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Welcome to the BeSmartee blog. Enjoy a wide selection of articles related to mortgages, the industry, and real estate.

7 Questions to Ask Yourself Before Getting a Home Loan

By Veronica Nguyen · Mar 26, 2015 · Mortgage

7 Questions to Ask Yourself Before Getting a Home Loan

Image courtesy of Flickr, Marcel Oosterwijk

Consider the answers to these 7 questions before getting a home loan to help you better assess the financial obligations, responsibilities and risks involved with a mortgage transaction.

Eliminating risks from decision making are what many of us strive for. The truth is, we can never eliminate all risks because there are too many variables beyond our control. However, we can take calculated risks using what we know in order to minimize unwanted occurrences. When you are able to answer questions about home loan transactions, you will be able to make the best decisions, while reducing the risks.

The following are 7 important questions to ask yourself before getting a home loan.

1. Do I need Private Mortgage Insurance?

If you're planning to put less than 20% down payment to purchase a home, or refinancing an existing loan with a Loan to value Ratio (LTV) of 80% or higher, then you will need to get private mortgage insurance (PMI).

Lenders require private mortgage insurance for cases when borrowers stop making payments on their loans and go into foreclosure. Essentially the lenders are making you pay to insure them against loss. Once you're Loan to value Ratio (LTV) reaches 80% or less you can ask your lender to cancel your private mortgage insurance policy. According to Freddie Mac you can expect to pay between $30 and $70 per month for every $100,000 borrowed. Use the BeSmartee PMI Calculator to see what you can expect.

2. How Do I Show the Lender How Much Home I Can Afford?

To show the lender that you can afford the home loan you're applying for, you will need to submit sets of documents including but not limited to, your pay stubs, two years of your recent tax returns, and recent bank statements in order to get a pre-approval. Lenders will also pull your credit report to view your credit scores and assess your credit worthiness. Start gathering these documents before speaking with a lender to reduce any delays in your pre-approval process.

3. Can I Get Help Buying a Home?

The U.S Department of Housing and Urban Development (HUD) has information regarding various home buying programs. Look through these programs and see which ones you may qualify for.

Another agency with educational information about getting a mortgage loan and becoming a homebuyer is the Consumer Financial Protection Bureau (CFPB).

These agencies are a good resource to help you put a budget together and review your debt repayment options. You should also check with your local city, county or state agencies to see if there are any classes or additional programs available to you.

4. Are There Any Risks With Getting a Mortgage?

Understanding the risks involved with getting a home loan can help you become better prepared for the unexpected. For example, learning that your home loan has a pre-payment penalty and knowing what this means and how it applies to the future. Another example is when you have a variable mortgage rate. How will this impact you if interest rates were to increase?

It's important to think about how long you plan to stay in the home you're buying, what consequences will you face if you cannot afford the monthly payments, and what solutions are available to you for such a case? Remember, there are always risks to getting a loan, but being familiar with the various types of scenarios will help you to budget and plan accordingly and ensure you have a smooth decision making process.

5. What Does Having a "Rate Lock" Mean?

A rate lock essentially ensures that the interest rate you have qualified for will not change during the home loan process (typically 30-60 days), given there are no major changes to your qualifications during that time. The best thing about having your rate locked is that if the market rates go up during your home loan process, your rate will not change. However, if you're rate lock expires you will have to pay additional fee's to extend it (typically a fraction of a percentage, depending on your lender).

The best time to lock in your rate on a purchase loan is when the seller has accepted your offer. This will give you and the lender plenty of time to get all the documents ready for closing. Take note that some lenders will require you to lock in your rate after certain conditions have been met, such as having an appraisal completed on the property or after showing proof that you can afford the mortgage payments.

Rate locks can be tricky, so make sure you talk to your lender and real estate agent to choose the appropriate rate lock period.

6. Do I Pay For An Appraisal Before Getting a Loan Approval?

The appraisal is typically part of the approval process. However, lenders can pre-approve you before ordering an appraisal so you can avoid out of pocket appraisal fees in case you don't qualify for the home loan. Once you have been approved, you will pay your appraisal fees upfront. The lender will order the appraisal on your behalf and issue the home owners or home buyer a copy of the report when it becomes an available. Be sure to avoid scheduling and paying for appraisal fees before you are certain the lender has pre-approved you.

7. What Other Expenses Come with Home ownership?

Property taxes, home owner's insurance premiums, home repairs, yard maintenance and typical utilities are some of the costs that you will be responsible for as homeowner. Check with your county to see what your property tax rate is. Talk with a local insurance agent and ask them how much insurance premiums will cost. Have a budget set aside for repairs on the home. Click here to see the various tax rates for multiple counties in California.


Real Estate Commission: Explained, Revealed and Compared
By Arvin Sahakian · Aug 17, 2015 · Real Estate Data

Real estate agents receive commissions from home buyers and sellers, collectively earning over $50 Billion per year. Learn how commission amounts are set, who pays them, and how they work in this article. Read more.

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California Property Tax: Complete List by County 2014-2015
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List of secured property tax rates for all counties of California fiscal year for 2014-2015. Read more.

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California Proposition 60 and 90: Your Complete Guide
By Tim Nguyen · Nov 28, 2014 · Real Estate Data

If you live in California and are over the age of 55 you can effectively reduce your property taxes when buying a new home. Read more.

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What to Expect During the Home Loan Closing Process
By Arvin Sahakian · Feb 24, 2015 · Mortgage

You've heard the term used before, but what does loan closing mean? Find out all you need to know about the process. Read more.

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The Surge in Foreign Real Estate Investment in the United States
By Laura Agadoni · Feb 24, 2016 · Real Estate

Foreign real estate investment in the United States, both commercial and residential, is a huge phenomenon that is only expected to accelerate, maybe even to skyrocket, in 2016. Read more.

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Houston vs. Dallas: Which One is Better to Live in?
By Amanda Curry · Oct 11, 2016 · Real Estate

Houston Vs. Dallas? If you are considering moving to either of these major metropolitan areas, we've created a resource to help you make the decision process a little easier. Read more.

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5 Illegal Borrowing Activities: Things That Are Illegal When You Try to Get a Home Loan
By Laura Agadoni · Jan 22, 2016 · Mortgage

Whenever there is money to be made or money to be spent, some unscrupulous folks will take advantage, trying to game the system or commit all-out fraud. Read more.

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Does Homeowners Insurance Pay Off your Mortgage if the House is Burned Down?
By Amanda Curry · Feb 8, 2017 · Mortgage

In this article, we explore how homeowners insurance works and what happens in the event of a house fire. Read more.

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16 Ways to Improve Your Debt-to-Income (DTI) Ratio
By Veronica Nguyen · Nov 29, 2014 · Mortgage

Your DTI is used by mortgage lenders to determine whether you qualify for a loan, and if so, for how much. Improve your DTI with these 16 tips. Read more.

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5 Tips on Getting a Mortgage Loan after Bankruptcy
By Veronica Nguyen · Apr 15, 2015 · Mortgage

A bankruptcy will make it very difficult to attain a home loan. These 5 tips will help you re-establish your credit quickly in order to qualify for a home loan. Read more.

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