Planning for home financing
Should I get a fixed rate or adjustable mortgage?
The interest rate for a fixed rate mortgage does not change over the life of the loan. You can count on both the rate and the monthly principal and interest payments remaining the same over time, making it easy to manage your budget.
An adjustable rate mortgage (ARM) differs from a fixed rate mortgage because the interest rate on the loan can vary over the life of the loan. Usually an ARM has an initial interest rate that is fixed for a number of years, and after that time will adjust as interest rates change.
The initial interest rate on an ARM can be lower than a fixed rate loan. However, you should weigh the risk that an increase in interest rates would lead to higher monthly payments in the future.
Are there any prepayment penalties charged if I pay off my loan early?
We do not charge any penalties for paying off your mortgage loan early. You can pay off your mortgage at any time with no additional charges. Prepayment penalties may apply for other lending products so always be sure to check with your loan officer.
What is the maximum percentage of my home's value that I can borrow?
If you are planning to finance a home, you should be familiar with the phrase loan-to-value (LTV). Simply put, LTV reflects the percentage of your property that will be mortgaged and is calculated by dividing the mortgage loan amount – which includes all mortgages, Home Equity loans and/or Home Equity Lines of Credit – by the value of the property.
Let’s look at an example. If you are looking to buy a home valued at $250,000 and have saved $50,000 for the down payment, you would need to finance the difference or $200,000 with a mortgage. To calculate the LTV, you would divide the mortgage amount by the value of the home.
$200,000 ÷ $250,000 = .80 or 80%
In the case noted here, the LTV is 80%, meaning that the money you want to borrow is 80% of the home’s value.
The LTV may affect which product is right for you. In general, there are more mortgage programs available with a lower LTV, generally up to 80%. However there are many types of loan programs that allow for a higher LTV. For example, Kennebunk Savings has some loan programs that allow you to borrow up to a 98% LTV.
Your LTV is one of many things considered when you apply for a loan. The best way to determine the maximum amount you can borrow is to give us a call to discuss your borrowing needs. We’d be happy to walk you through the numbers and the lending options available.
How much cash will I need to purchase a home?
Each personal situation is different and the amount of money you may need on-hand will depend upon a number of items. Generally speaking, you should plan for the following:
Earnest money (which is the deposit showing good faith and is generally non-refundable, but can be used towards your down payment and closing costs) that will accompany your offer to buy a house.
Down payment which is the amount of cash you will be putting towards the purchase of your home that is paid at the closing.
Closing costs which are the various fees a borrower pays when they obtain a mortgage. Closing costs come from a number of sources and generally fall into three areas:
- Application or loan processing fees. Kennebunk Savings has a loan processing fee, which essentially helps cover the cost of our mortgage underwriters and processors – our employees. Some Lenders charge both a loan processing fee and an application fee. It’s important that borrowers understand in advance what types of fees may be charged so that there are no surprises.
- Third party delivery fees. Kennebunk Savings utilizes programs and products from the Federal Home Loan Mortgage Corporation, or “Freddie Mac”. We utilize Freddie Mac’s programs in order to access the secondary mortgage market. The secondary mortgage market is made up of companies that buy mortgages from lenders. Many people choose a mortgage that can be sold because the interest rate is typically lower on these mortgages. Some of these programs and products require the borrower to pay fees in association with obtaining the loan. Your Residential Lending Officer will be able to provide you with information regarding these fees once we receive your application.
- The vast majority of closing costs are for services provided by other businesses. There are a lot of businesses involved in the mortgage process. The services they provide will result in some type of fee that the lender will pass on to the borrower. These services include things like
- An appraisal to determine the fair market value of the property
- Credit report to show the borrowers credit and payment history
- Attorney’s fees for conducting the closing
- Title search to determine if the title of the property can be transferred to the buyer free and clear of any restrictions
- Lenders Title Insurance, which is required on most real estate loans secured by a first mortgage. An owner’s title insurance policy is optional.
- Flood determination-and if your property is in a flood zone, you will be required to purchase flood insurance
Transfer taxes which are paid to the state by both the seller and buyer whenever a property changes ownership
- Lastly, home buyers should expect to pay prepaid interest and prepaid insurance premiums and taxes. Prepaid interest is the amount of interest that will be due on the loan from the closing date to when the first payment is due. This amount will vary depending on the closing date. A new homeowner may also have to prepay homeowners insurance that is due at the closing and any recording fees.
Please also note that there could be some additional expenses paid at or outside of closing if the homebuyer has a home inspection done or elects to purchase an owner’s title insurance policy.
To better understand the type of closing costs you may incur, it is always a good idea to connect with a mortgage lender early in the home buying process.
Can I prequalify for a loan before I find a house to purchase?
Yes, prequalifying for a mortgage loan before you start house-hunting is a smart move! When you apply to prequalify for a home loan, we will review your financial situation. You will then receive a letter that states the maximum purchase price and loan amount, based on the information you provided to the bank.
You can give this letter to your real estate broker to assure them that you are a serious buyer. When you find the perfect home, simply call your Residential Lending Officer at Kennebunk Savings to start the mortgage application process.
When I'm ready to apply, what is my role in the mortgage process?
As part of the application process, in addition to filling out the application form, it is important to provide all the requested documentation needed, like income verification and bank statement documents. To help you prepare, check out our handy Mortgage Application Checklist.
There are steps you can take to help speed up the loan process.
Be available because the loan processors and underwriters will have questions. Your quick response to their inquiries will keep the process moving forward.
Provide all information requested right up front. Your lender will provide a list of items needed to process your mortgage application and if you omit important information or are not accurate with the information you provide, it could slow down the process.
And finally, do not hesitate to reach out to a member of your lending team when you have questions. It is important to provide the right type of information when needed, instead of leaving out details for not being sure of their importance. Not having all the information can slow down the process.
Can I borrow funds to use towards my down payment?
I'm self-employed. How will you verify my income?
Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period. We’ll review and average the net income from self-employment that’s reported on your tax returns to determine the income that can be used to qualify for a loan.
As always, if you have additional questions about qualifying for a mortgage loan, do not hesitate to give us a call.
I'm getting a gift of funds from someone else. Is this an acceptable source of my down payment?
Yes, down payments can include gift money if the gift giver is related to you or your co-borrower. We’ll ask you for the name, address, and phone number of the gift giver, as well as the donor’s relationship to you.
Prior to closing, we’ll verify that the gift funds have been transferred to you by obtaining a copy of your bank deposit receipt or statement to verify that you have deposited the gift funds into your account.
Why do you need information about properties I own if I am not financing them?
We need information about all the real estate you own to insure we understand any payment obligations you have on the properties and to have a reasonable estimate of your net worth. If you don’t know the exact value of your real estate holdings, provide your best guess – in most cases that is all we will need to process your new mortgage request.
What is an appraisal and who completes it?
To determine the value of the property you are purchasing or refinancing, an appraisal will be required. An appraisal report is a written description and estimate of the value of the property. There are national standards that govern the content and format of the appraisal and federal regulations and the appraisal subcommittee that govern the appraiser’s qualifications and credentials. All states have licensing requirements for appraisers evaluating properties, each varying by state
The appraiser will create a written report for us and you’ll be given a copy prior to your loan closing.
I've heard that some lenders require flood insurance on properties. Will you?
In short, if your home is in a high-risk flood (Special Flood Hazard Area, or SFHA) area, yes. This is because homes located in high-risk flood areas, with government-backed/regulated mortgages, are required by law to have flood insurance for the life of the loan.
Will I need to have an attorney represent me at my mortgage closing?
In some areas of the country it is customary, and sometimes required by law, to have an attorney represent you at the closing. In Maine, the borrowers have the right to choose their own attorney and pay for that attorney and settlement agent’s fee. In New Hampshire, they do not have the right to choose.
Please contact the closing agent if you have questions about the attorney representation process. If your attorney has any questions about your new mortgage, please refer them to your Residential Lending Officer.
Who will be at the closing?
If I apply, where will the closing take place?
What do I need to start the loan process?
You will need a contract with a licensed builder, plans, specifications and budget. To make things a little easier, we’ve put together a checklist of financial documents you will need to prepare for the loan process. See our Mortgage Application Checklist.