Understanding Home Loans

House hunting begins with planning. How much home you can afford to buy depends on two things: how much you can invest in the down payment, and how much you can afford for the monthly housing payment. These payments include principal and interest on the mortgage loan, and property taxes and mortgage and/or homeowner’s insurance, or PITI:

• Principal: The Principal is the amount of the mortgage payment that goes towards paying down the loan amount. Since, for most loans, part of your mortgage payment gets applied towards principal, over time, your outstanding principal balance will go down.
• Interest: The interest rate lenders charge is the cost of borrowing money.
• Taxes: The local government where the home is located will assess your home and determine its real estate taxes. Most lenders will collect this as part of your monthly payment and then pay your local government on your behalf. This is commonly referred to as tax escrow.
• Mortgage Insurance: Mortgage Insurance protects the lender should you not be able to make your mortgage payments.
• Homeowner’s Insurance: Homeowner’s Insurance covers you in the event of damage to your property caused by fire, wind, or other hazards.

Pre-qualification vs. Pre-approval

Knowing your affordable price range will bring your house hunting into focus. How much money you qualify for will depend on a variety of factors including credit history, length of employment, outstanding debt, and your down payment amount.

Based on the information you provide, your lender can estimate how much money you can borrow before applying for a loan. This non-binding process is called pre-qualification. Your lender can also take a more detailed look at your financial and credit profiles, including a credit check, and commit to lending you a specified amount of money pending specific property details. The lender will then provide you with a letter stating how much mortgage you qualify for. This process is called pre-approval. With a pre-approval letter, you can:

• Shop for a home with the confidence of knowing exactly how much you can afford
• Show sellers you are serious about buying and that you can afford to make a purchase
• Discover any qualification issues early in the home-buying process

Because a pre-approval takes a closer look at your background and includes a credit check, it holds more weight with sellers than pre-qualification.

Contact Us! SampronSisters.com (Your Westridge Knolls Neighbor – Your Highlands Ranch REALTORS®) for more information. Or if you’re ready to speak with a lender we hope you’ll call one of our Preferred Lenders.