Mortgage Loans and Mortgage Lenders - Louisville, KY

Who Needs a Mortgage?

For most home buyers in the Louisville area, a mortgage loan is an essential part of the home-buying process.  Getting a mortgage loan isn't just a matter of applying and securing an approval from a lender.  It's more about what you need, what the lender is willing to do, how much you can put down up front and your personal situation.

As you start shopping for a loan, you need to know what your FULL monthly payment will be -- often referred to as PITI ---

Principal - the amount of your payment which goes toward actually re-paying your loan.  This part of your payment reduces your Principal balance (what you owe).

Interest - The monthly amount of interest on the outstanding Principal.  In the early years of a loan, this is most of your monthly payment, since the balance you are paying interest on is highest in the early years.  As you pay down your balance, more of your payment is paying off your Principal.

Taxes - Money which is put into a savings account to pay your annual property taxes.  Your twelve monthly payments should have resulted in a balance large enough to pay them in full.

Insurance - The part of your payment which goes into savings to pay your HomeOwners Insurance each year.

Lenders will discuss your income and other confidential information with you to determine how much you can borrow, and then can extend this to how much home you can afford.  Lenders will look at your income, what you already owe other creditors, and how much additional debt you can take on with a mortgage.

Types of Home Loans

Most buyers have a basic understanding of the types of mortgage loans available, but here's a synopsis:

VA - Available only to veterans who have achieved a certain time of service before discharge -- usually two years (or six in reserves, Coast Guard, etc).  These loans are desirable for a few reasons:

  • The interest rate is usually very competitive with other types of loans,
  • You can borrow 100% of your home's purchase price, which is a big deal, and
  • If you put down less than 20% of the purchase price, you do NOT have to pay monthly PMI (Private Mortgage Insurance, which protects the lender against losses if you default on the loan).  This is a big deal, as these fees can run into the hundreds of dollars/month!
  • These loans are assumable by the next Buyer, so if you get a great rate when you buy, it may help you sell your home when you are ready.  However, check with your lender about restrictions on this practice (primarily, you may not be able to get another VA loan until this one is paid off by the Buyer).

FHA - Like VA loans, these loans are backed by the US Government.  FHA loans often appeal to Buyers who cannot get VA loans/don't have 2 years' active duty service, but have limited funds to put down as a down payment, etc.  An FHA loan looks like this:

  • Buyers can put down as little as 3.5% of the purchase price, which is the lowest available for Buyers who are not veterans.
  • Buyers must pay an up-front Mortgage Insurance Premium at closing. Currently, this is 1.75%, but FHA has a right to change it annually.  On a $150,000 loan, this is  $2,625, which can be rolled into your loan balance if you wish.
  • Buyers must pay PMI for FOR THE LIFGE OF THE LOAN on new FHA loans.  Many FHA loans went bad during the financial crisis, so FHA is taking these steps to keep from being the only "go to" loan that Buyers use if they don't have a lot of cash to put down.  The only way out of PMI is to refinance the loan, which might make a lot of sense to buyers who are just getting started now and want a home, but may have higher incomes and more cash in a few years and can re-fi.  At this point in 2014, PMI on an FHA loan will usually be about 1.5% of the loan balance every year.

The last two points above are disadvantages associated with FHA loans, BUT, FHA is often the best option if the Buyer wants to get into a home but doesn't have a lot of cash on hand.

Conventional

Conventional loans usually offer the best rates to those with the best credit scores and the most money to put down up front.  These loans require at least 5% down, and usually 10%. They still require PMI until you hit that magic point where you loan balance is less than 80% of your home's value.

Other

As if that weren't complex enough, there are individual loans from specific lenders, DAPs (down-payment assistance programs) if your income is below certain levels, and more.  While many Realtors can estimate your payment under certain circumstances, only a lender can give you a guaranteed expectation of approval, loan limit and payment amounts.

Bottom Line:  Your Realtor will usually have a lender or lenders that he/she can recommend to you so you can get multiple "opinions" and see which option works best in your situation.  No matter your situation, there is a right loan for you.

Don't worry about Realtors taking payments for recommending lenders -- it's illegal.  So, we only recommend lenders we trust, and believe will get the job done for our clients.

Please call us to discuss or if you have any questions.  We will be happy to connect you with a qualified lender to get your home-search process started -- just give us a call!

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