mortgage basics Tag

At City Creek Mortgage, you’ll find a professionally trained team of mortgage professionals ready to walk you through your mortgage basics. We believe the more you know and understand your mortgage details, the more confident you’ll feel in your home purchase. 

Our team recognizes that you’re purchasing more than a house – you’re buying a home. We know how impactful that can be, and we want you to be happy about the entire process. 

If you have questions about any part of the mortgage process, please ask. Knowledge is power!

Back to Mortgage Basics

Making a jump to homeownership is a goal for most Americans, but purchasing a home is a big step and should be done with careful, thoughtful consideration. 

You may have already begun learning all you can about purchasing a home, and all that research may have left you with more questions than you had when you started. Don’t worry! You’ve come to the right place. 

Let’s start at the very beginning. The loan you use to purchase a house is a mortgage. Mortgages are a necessity if you don’t have the cash to buy outright. (Hardly anyone does!) 

To qualify for a mortgage, you must meet specific eligibility requirements. A person interested in purchasing a home usually has a stable and reliable income, a debt-to-income ratio of less than 50%, and a good credit score. Don’t fret! If you don’t meet one of those criteria, we can work together to get you on the right path. 

Mortgages are “secured” loans. That means the borrower (you) promises collateral to the lender if you cannot continue making payments. In the case of a mortgage, your collateral is the home you’re buying. If you cannot make payments on your mortgage, your lender can take possession of your property – a process known as foreclosure. 

How Does a Mortgage Work? 

Once you’ve been approved for a mortgage, your lender gives you a specific amount of money to purchase your home. You agree to pay the lender back – with a set amount of interest – for many years. Your home isn’t technically yours until you’ve paid the entire mortgage down to a zero balance. 

The amount of interest you’ll be paying depends on two things – current market rates and the level of risk undertaken by your lender. The higher your credit score and the better your financial history, the better you appear to a lender. The more responsible you appear, the better your interest rate.  

The amount of money you are allowed to borrow is dependent on the amount of money you can afford to pay back (think monthly payment), and – most importantly – the fair market value of the home as determined by an appraisal. The lender cannot lend you more than the home appraises for. 

mortgage basics

Mortgage Basics: Lingo 

Once you get involved in the mortgage process, you’ll begin to hear terms with which you may not be familiar. For example: 

Down Payment

This is the amount of cash you provide upfront to purchase your home. In most cases, you must put forth a fair amount of cash, “put money down,” to secure a mortgage. 

The amount of your down payment depends a lot on the type of mortgage you’re applying for, but it’s widely accepted that the larger your down payment, the better your loan terms and the less expensive your monthly payment. 

Use online tools like a mortgage calculator that help you see how your down payment affects your monthly payments. 

Escrow

If only homeowners just had to think about the actual cost of the home. But there’s more to a home purchase than the cost of the house itself. There are other expenses to consider, like property taxes and homeowners insurance. To help you, lenders set up an escrow account to pay these expenses. 

An escrow account is like a checking account managed by your lender. You cannot earn interest on the funds, but the account is used so your lender can make payments to homeowners insurance and taxes on your behalf. To fund your escrow account, payments are added to your monthly mortgage payment. 

While lenders don’t always require an escrow account, you’ll have to pay your property taxes and insurance on top of your monthly mortgage payment. That type of situation is unusual because it’s in the lender’s best interest to ensure your taxes and homeowners insurance are paid.

The amount of money kept in your escrow account solely depends on how much your property taxes are each year and the cost of your homeowner’s insurance. Since these expenses can change, your escrow payment may change, too. Sometimes that means that your mortgage payment may increase or decrease. 

Interest Rate

Interest rates are a percentage added on to the amount of money you’ve borrowed from your lender in exchange for the lender allowing you to borrow the money you need. There are two types of mortgage interest rates: fixed and adjustable. 

Fixed rates never change. You can count on a fixed-rate loan to provide a predictable payment each month, making budgeting easier. 

Adjustable rates change based on the market. Most adjustable-rate loans begin with a period of fixed interest – usually 5 or 10 years. When your fixed-rate period ends, your rate can adjust up or down every six months to a year. It’s important that you understand your monthly payment is likely to change. 

About Us and How We Can Help With Mortgage Basics

Our team at City Creek Mortgage understands that buying a home can feel intimidating. We’re here to help. If you are ready to buy a home, give us a call. We can walk you through the entire process. 

Buying a mortgage doesn’t have to be a nerve-wracking or anxiety-producing experience. Let’s work together to make your dreams come true! Call TODAY!

Real estate agents have a responsibility to do what is best for their clients. However, this doesn’t always happen. Getting a mortgage is a significant decision for a homebuyer. In many cases, the real estate agent will pressure clients to use their preferred lender. Unfortunately, a referral is often made to a lender that is financially or professionally supporting the real estate agent, rather than because it is the most cost-effective solution for the homebuyer.

The Truth Behind Mortgage Rates
One of the reasons other lenders have higher rates than we do is due to the level of compensation the loan officer is making. If a loan officer wants to make more money,
they simply sell their clients a higher interest rate. When this happens, the client pays more than they need to. Clearly, a real estate agent who wants the best for their clients would not want to add this additional financial burden to people they care about.

For example, a client recently called into City Creek Mortgage to compare the loan offer they received from their real estate agent’s preferred lender. The client was looking to borrow $350,000. When I shared with the client that there was enough income in the rate they were being quoted to purchase a brand-new Toyota Corolla, they were upset. Generally, we can save most clients between 20-50%. In this case, it was much more.

Lenders Who Serve The Agents
Most mortgage lenders market their services to real estate agents under the premise that they will help them grow their businesses. A business model that is designed to provide the benefit to the real estate agent generally comes as a cost to the homebuyer. For example, there are some mortgage companies that have several offices in a community just to provide the convenience to their real estate partners. Clearly, the agent’s convenience provides no value to the homebuyer. However, the homebuyer is the one paying the price each month in the form of a higher mortgage payment.

A Consumer-Focused Model
I believe the right business model for a mortgage company is designed with the homebuyers’ best interests in mind. At City Creek Mortgage our promises and guarantees are to our clients, not to real estate agents. We are a low-cost provider that is designed to keep more money in the pockets of hard working Utah families. For 20 years, this has kept our clients coming back and referring their family and friends to us for their mortgage needs.

If you need help evaluating the price offering of another lender, we can help you. We can estimate the amount of commission income priced into the loan and compare that
to what is priced into a loan offering with City Creek Mortgage. We do what is best for the homebuyer, with the long-term goal of squeezing out the margins in a mortgage industry and eliminate the over-compensated loan officer. As a result, we are the most feared second option by our competitors.

Help us get the word out. When you hear that your family and friends need a mortgage, have them call us. By simply having salaried loan officers and a commitment to make less off each loan, we save people a lot of money. We are Utah’s best mortgage choice and appreciate your continued support.

As a top mortgage company in Utah, we at City Creek Mortgage are here to both help and inform. The mortgage world can be complex, with a number of terms often thrown around that can be confusing to some people.

One such term is mortgage “points,” also called “discount points.” These points help describe how you’ll pay off your mortgage loan, plus any discounts you may be afforded by your lender. Let’s go over the basics and types of points, and whether you should consider paying them.

What Are Points?

In the most general sense, points equal 1 percent of the total loan amount. If the total loan is, say, $300,000, a single point will be equal to $3,000. In many loan situations, points will be paid to the lender upon the closing of the loan. The lender can choose to charge any range of points at this time, but the most common amounts generally charged are two or three points. Mortgage points can be found both for a new mortgage and for a mortgage refinance situation.

Types of Points

There are two basic kinds of points:

  • Origination points: These are used to pay loan officers for costs that relate to the closing of a loan. These points are not tax-deductible, but they can be waived by the lender if they so choose.
  • Discount points: Discount points function as prepaid interest fees. This means the more points paid on a loan, the lower the interest rate will be. Discount points are also tax-deductible.

Should I Pay Them?

Whether you should pay points will vary, and will largely depend on how long you plan to stay in the home. Paying more points represents a higher upfront cost, but will also likely give you a lower interest rate that will cause you to save money over the life of the loan. If you’re thinking of selling after a few years, though, higher interest might not mean as much, and you might not want to pay points.

For more information on mortgage points, or to find out about any of our other mortgage services, contact the brokers at City Creek Mortgage today.  

Within any mortgage situation, the down payment is one of the largest consideration. A down payment refers to how much cash you put down up front when buying a home, and it can be a daunting number for many people.

At City Creek Mortgage, we’re here to help. There are likely more options available than you might think when it comes to the down payment – ways you can exchange certain benefits in other areas of the loan for a lower down payment, or others where you might not even have to make big sacrifices. Let’s look at the basics of a standard down payment, additional options and what these might mean for you.

Standard Down Payment

In most cases, the standard down payment for a mortgage loan will be 20 percent. If the home costs $200,000, you’ll be expected to put up $40,000 in advance. Having this amount on hand increases your chances of loan approval, and also ups your chances of getting the best mortgage rate. You’ll also likely pay lower fees.

Remember to consider other upfront payments, such as closing costs and earnest money. All these payments combined can create issues for some buyers.

Other Options

There are other options for lowering down payment. FHA loans, backed by the Federal Housing Administration, can drop down payments as low as 3 percent. Fannie Mae and Freddie Mac, two government-sponsored companies that drive the credit market, will also offer lower down payments on some loans. There are also housing programs for active or retired service members, or for people living in rural areas.

Other Costs

There are some trade-offs with these lower down payment programs in most cases. There will usually be an additional upfront fee, and you may have to pay private mortgage insurance to cover the lender in case of a default. There’s also a chance you’ll pay a higher interest rate.

Choosing the best option with a down payment in mind will often come down to which upfront costs are included, and which trade-offs you have to make to get a lower payment. Some people are in a financial situation that makes one option or the other the clear choice.

To learn more about down payments or to get advice from our brokers, contact City Creek Mortgage today.