Short Paper: Choose Your Mortgage

5-3 Short Paper: Choose Your Mortgage

Southern New Hampshire University

OL-301-Q2290 Real Estate

Becoming a homeowner may be one of the most expensive purchase you make during your lifetime. Doing proper research and looking at all your options in regard to loans is important during this process. The following information illustrates the hypothetical purchase of a home in Wilton, NY.

During my property search I found a nice single-family home listed at $313,000. The property is located in Wilton, NY, has 3 beds 2.5 baths, consisting of 1,730 sq ft and sits on a 1.29 acres lot (Realtor.com, 2019). Looking at my spouse’s current income combined with my annual income we are sitting at around $100,000. According to Wells Fargo, with our annual income and a monthly debt of $1400, we have a current debt to income ratio of 17%, (wellsfargo.com, 2019) of which would set us in line with securing a mortgage to purchase this home. When looking at the several types of loans available to purchase a home the best option I found was to use a VA loan. With almost 9 years of active service of which 12 months were on deployment I have covered the eligibility requirements to receive this benefit. A VA home loan would be the most advantageous considering the benefits that comes with it. There is no down payment required, no private mortgage insurance requirements, since the loan is backed by the Veterans Administration there are competitive rates available and again because the loan is backed then banks are taking less of a risk, therefore making it easier to qualify(veteransunited.com, 2019). Compared to other options available no other can bring to the table that the VA loan can. The one common trait is that you still have to use the same types of lenders as you would for a conventional approach to qualifying for a mortgage. For this hypothetical situation I feel that making a $20,000 down payment would help lower my monthly mortgage payment. With that being said, with the $20,000 down that brings the loan amount down to $293,000. Using a mortgage loan calculator, I found with Quicken loans, with a loan amount of $293, 000, a down payment of $20,000, interest rate of 4.5% for 30 years, property taxes of $5500 per year and with $1500 yearly of homeowner’s insurance gives me a monthly payment of $1966.58. $1383,25 is going towards the principal and interest, $458.33 to taxes and $125.00 to insurance, for a monthly breakdown (quickenloans.com, 2019). For Closing costs on a VA loan Veterans United broke it down quite simply. There will be a 1% origination charge of $2930. Appraisal fees will be approximately $525, which corresponds to the state in which my home is located in. A credit report fee of $50.00 will also apply. With a down payment such as the $20,000 I am providing, the closing fees will be at 1.25%, for a total of $3662.50. All together closing costs will be approximately $7167.50 (veteransunited.com, 2019).

In conclusion there are many factors that come into play when considering the purchase of real estate. There a many steps that individuals, such as myself, are not aware of. Making sure you research mortgage loan options and learning about the benefits of each is key to securing a loan that will work best for your situation. Also, when looking at your finances and comparing your debt to income ratio is an imperative step in the buying process, as you don’t want to secure something that you can’t pay for. Many banks mitigate this issue with proper vetting and making sure this purchase is something that you can afford.

References

Quicken Loans (2019) Calculate your monthly payment and review your loan options. Retrieved from, https://www.quickenloans.com/calculator-mortgage

Veterans United (2019) VA Loan Closing Costs. Retrieved from, https://www.veteransunited.com/education/homebuying/closing-costs/

Veterans United (2019) 8 Unbeatable Benefits of VA Home Loans. Retrieved from, https://www.veteransunited.com/valoans/8-unbeatable-benefits-of-va-home-financing/

Wells Fargo (2019) Debt-to-Income Ratio Calculator. Retrieved from, https://www.wellsfargo.com/goals-credit/debt-to-income-calculator/