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Getting a Mortgage

Unless you win the lottery or come into a large inheritance, borrowing money to buy a home is a given. With all of the options and complexities surrounding mortgages today, it’s vital to know all the ins and outs before you sign on the dotted line.

Things to know:

  • The cost of a mortgage may include rates, points, and fees.
  • Know the components of your mortgage payment and how they affect your budget.
  • If interest rates are rising, a fixed-rate mortgage may be a good option.
  • The initial interest rate of an Adjustable Rate Mortgage (ARM) might make it easier to qualify to borrow a larger amount.
  • ESL strives to simplify the mortgage process. Learn about the Five Steps to Get an ESL Mortgage.
  • Important Info

    When it comes to finding the right place to obtain a mortgage, it’s important to go with a trusted source. Asking friends and family members is a good start, but it’s also important to do your own research. As always, it’s essential to compare products from several lending institutions before making a final decision.

    Here is important information to consider when choosing a mortgage that’s right for you:

    1. Make a budget: Compare income and expenses and figure out how much you can afford for your monthly payment and down payment.
    1. Do some research: Learn about mortgage options through reliable sources such as certified professionals and trusted websites. You may be eligible for free homeownership counseling or even grants to help make home buying affordable. Learn more in Preparing to Buy a Home.
    1. Compare rates and costs: Check out current ESL mortgage rates.
    1. Know where you stand: Your credit reports, scores, and financial health are keys to mortgage eligibility. Visit Budgeting and Building Credit to learn more about where you stand.
    1. Apply for the loan: Once you feel your finances are in order, you can apply for the mortgage.
    The process of closing a mortgage loan will likely take 45 to 60 days. During this time it is important to recognize that changes to employment, income, and liabilities may impact your ability to close. Your income, employment, and credit are checked throughout the process. As a result it’s important to ensure a consistent credit profile. Try not to make any large purchases, like a car, or new appliances and furnishings for your home. Large deposits or withdrawals from your bank accounts may require explanations and documented proof of source. 
     
  • Fees & Costs

    Fees and costs to compare:

    The cost of a mortgage can typically be broken into three categories: rates, points, and fees. Here’s what you want to know for each of these:

    Type of Cost
    Rates
    Points
    Fees
    Type of CostWhat is it?
    RatesInterest that is charged for the loan.
    PointsOption of prepaying some of the interest on your mortgage in return for a lower interest rate.
    FeesCosts that are paid for various activities in loan processing and closing.
    Type of CostHow does it work?
    RatesWill vary depending upon amount borrowed, type of mortgage, term, and credit score. Will be fixed (stays the same) or variable (changes with market conditions).
    PointsThe cost of one point is equal to 1% of the mortgage amount. For each point purchased, the interest rate is typically reduced by .125% to .25%.
    FeesExamples of common fees include origination, broker, transaction, settlement, and appraisal. Some fees are paid when you apply and some when you close on the loan.
    Type of CostKey thoughts to consider:
    RatesAPR = Annual Percentage Rate. Takes into account the rate, points, and fees averaged over a year.
    PointsIt’s best to ask for the actual dollar amount you will have to pay for points. Paying points can potentially save you more in the long run.
    FeesFees may vary by lender and type of loan.

    The components of your mortgage payment include:

    • Principal and interest from your loan.
    • Mortgage Insurance Premium (MIP) — which may be required for some loans.
    • Taxes and homeowners insurance (If escrowed).

    Take a look at the Looking for the Best Mortgage booklet for more information about the different types of mortgages.

     
  • Fixed vs. Flexible
    Fixed-Rate Versus Adjustable-Rate Mortgages

    The two most common types of mortgages are fixed-rate and adjustable-rate mortgages (ARM). While there are numerous varieties within these two categories, you’ll first want to decide which of these two main loan types best suits your needs:

    Fixed-Rate Mortgages:

    • The monthly principal and interest remains the same during the life of the loan.
    • The monthly payment stays the same, which makes budgeting easier — note that monthly escrow and insurance may vary.
    • The actual rate of interest you'll pay depends on: Term, Points, and Credit.
    • Mortgage terms vary from 10 to 30 years — check out current ESL mortgage rates.
    • When interest rates are high, qualifying for a loan is more difficult because the payments are less affordable.

    Learn more about ESL Fixed-Rate Mortgages.

    Adjustable-Rate Mortgages (ARM):

    • With an adjustable-rate mortgage, the interest rate can increase or decrease over time.
    • The monthly payments fluctuate as the interest rate increases or decreases.
    • The initial rate on an ARM is often lower than fixed-rate loans — check out current ESL mortgage rates.
    • There is typically a limited period of time during which the initial interest rate remains fixed — anywhere from one month to ten years.
    • After the fixed-rate period, the interest rate adjusts at a pre-arranged frequency tied to a defined market index.

    Learn more about ESL Adjustable-Rate Mortgages.

    Which Loan is Right for You?
    • If you anticipate your income will remain the same, it may be better to consider a fixed-rate mortgage.
    • If interest rates are expected to increase significantly, a fixed-rate mortgage may be a better route.
    • An ARM may be a good choice if low payments in the short term are your main goal.
    • If you don't plan to live in the property long enough for the rates to rise, an ARM could be a good option.

    For a more in-depth look at adjustable-rate mortgages, read the Adjustable-Rate Mortgages handbook.

    Take a look at mortgage calculators in the Resources & Tools section for additional guidance.

     
  • Types of Loans

    When it comes to mortgages, there’s a myriad of mortgage loan types to choose from. Some are basic like the fixed-rate mortgage, while others are very complex. Here’s a quick “cheat sheet” to help you get a handle on what’s what:

    Loan Type
    Description
    Loan TypeFixed-Rate Mortgage
    DescriptionThis is the most common of them all. These days you can choose from fixed-rate mortgages with terms of 10 years, 15 years, 20 years, 30 years, and even longer, all of which maintain consistent monthly principal and interest payments.
    Loan TypeHome Possible® and Home Possible® Advantage Mortgage
    DescriptionThese mortgages offer outstanding flexibility and options to meet a variety of borrowers' needs, including first-time homebuyers. Flexibility in sources of funds and lower down payments make Home Possible products a great option.
    Loan TypeAdjustable-Rate Mortgage 
    DescriptionThese come in many varieties and flavors. The interest rate can move up or down monthly, semi-annually, annually, or remain fixed for a period of time before it changes.
    Loan TypeFHA Loan
    DescriptionThese mortgages are backed by government insurance that is funded into the loan for the life of the loan. Qualifying first-time homebuyers can be good candidates for FHA loans because the down payment requirements are small and credit score requirements are less.
    Loan TypeVA Loan
    DescriptionVeterans and, in certain cases, spouses of deceased veterans are eligible for this type of loan (other requirements vary). These loans can be very beneficial because the borrower does not need a down payment. The loan is guaranteed by the Department of Veteran Affairs and funded by a conventional lender.
    Loan TypeInterest-Only Mortgage
    Description"Interest-only mortgage" is somewhat misleading as these loans are not really interest only; meaning the borrower never pays principal on the loan. For some, there’s an option to make an interest-only payment that’s available for a limited time. For others, they are indeed interest only and require a balloon payment at the end of the loan.
    Loan TypeOption ARM Mortgage
    DescriptionThese loans can be quite complex. The interest rate fluctuates periodically and borrowers can choose from a variety of payment options and index rates. Be careful with the minimum payment option, which can result in a payment that’s less than the interest causing the principal balance to increase.
    Loan TypeMortgage Plus Home Equity Combos
    DescriptionThese mortgages actually consist of two loans: a first and second mortgage. They can be adjustable or fixed-rate or a combination of the two. Borrowers take out two loans when the down payment is less than 20% to avoid paying private mortgage insurance.

    Learn more about the types of mortgages ESL offers.