Buying a home is generally the biggest investment a person will make in their lifetime. Owning a home gives you security, a feeling of pride and a place to raise your family. Over the years home ownership has proven to be one of the soundest financial investment a person can make. The process of buying a home can be intimidating, especially for the first time buyer, so we’ve put together some FAQ’s to help guide you through the process. What type of costs can I expect to pay? • Attorney's fees for the title search • Any documentation preparation fees charged by the bank and/or attorney • Recording fees • Survey fee • Title Insurance (a one time premium) • Property taxes (pro rated to cover the balance of the year you will own the house) • Interest (paid from date of closing to 30 days before first monthly payment) • Loan Origination fee • First premium of mortgage Insurance (if applicable) • First payment to escrow account for future real estate taxes and insurance (if required by bank) • First premium for homeowner's insurance policy • Termite inspection fees • Home inspection fees and/or Certificate of Occupancy fees (if applicable) What is a mortgage? A mortgage is an instrument that secures the loan obtained to purchase real estate and is a lien (a legal claim) on the home or property. In North Carolina the common instrument used to secure the loan is a Deed of Trust. What type of loan should I get? There are two basic types of loans for the purchase of real estate, fixed rate mortgages and adjustable rate mortgages or ARM’s. With a fixed rate mortgage your payments will remain the same for the the life of the loan. With ARM’s payments increase or decrease on a n annual basis in accordance with the index to which they are tied. Which type of mortgage is better depends on you and your needs. Adjustable rate mortgages generally offer lower initial interest rates and lower initial monthly payments. This may help you to be able to borrow more money. However, in recent years the trend has been for these kinds of mortgages to experience increase in monthly payments after the first year so you have to be confident that your income is going to rise to meet the demands of the higher payments. ARM’s also make sense if you are certain that you will not remain in the house after a few years. How much of a down payment will I need? In part, that will depend upon the Loan to Value ratio that the bank will determine. Keep in mind that the larger the down payment you can afford, the less money you will have to borrow and the smaller your monthly mortgage payment will be. You will also have more equity in your home. What is "Loan to Value" (LTV) and how does it determine how much I can borrow? The loan to value ratio is the amount of money you borrow compared to the appraised value of the home you are purchasing. Each loan has a specific Loan to Value (LTV) limit. For example: With a 95% LTV loan on a home priced at $200,000, you could borrow up to $190,000 (95% of $200,000). In that case, you would need a down payment of $10,000.00 in order to qualify. The LTV ratio reflects the amount of equity borrowers have in their homes. In order to protect lenders against potential loss in case of default, LTV loans of 80% or more usually require the borrower to purchase a mortgage insurance policy. Is there a way I can pay off my loan ahead of schedule? By adding extra money in your payment each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. What are Discount Points and do I need to pay them? Discount points are away to buy down (lower) your interest rate. They are essentially prepaid interest. With each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. Discount points make sense if you plan to stay in a home for some time since they can lower the monthly loan payment, but they are not required in order to get your loan. Points are also tax deductible. My lender mentioned I might need an escrow account. What is this and why do I need one? Lenders may require an escrow account to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable), and property taxes. They are a good idea because they assure money will always be available for these payments. Lender’s generally require them for loans in which the down payment is less than 20%.