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Popular Mortgage Discounts

There are so many different terms that home buyers need to understand when they consider getting a mortgage. For the first time home-buyer, these terms and definitions can be overwhelming to say the least, but the more you know ahead of time, the better prepared you will be. Of all of the different mortgage terms and definitions out there, the one that seems to get the most attention from the general public has to be “mortgage discounts.” After all, who doesn’t love to get a good discount, especially on something as expensive as a mortgage?

The term “mortgage discount” may be slightly misleading as getting this type of discount is offered in terms of “discount points.” Here’s how they work.

Mortgage discount points are a one-time upfront mortgage closing cost that gives the borrower the opportunity to enjoy “discounted” mortgage rates. This discount is designed to be less than the current market rate. According to the IRS, this mortgage discount is a type of prepaid interest on your mortgage, meaning your “points” are tax deductible.

How Much is a Discount Point Worth?

Generally speaking, discount fees are typically quoted as point. A point equals 1 percent of the amount of your mortgage. This all depends on the current mortgage market, the lender and the property you are looking to buy or the mortgage you are looking to refinance.

This will be clearly outlined when you meet with your mortgage lender about your available rates. When you get approved for your mortgage, your lender will quote you two different rates. The first part of your quote is the actual mortgage rate, the second part is the number of “discount points” required to get that rate.

In short, you are paying a percentage of the loan amount to get a lower interest rate, so it is a discount, but it still comes at a price.

Many times, taking this option, will in short, help you save money overall on your mortgage. However, every situation is different. You need to look at your current situation and your personal finances in order to determine if paying down your interest rate actually makes sense. In most cases, if you are planning on sticking with this mortgage and your home for the long-term it will make sense. If you are planning on moving or refinancing in the future—it may not.

The best way to make a smart decision for you and your family is to talk to a mortgage or loan professional about your options so you can determine the best course of action moving forward. As with any loan option, make certain that you are asking questions and getting as much information as possible so you can make the right decision and a decision that makes the most financial success given your situation.

Who Qualifies for a VA Loan?

Buying a new home is a big undertaking and one of the most complex components of this process has always been securing a loan in order to cover the costs of this new home. The good news is, there are a number of programs available to help make home ownership more attainable for the average person. One of these programs is the VA home loan.

While VA home loans are popular, they aren’t as straightforward as everyone thinks, especially when it comes to VA loan eligibility. Unfortunately, qualifying for a VA loan isn’t as simple as “you’ve been in the service, you get a VA loan.” If you are a veteran and are interested in a VA loan, here’s everything you need to know about who qualifies for this type of loan and what is involved in the loan application process.

The first thing you need to understand is that banks, loan companies and mortgage brokers and the individuals who issue these loans. The Department of Veterans Affairs does not issue these loans, so do not assume that you will be working with the department directly. The main difference is not that the VA issues the loan, but that they insure part of the loan in case you default on it.

So, why would you want a VA loan. There are a few benefits, which include:

  • Lower interest rates
  • Not being required to make a down payment
  • No mortgage insurance requirements

The lenders need to follow the requirements issued by the VA in order to grant this type of loan, so in a way the VA is still involved. However, once they fulfill these requirements, the lenders can also add some of their own requirements.

Now that you understand how the VA loan works, it’s time to determine if you will qualify for this loan or not.

The general definition of a VA loan is that this product is designed for any person in active duty or that has “separated from military service” for any reason other than “dishonorable discharge.”

However, there are a few additional requirements you need to meet as well, mostly to do with length of service. Here are some basic numbers to keep in mind.

  • WWII Veterans- Minimum of 90 total days of service
  • Post WWII Veterans- Minimum of 181 continuous days of service
  • Korean War Veterans- Minimum of 90 total days of service
  • Post-Korean War Veterans- Minimum of 181 continuous days of service
  • Vietnam War Veterans- Minimum of 90 total days of service
  • Post-Vietnam War Veterans- Minimum of 181 continuous days of service
  • Gulf War Veterans- Minimum of 24 Continuous months or the full period for which you were called to active duty

Active duty service members with 90 continuous days of service and current National Guard and Reserve members who have been serving for 90 days are also eligible.

Also, anyone who is in the reserves or the National Guard may also be eligible. If you served 6 years in the Selected Reserve or National Guard and were discharged honorably, or were placed on the retired list, or were transferred to another type of reserve, you may be eligible. Most surviving spouses of deceased veterans are eligible as well.

The best way to determine if you will in fact qualify for a VA loan is to talk to a loan specialist in person and to make sure that you meet these requirements so that you can enjoy the unique perks that come with this type of loan.

 

How Much Mortgage Can I Afford?

When it comes to getting approved for a mortgage or home loan, the number one question that potential buyers tend to have is how much mortgage can I afford?

This is not only a very common question, but one that can be more difficult to answer than it seems. While there is a basic formula that most experts agree upon to at least give you a starting point in determining your mortgage potential—everyone is different and every market is different. There are many areas of the country where people simply have to spend more of their income on housing than they should, because that is what the market dictates.

There are also certain expenses that may not be factored into this calculation. These could be expenses that are more important than housing, given your situation and ones that may impact how much income you have to allocate towards your mortgage.

However, for the average home buyers this traditional formula is one of the best was to determine how much mortgage they can afford given their current income.

Your Home Price = 2.5 x Your Annual Salary

So, if you make $100,000 a year, your desirable home price should be around $250,000.

That can seem low to some people, but it is typically a safe way to make certain you aren’t in over your head and at risk of becoming house poor. Unfortunately, $250,000 isn’t a realistic amount for many home buyers, as a lot of cities simply don’t have housing available in that price range.

Most experts say that you can afford a mortgage payment that is as high as 28% of your gross income. If you are bringing in $100,000 per year, that means a monthly payment of around $2,300 per month or a $450,000 loan.

Those are some pretty different numbers, which is why this is such a difficult question to answer. Most households find it easiest to determine how much mortgage they can afford by looking first at the monthly payment and how much money they can factor into their current monthly expenses. Of course, other factors to consider include moving expenses, closing costs, insurance, taxes and mortgage insurance which is required if you are putting less than 20% down on your home.

This all of course comes in addition to the down payment you will need to make and can be influenced by the insurance rate you are able to get, which is highly dependent on your credit score.

Seem like a lot of factors to consider? It is. Which is why the best thing you can do is take the time to sit down with a loan expert discuss your options and see how much how you qualify for. Once you know how much you can take out and how much those monthly payments will be, you need to see if it works for you personally given you existing expenses and monthly budget.