Margaryta Booth Principal Broker

King Neptune Statue on the Boardwalk in Virginia Beach

Questions about Home Loan

Frequently Asked Question about financing your home

Question Answer
Should I put down the largest or smallest down payment possible ? Depends largely how much cash you have lying around. Generally, first time home buyers do not have large amount available, they are lucky to get together a 10% cash down payment.If you have more cash available, there are two ways to consider for the size of the down payment.

Some experts feel that you should purchase your home with the smallest down payment possible. This will leave you with some cash for emergencies, decorating, any renovation work you may want to schedule, or you can invest the money.

On the other hand you may want to put down a larger down payment in order to cut down the size of your monthly mortgage payment – and save yourself the private mortgage insurance (PMI) costs. The more dollars you put down the lower the cost of owning the home – you pay less interest.  If you put down 20% vs 15%, and the difference is $5000, you should strongly consider putting down 20% because you’ll also be saving the PMI costs, which can really add up.

What is the Earnest Money Deposit? A deposit made by the potential home buyer to show that he or she is serious about buying the house. The amount is often forfeited if the buyer decides to withdraw the offer.
What is the maximum mortgage payment that I can afford? Most lenders will use 28/36 rule to determine the max mortgage payment. No more than 28% of your gross income can be applied to your mortgage, real estate taxes and insurance. And no more than 36% of your gross income can be applied to your mortgage expenses plus your regular debt expenses (car payment, credit cards, etc.)
What are my closing costs likely to be? Lenders charge certain fees for giving you a mortgage, it can add up. In addition to the lender’s fee, there are other closing costs to be added up, including the title fees, recording fees, city and state transfer taxes, and so on. The lender’s points (a point equals 1% of the loan amount) which are also referred as service charge are the largest fees paid to the lender and usually run between 1% and 3% of the loan amount.
What are Discount Points? Points paid in addition to the loan origination fee to get a lower interest rate (1 point = 1% of loan amount). Remember that for extra point you pay up front, the lender will decrease the interest rate of the loan. If you have the cash and are planning to stay in the home for a long time, you might want to pay 3 points to get the lowest interest rate possible. The points are fully deductible on your income tax return in the year you buy your home.On the other hand, if you’re strapped for cash today but know that down the line your prospects for higher income, you may want to go with zero points and slightly higher interest rate, then refinance down the line.
What Closing Costs Can the Seller Pay? How much the Seller may contribute to the Buyer’s closing costs depends on the type of the mortgage loan.

  • VA Loans: the seller may pay all the closing costs (VA buyer pays no down payment and no closing costs). Sellers who agree to pay the closing costs often put the ceiling on the max amount they will pay.
  • FHA Loans: the seller may pay all the closing costs. However, the buyer must make at least 3% investment in the property (as part of the closing costs, down payment or pre-paids).
  • Conventional Loans: the seller can only pay non-recurring costs. The seller’s  contributions are limited to the amount the buyer is putting down. If the buyer puts 10% or more down, the seller may contribute up to 6%; if buyer puts less than 10%, the most the seller can contribute is 3%.

 

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