obtain a gift letter stating the funds don't need to be repaid. Finally, if your down payment isn't on deposit with us, you'll need to obtain your most recent bank statement.
Sometimes you'll need to prove you have enough cash to cover the closing costs. Basically, closing costs are legal fees, transfer fees, and disbursements that are due on the closing day. Closing costs vary according to your loan amount, credit history and third-party fees.