Mortgages

 A home will be the most significant purchase most of us ever make. There are many steps to purchasing a home. Here are some of the ones we feel are important.
  
1)      Determine how much of a mortgage payment you can afford.
Start by calculating your debt-to-income ratio.  This is simply your monthly debt obligations divided by your monthly gross income. 
A financial institution or mortgage broker will calculate your debt-to-income ratio and not include such items as utilities, cable, phone, groceries, gas or child care.  This means that it's crucial for you to sit down and put pen to paper and add up all of your monthly expenses, including taxes.  And don't forget to include monthly payments for homeowners insurance and real estate taxes. 
Once you know what your monthly expenses before a mortgage payment will be, subtract this amount from your monthly gross income.  The result gives you a feel for what you may be able to afford for a monthly mortgage payment.  You can use a mortgage calculator to figure out how much you can borrow based on the monthly payment. 
 
Warning:  If you meet with a mortgage specialist, they will tell you what they think you can afford based on their underwriting guidelines.  It's up to you to make sure that you are comfortable with your mortgage payment before you buy a home.  If you are paying rent of $700 a month, and plan to have a $1,000 a month mortgage payment, try putting the $300 a month difference in a savings account for a few months and see if you can truly get by financially without that extra money. 
  
2)      Do you have a down payment?
Conventional mortgage loans require a 20% down payment.  If you don't have tens of thousands of dollars saved, you should consider one of the many government programs such as VA (Veteran's Administration), MSHA (Maine State Housing Association), or FHA (Federal Housing Administration) all of which offer low or no down payment programs.  The down payment requirements for these programs range from 0% to 5%.  
 
We offer VA, MSHA and FHA mortgages through CUSO Mortgage.  To contact CUSO Mortgage, click here.
  
3)      Get pre-approved for your mortgage.
Some people start shopping for a house and worry about the mortgage once they find the house they want.  It's smarter to get pre-approved by a lender first and shop with the confidence of knowing what you can afford. 
 
Be prepared to provide a mountain of paperwork to your lender.  The lender is going to want bank statements, pay stubs, and to perform verifications of deposit and employment.  The lender will also pull your credit, so make sure your credit is in order. 
 
You may have the opportunity to lock in your mortgage interest rate for a fee.  This means that if rates increase while you're house shopping, your rate will remain the same.  Lock in rates sometimes expire after a set period of time such as 90 days.  If you do not lock in your rate, then you risk having a higher rate at closing if rates increase.
 
4)      Make a list of what you want in a home. 
What city or town do you want to live in?  Are there towns you want to avoid because of the school system?  How many bedrooms and baths do you want or need?  How much land do you want with your house?  Are you willing to take on a home that needs work?  Be realistic. You may never find the perfect home in your price range, but shopping with a list can help you keep track of the features you want.
 
Bring a camera and take a few photos so you'll be able to recall the homes you've seen.
 
5)      Most home shoppers work with a realtor or real estate agent. 
Before signing with any one Realtor to represent you, make sure you have developed a rapport with that person and they won't try to show you homes that they know you cannot afford.  Ask the Realtor what hours they are available to show you homes and make sure that this works with your schedule. 
 
Ask for a list of all clients within the last six months with phone numbers and call a few to see if they were happy working with that person.
  
6)      Making an offer.
Once you have decided on a house and want to make an offer, you need to consider such things as whether there's a date which you have to move out of your current house or apartment.  And always pay for a professional home inspection.  If they find nothing, then you have peace of mind and if they find something you can negotiate with the seller to have it repaired or reduce the price.  You may even decide not to purchase a home based on the results of a home inspection.
 
Some homes come with a seller warranty to cover certain defects within a short period of time. 
 
Your offer will be contingent upon obtaining an appraisal that provides the lender with the current value of the home.  The appraiser must be selected by your lender.  Your offer will also be contingent upon your ability to obtain financing.  You will be asked for a deposit when you make an offer.   This amount is usually in the $500 - $1,000 range, but can be higher.  Your deposit should be returned to you if the deal falls through, or credited to you at closing.
 
7)      Closing costs. 
Closing costs can vary significantly depending upon the lender.  Closing costs almost always include an application fee, origination fee, appraisal fee, title fee and title insurance, credit report fee, and recording fee.  Your lender is required to provide you with an estimated amount for closing costs at the time of your application.
 
You can also expect to pay other costs at closing such as prepaid interest and prorated property taxes. 
 
 
Buying a home can be a lengthy process, so be patient.  There are many things to consider including whether you want your mortgage sold.  Large banks and mortgage companies will sell your mortgage so you won't be working with a local institution.  Central Maine Credit Union does not sell our mortgages, so your mortgage stays with people you know.  This can be a great advantage if you have financial problems in the future and need help.
 
If you obtain a government agency backed mortgage such as VA, MSHA or FHA through CUSO Mortgage, then we do not keep those mortgages at the credit union.
 
If you have questions, or want to talk to someone who can help you figure out what you can afford, please call our Financial Services Department at 777-6202.