What is a Mortgage Calculator?
A mortgage calculator is a tool meant to help you estimate your monthly mortgage payment. In general, mortgage calculators will have you fill in basic information, such as the home’s purchase price, down payment, loan term, and the interest rate. Other fields, like property taxes and homeowner’s insurance, can also be inputted for a more accurate estimation.
Keep in mind, mortgage calculators are only as accurate as the information that is entered, so it’s important to understand how to properly use one. Below, we’ll explain the basics of a mortgage calculator and other expenses to keep in mind as you estimate your monthly mortgage payment. For a more thorough understanding, follow along by filling in our simple mortgage calculator.
Mortgage Calculator Basics:
In general, all mortgage calculators will include the following fields:
- Home purchase price: Even if you haven’t picked out a home, enter in a price based on homes that include features you like, or a price that you’re comfortable spending.
- Down payment: Enter in a down payment that is realistic based on your current finances. Be sure to also consider other future expenses, such as maintenance costs, emergency funds, taxes, and other fees before committing to an amount.
- Note: Private mortgage insurance (PMI) is required when putting less than a 20% down payment, which will result in a higher monthly mortgage payment.
- Term: Enter the number of years you’ll pay the loan. Loan terms vary based on the loan type, however, 15 and 30-year terms are a popular choice when financing with a conventional loan.
- Interest Rate: Enter the current interest rate for the loan type you’re interested in applying for.
There are several other expenses to consider in addition to the basics listed above. These can include:
- Homeowners insurance: This is a form of property insurance that covers losses and damages to an individual’s house and to assets in the home. Homebuyers are required to provide proof of insurance before a lender can issue a mortgage. In Wisconsin, homeowners can expect to pay $631 per year on average.
- Property Taxes: These taxes are calculated by your local government, and are typically based on the value of your owned property and land. Wisconsin’s average effective property tax rate is 1.95% – with Dane County’s tax rate at 2.013%.
- Private Mortgage Insurance (PMI): PMI, as mentioned above, is required on loans with less than a 20% down payment. The average cost of PMI for a conventional home loan ranges from 0.55% to 2.25% of the original loan amount per year.
- Homeowners Association (HOA) fees: If you choose to purchase a condo, townhouse, or a home in a planned unit development, you may need to pay HOA fees. The cost depends on what the HOA provides, but on average, you can expect to pay approximately $200 per month.
- Loan costs: Though these are a one-time fee, they play a part in financing at the time of closing a home. Ask us how to get free loan costs at closing.
- Maintenance and up-keep: Depending on the age and condition of your home, you’re likely going to face on-going repairs and maintenance costs. A good rule of thumb is to set aside at least one percent of your home’s value every year for home maintenance.
Calculating your estimated monthly mortgage payment with a mortgage calculator, and making sure to include additional expenses can help you make more informed decisions when it comes time to buy a home or refinance. If you’re ready to apply, fill out our easy online application to begin the pre-approval process. Or, give us a call at (608) 833-3800 if you have any questions!
So, you’re looking to refinance your mortgage. Or, maybe you’ve heard about the low interest rates and are wondering if now is the perfect time to start the process. Whatever the case, it’s important to know the steps that go into refinancing your mortgage, and how to decide if now is the right time for you. In this guide, we’ve covered the basics of refinancing, and why and when it may be a good idea to refinance your mortgage.
What does it mean to ‘Refinance your Mortgage?’
Simply put, refinancing is the process of replacing an existing mortgage with a new loan. The steps to refinance your home follow much of the same process as when you applied for your first mortgage. Be sure to research which refinance option is right for you, gather all important financial documents, and submit a refinancing application to be approved.
Documents You Will Typically Need:
- At least two recent pay stubs.
- W-2 statements and tax returns for the past 2 years.
- Asset statements (bank accounts, retirement accounts, investment accounts, etc.)
- A list of debts (car or student loans, copies of alimony or child support payments, etc.)
- Homeowners Insurance declarations page.
Why Refinance Your Home?
A few of the best reasons to refinance are to obtain a lower interest rate, shorten the term of your loan, switch from an adjustable-rate mortgage to a fixed (or vice versa), home remodel project, or consolidate debt. If you’re planning to make some renovations, pay off various debts, or fund large purchases, you can leverage your home equity to obtain a cash-out refinance.
Refinancing may or may not be in your best interest depending on your goals of refinancing. We are here to help show you some numbers. For example, refinancing could help reduce the payment terms of your mortgage. If you are 7 years into paying a 30-year mortgage and refinance into a 20-year loan, you will save 36 payments and possibly pay less each month with your new mortgage. It is all about understanding your monthly budget, how much you can afford to pay, and consulting the experts to understand if now is the right time to refinance.
When to Refinance Your Home
In general, if you can save money by refinancing your mortgage, it would be worth exploring this option. Here are some situations that can help you determine if refinancing is right for you:
- Interest rates have gone down: Interest rates fluctuate based on several factors, including inflation, the Federal Reserve Monetary Policy, level of economic growth, and other factors. In general, a good rule of thumb is to refinance if rates fall 1-2% below your current rate. However, every homeowner’s financial goals and needs are different, so be sure to calculate your potential savings while also being mindful of your monthly budget.
- You have an ARM loan, and rates are increasing: If rates are increasing, you may want to consider switching to a fixed-rate mortgage to avoid large payments down the road.
- Your credit has improved: Your credit plays a significant role in determining your rate. In general, the higher your credit score is, the lower the interest rate you’ll receive. Calculate how your score can affect your rate, here.
We are currently refinancing many of our former clients, so if you’ve had your mortgage for a few years, now might be the right time. If you’re thinking of refinancing, give us a call at 608-833-3800, or apply online today. We would love to discuss your options!
When purchasing and financing a home, one of the biggest decisions you’ll be faced with is choosing which loan type to use to finance your new home. While there are many different loan types to choose from, fixed-rate mortgages and adjustable-rate mortgages (ARMs) are the two primary mortgage types. Both types have their own pros and cons, so choosing between the two can be tricky. To aid you in your decision, we’ve covered the main differences between a fixed-rate mortgage and an adjustable-rate mortgage, and which option may be right for you.
Fixed-rate mortgages are mortgage loans that have a fixed interest rate for the entire term of the loan. Generally, these loans are offered as amortized loans, which means that the loan has scheduled periodic payments that are applied to both principal and interest. Though amortized loans are a popular choice, fixed-rate mortgage loans work with non-amortized loans as well.
One of the main advantages of a fixed-rate mortgage is that the rate is fixed, protecting you from increases in your monthly payments if interest rates rise. The predictability and stability these loans offer also help with budgeting since your payments remain the same each month.
The downside of fixed-rate mortgages is that when rates are rising, it can be difficult to qualify for a loan because loan payments can become less affordable. Before applying for a loan, be sure to estimate your monthly payments so you have a good idea of what you can expect to pay each month.
Adjustable Rate Mortgages (ARMs)
Adjustable-rate mortgages are a type of mortgage whose interest rate varies throughout the life of the loan. Generally, the initial interest rate is fixed for a period of time, then resets depending on the terms of the loan.
Adjustable-rate mortgages are expressed as two numbers, with the top number indicating the length of time the fixed rate is applied, and the second number typically indicating the length of time the rate adjusts. For example, a 5/1 ARM has a fixed rate for five years, which is followed by a variable rate that adjusts every year. Keep in mind, the second number doesn’t always indicate years. The 5/6 ARM has a fixed rate for five years and then adjusts every six months.
After the fixed-rate period, the interest rate can increase or decrease based on an index and a set margin, which are added together. The index is a benchmark interest rate that reflects general market conditions and the margin is a number set by your lender when you apply for your loan. Adjustable-rate mortgages also typically have rate caps that can limit how high the rate can be, and how drastically the payments can change.
Adjustable-rate mortgages can be risky if you’re not prepared. Before taking out an ARM loan, be sure to find out:
- How much your interest rate and payment can increase with each adjustment.
- If the loan has a rate cap on how high the interest rate can go, and a limit on how low the rate can go.
- How frequently your interest rate will adjust so you can be prepared for increased payments, if necessary.
ARM or Fixed-Rate: Which Option is Best for You?
Now that you know the main differences between a fixed-rate and an adjustable-rate mortgage, you should have an easier time determining which option is best for you. A few things to keep in mind as you’re making the decision:
- How long do you plan to stay in the home? If you’re planning to live in your home for only a few years, an adjustable-rate mortgage may be a good option for you. Your payment and rate will be lower, and if you move soon after the initial fixed-rate period ends you’ll avoid the interest rate adjustments.
- Could you still afford your monthly payment if rates increase? If you choose an adjustable-rate mortgage, make sure you’ll be able to afford your payments with any increase in interest rates. If you’re unsure, ask your lender how much your rate can increase so you can be prepared.
Now that you have a better understanding of the differences between a fixed-rate mortgage and an adjustable-rate mortgage, which option will you choose? If you’re looking to purchase a home in the near future, fill out our simple online application, or give us a call. We’d be happy to guide you through the mortgage and home buying process!
After your documents are sorted and prepared by a loan processor, the next step in the mortgage approval process is mortgage underwriting. This step is arguably the most important in the process because it ultimately determines whether your home loan is approved or denied. In this quick guide, we’ll cover everything you need to know about the mortgage underwriting process so you can enjoy hearing the three best words in the mortgage industry: “clear to close.”
What is Mortgage Underwriting?
Mortgage underwriting is a process used to assess risk and ensure a borrower meets all of the minimum requirements for a home loan. Mortgage underwriting professionals use specific guidelines and specialized software programs to determine levels of risk and your ability to pay back the loan. Lenders typically use one of two underwriting processes for mortgage loans: automated and manual. Here’s a quick rundown of both processes:
Automated Underwriting is a computer-generated process that can gather information and determine your eligibility for a home loan, typically for conforming loans, just by inputting a few pieces of information, such as your social security number. Even with an automated process, you are still required to provide documentation to the underwriter as needed. Though the system is able to process loans quickly and determine whether your loan is approved or denied, a mortgage underwriter will review your documents and verify the decision.
Manual Underwriting is done by a person and is used for specific loan situations including certain FHA loans, VA loans, or if you have a complicated income and/or debt situation.
What You Can Do to Help the Process
For the most part, the cards are out of your hands during this stage of the mortgage approval process. However, there are several things to avoid during this time to ensure you have a smooth underwriting process:
- Changing your place of employment – Though this may be out of your control, it’s best to wait until after you’re approved to change jobs so that your loan officer can verify your employment.
- Apply for new credit – Remember, your credit can and will be pulled at any time up to the closing of the loan, so any changes to your credit can affect your chances of being approved.
- Making any large credit purchases – Hold off on purchasing new furniture and appliances for your new home, as these types of large purchases can spike your debt-to-income ratio, your credit utilization, or both, which your loan officer will be analyzing.
- Making any significant changes to your bank account – Transfers between accounts and payroll deposits are generally okay, but any significant change to your account that may be unclear to a loan officer, such as a large deposit or withdrawal, needs to have an explanation.
Any major changes in personal income, assets, or debt can affect your chances of being approved for your home loan. If you’re unsure of how an action could affect your application, be sure to ask your loan officer.
The Underwriting Decision
Once the underwriter has reviewed your application and documents, they then decide the status of your loan. The best outcome is an approval, however, you might receive one of these three decisions:
Approved with Conditions: your application is approved, but it can come back with conditions that you’ll need to provide the loan officer, such as additional pay stubs, tax forms, proof of mortgage insurance, or proof of insurance.
Suspended: Don’t be alarmed – this decision generally means there are some documents missing from your file, your underwriter couldn’t verify income or employment, or they need clarification on some information. The lender will tell you if you’re able to reactivate the application by providing the additional information.
Denied: Not all hope is lost if your mortgage application is denied. A denied application doesn’t mean you can’t get a mortgage, it just means there may have been a hiccup in the process. Be sure to ask your lender to provide the reasons why you were denied so you can determine a way to resolve the issues found.
Once you have met the underwriting requirements and are approved, you’re ready to move on to closing, or settlement, where the final paperwork is signed, money is transferred to the appropriate parties, property ownership is transferred from the seller to the buyer, and you legally commit to your mortgage.
Are you ready to take the first steps to homeownership? Apply online to jumpstart the pre-approval process, or you can send us a note or give us a call at 608-833-3800 with your questions!
Over the past few months, our team has covered how to get pre-approved for a mortgage and how to work with a real estate agent to shop for homes in your price range and sign a purchase agreement. We’ve been working to demystify the home buying and mortgage process for first time home buyers by delving into each step.
This month, we’re covering the next two steps in the mortgage and home buying process: the mortgage loan application and loan processing. These two steps are what launch you into the mortgage approval process, so it’s important to get these right the first time to avoid headaches later. Below we’ve provided a list of the documents needed when applying for a mortgage, as well as what to expect during loan processing.
Related: The 6 Steps to the Mortgage Approval Process
The Mortgage Loan Application
Work with your mortgage lender to fill out the mortgage loan application, officially known as the Uniform Residential Loan Application (URLA), or Fannie Mae Form 1003. The application contains several sections that request information about you, your finances, the property, and details of your potential mortgage. Since this form can sometimes be confusing, we recommend working closely with your lender and asking for help to ensure you’re completing the application accurately.
What Documents Will I Need to Provide?
Similar to your pre-approval, you’ll be required to verify your income and employment, assets, debts, and the property. It’s important to note that the documents needed by your lender will vary, and it’s common that your lender will ask you for more documents as they review your application.
Income and Employment
Your lender will need to verify your income so they can feel confident that you can pay back the loan. Be prepared to provide recent pay stubs, W-2 statements, and tax returns for the past two years. If you’re self-employed, provide profit and loss statements and tax returns for this year and the past two years. Also be sure to provide proof of any additional income made, such as from investments.
To get an accurate picture of your financial situation, your lender will ask for a list of any assets you may have. Provide the account numbers for any checking and savings accounts you’re using to qualify for the mortgage, as well as a copy of the last three months of statements for these accounts. You will also need to provide statements from any retirement or brokerage accounts you may have, including IRAs, investment accounts, CDs, or 401(k) accounts.
Your debts factor into your ability to repay your mortgage, so your lender will need to know how much you owe and to whom. You will need to provide a list of any debts you owe, such as car or student loans, copies of alimony or child support payments, or rental payments. Also, be prepared to provide copies of credit card statements covering the last three billing periods.
You will also need to provide a copy of the purchase agreement and the earnest deposit to your lender. Your lender will need to know about the property you wish to buy because the property will act as collateral on the loan. They are also looking to verify if the property is worth what they are willing to loan out for it.
Once you complete the application, you’ll receive a loan estimate, which provides you with the estimated loan terms, including loan amount and interest rate, projected payments, closing costs, and other considerations of your loan. At this point, you are neither approved nor denied for a home loan; you are simply shown the loan terms your lender expects to offer if you’re approved.
Once you’ve reached this step, your work is basically done. From here, your lender will send all of your documents to a loan processor to review and organize into a file for the underwriter.
Loan processors play a critical role in the process, as they double-check and fix any errors that may have been made in previous steps to give you the best chance of being approved. Loan processors will also begin verifying income, assets, and employment. They will order the property inspection, appraisal, title search, and credit reports in this step, too.
Though you don’t play a large role in this step, it’s critical to not make any major changes that could affect your chances of being approved. This means staying away from making any large purchases with a credit card, taking on new lines of credit, or taking on debt.
We’re nearing the finish line of the mortgage and home buying process — just one more step to go. Are you ready to begin your home buying journey? Apply online today to get the process started, or you can send us a note or give us a call at 608-833-3800 with your questions!
A few weeks ago, we wrote about the importance of obtaining a pre-approval letter before shopping for a home, as this will give you a better idea of how much house you can afford, and signal to sellers that you’re serious about buying a home. Once you have a pre-approval letter in hand, you can begin shopping for homes in your newly identified price range. This is often easier said than done, so we’ve put together a guide to help you through the process, including how to find a real estate agent you can trust, finding the perfect home, and making an offer and signing a purchase agreement.
Related: The 6 Steps to the Mortgage Approval Process
Step 1: Home Shopping
Before shopping for a home, it’s important to determine your needs in a home, as well as the size and location. Here are just a few questions you can ask yourself before you start your home search:
- Are you planning on having (more) children? If so, how many? This decision could affect how many bedrooms and bathrooms you’ll want in the house, as well as whether you want a yard. Your location may also affect what public school district your children can attend.
- Where is your ideal location? Do you prefer living in a rural or urban area? How about in a suburb or an HOA community? Would you like to live close to work? These questions will help you nail down specific locations in your town or city so you aren’t overwhelmed with too many options.
- Does your job require relocation or are you in the military? If there is a chance you’ll be moving in the next 2-3 years, it might be wise to wait on purchasing a home. However, you can always talk to your employer about what the likelihood of relocation is and continue saving toward a down payment before making a decision either way.
Finding a Real Estate Agent You Can Trust
Though there are several resources available to find homes online, such as Zillow, Trulia, and your local Multiple Listing Service, we recommend first-time home buyers work with a real estate agent, as they will have a better understanding of the current market. Agents can also advise you on which neighborhoods fit your needs, filter out homes that won’t work for you, help you understand HOAs, liens, and the like, and most importantly, will assist you in the offer and purchase of your new home.
When searching for a real estate agent, keep these five tips in mind to find an agent you can trust:
- Look for an agent who’s a local expert. An agent who knows the area like the back of their hand and who stays on top of the market means they are more likely to find you the best deal.
- Look at the agent’s current listings. Research if the agent’s listings are similar to the property you’d like to purchase, and if they are in the same area or similar price range.
- Evaluate their availability. Purchasing a home requires time and focus. Ensure your agent can dedicate adequate time to finding you the perfect home within your budget.
- Find an agent with the right focus. An agent who is only interested in their commission is not someone who will work with your best interests in mind. Find an agent who truly listens to your needs in a home and demonstrates they understand what you’re looking for.
- Do your research. Performing a simple online search can help you find references, how long an agent has been licensed, or if they have ever been fined.
Tip: Dual agency is legal in Wisconsin only with informed written consent of both parties. This means that one agent can represent both the buyer and seller in a transaction. If you’re uncomfortable working with the seller’s agent, also known as the listing agent, hire a buyer’s agent.
Step 2: Making an Offer & Signing the Purchase Agreement
Once you’ve found the perfect home, your real estate agent will assist you in the purchase and will guide you through how much to offer, and how to structure a purchase agreement to your advantage.
The purchase agreement, or real estate contract, typically includes a description and condition of the property, what fixtures and appliances are included, the prospective closing date, itemized closing costs and who is responsible for paying them, the amount of the earnest money deposit, and any contingencies that must be met before the sale can go through.
Contingencies protect the buyer and allow them the chance to back out of the purchase with their full deposit. Some common contingencies we recommend to consider:
- Financing Contingency. We recommend using this contingency if you’re planning to finance your new home. This allows for you to back out of the deal if your mortgage application is denied during the underwriting process and your financing falls through.
- Inspection Contingency. This allows you to bring in a professional to inspect the property and provide you with a report of the findings. You may negotiate with the seller on how to handle any necessary repairs, or you can back out of the deal if an agreement cannot be made or the repairs are too extensive.
- Appraisal Contingency. Be aware that if you’re obtaining financing for your home from a mortgage lender, your lender may require an appraisal to determine to value of the home. If the appraised value of the home comes in lower than the negotiated sale price, you can either renegotiate with the seller or back out of the deal if an agreement cannot be made.
Keep in mind, a seller may receive several bids for the home, especially in a seller’s market, so be prepared to work with your agent to make several offers, if necessary. Once the seller has accepted your offer and you’ve mutually agreed upon the terms, put down an earnest money deposit. This is a deposit made to the seller that represents your good faith to buy the home. Once the funds are deposited, they are typically held in an escrow account until closing, at which time the money can be used toward your down payment or closing costs.
At long last, it’s time to sign. If you’re unsure of any terms or language in the purchase agreement, ask your agent or attorney. Remember, it’s easy to sign your name, but hard to break a contract.
Are you ready to purchase and make an offer on a new home? Reach out to our team if you have any questions, or head online to fill in our online application to begin the pre-approval process today!