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Learn the Basics About Mortgage Loanswith Direct Financial
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Mortgage Loan Basics
Owning your own home is a key part of living the American Dream, and buying a good home on a well-situated plot of land in the Greater Metro Detroit area is one of the best investments you'll ever make. But there's a lot of trepidation about taking out a mortgage. People tend to assume it's complicated, long, and different compared to other types of loans.
Mortgage loan basics are essentially very similar to any loan. It's money you borrow from a financial institution with a monthly repayment plan that covers principal and interest.
How a Mortgage Works
There are several types of mortgage loans. Let’s talk about the 30-year, fixed rate loan.
You will be required to have repaid your loan 30 years from the time you take it. The total amount of your loan will be divided into monthly payments over 360 months (that's 30 years). Your loan will be assigned a fixed premium, the amount you pay back each month. This is your monthly bill for the loan. In it is included the total value of the loan itself plus an added percentage which is how you pay for the service of having the money in hand before you earn it.
It's called a “Fixed Rate Loan” because your premium is guaranteed to remain the same for the duration of your mortgage period. For example, if you pay $900 a month at the start of your mortgage period, you will pay that same amount 29 years later. It's a great package since it helps protect first-time buyers from being hit hard by inflation in their retirement years.
Our local mortgage loan officers will work with you to understand the needs and goals you may have related to your home ownership experience. We offer many different products and once the loan officer learns more about your financial needs, they will recommend the home product that best suits your needs.
How Mortgages are Different From Other Loans
The most important difference between an ordinary loan and a mortgage is the amount of money being lent and the amount of time you have to repay it. Because of the nature of buying a home, borrowers tend to need more money than someone starting a small business or buying a car for work.
The Nature of Mortgage Loans is Different
What's more, your home is not a money-making asset. It provides you with shelter and security, but it's not something you expect to make money on unless you're going to make major renovations and resell it. For these reasons, it only makes sense that the premiums on a mortgage should be less than those for other types of loans, and the qualifications also tend to be a bit more involved.
Secured vs Unsecured
Ordinary loans can be either secured or unsecured. A secured loan is backed up by some form of collateral. Mortgages are always backed up by collateral in the form of the home being purchased.
If you're looking to buy your first home in the Greater Metro Detroit area, let the home finance professionals at Direct Financial help you find the best type of home loan for your needs. Our team will consult with you to help find the best fit. Get in touch today.
Rent vs. Buy
First question: Is buying a home the right move for you? Home ownership is great for some people, while being a renter works perfectly for others.
There are many factors to consider when deciding if buying a home is right for you. Listed below are some advantages and disadvantages of renting versus owning.
Advantages
Rent
- Easy to move or relocate
- Fewer responsibilities for maintaining property
- Lower initial financial commitment
Buy
- Tax Benefits
- Financial Investment
- Stable monthly housing payment
Disadvantages
Rent
- No Tax benefits
- Subject to landlord restrictions
- Unknown future housing payment
Buy
- Long term financial commitment
- Higher overall living expenses
- Limited ability to move or relocate quickly
Meet Your Direct Financial Mortgage Team
Mortgage Officer
- Reviews income, credit, savings and loan programs
- Issues pre-approval letter
- Obtains copy of Purchase & Sales Contract
- Orders appraisal
- Submits loan to underwriting
Mortgage Assistant
- Keeps REALTOR® representing borrower updated on key dates regarding appraisal, loan approval, and closing dates
Mortgage Processor
- Issues commitment letter to borrower after approval
- Orders legal work for borrower
- Works with borrower to meet conditions of loan approval
- Schedules closing
Underwriter
- Reviews loan documentation
- Approves or denies loan based on program guidelines
Real Estate Agent
- Obtains market information
- Searches for home within price range
- Negotiates Purchase and Sales Contract
Title Companies
- Helps prepare Initial Closing Disclosure with lender
- Performs 40 year title search
- Closes the loan
The Path to Your New Home
Prepare to Borrow
Providing thorough documentation to your lender is helpful in making the loan process move quickly and smoothly to approval. We’ll give you a checklist so that you can get a head start.
Get on the Path
Apply online to get started. Then a Direct Financial mortgage loan officer will help you move through the process— from application, approval, processing, to closing. We’ll guide you the entire way!
Your Credit Report & Credit Score
We can help you make sense of your credit report and credit score. Let’s review everything together and we’ll explain how your credit history influences your financing options.
Great Rates for Homebuyers
30 Year Fixed
Serviced by Direct Financial. APR* shown.
6.682%
Not Sure?
We’ll help find the best home loan for you!
call today
5/1 ARM
Adjustable Rate. APR* shown.
Not Available%
Fixed Rate vs. Adjustable Rate
Advantages
Fixed
- No risk of future rate/payment increase
- Easier to manage household budget
- Simple loan terms to understand
Adjustable
- Lower initial rate
- Good for buyers looking to move in 3-7 years
- Closing costs may be lower
Disadvantages
Fixed
- Possible higher rate
- More restrictive underwriting requirements
- Higher closing costs
Adjustable
- Payments can increase over time
- Watch out for teaser programs
- Loan parameters can be difficult to understand (Caps, margins and Index)
How to Decide
- What type of property do you intend to purchase?
- How long do you plan to stay in the home?
- What is the future income potential and affordability?
- What is your current debt and credit situation?
- What amount of savings do you have available for a down payment and closing costs?
- Is local servicing important to you?
Down Payment and Closing Costs
Acceptable Sources for Down Payment and Closing Costs
- Savings, checking, CDs
- Sale of stocks and bonds
- Tax refund
- Sale of an asset (car, boat, motorcycle)
- Borrowing from your 401K
- Gifts from a relatives*
The cost of buying a home can be overwhelming. Minimum down payment requirements can range from 0–20% depending on credit score, type of property and loan program. Typically it is best to plan for a having a minimum 3–5% down payment plus closing costs before getting pre-approved.
*Certain restrictions apply to gifts from relatives. Your loan officer will share the details with you.
Disputes and Inquiries
The Consumer Finance Protection Bureau (“CFPB”) requires that loan servicers adhere to an established process for addressing Notices of Errors from Members as well as Information Requests from members as they pertain to loans. In order to submit a formal Notice of Error or an Information Request please send a written request to the following address: New England Federal Credit Union, Attn: Loan Servicing, PO Box 527, 141 Harvest Lane, Williston, VT 05495
Please include in the written request a detailed explanation of the error or the information you are requesting. Be as specific as possible and provide any information that you believe may be helpful. Also note that correspondence written on a billing statement will not be considered a formal request.
NEFCU will respond to your written request within five (5) business days to acknowledge your request and if possible to satisfy it. If we are unable to resolve the notice of error or information request at that time, we will acknowledge that fact and shall respond to you within thirty (30) business days provided that you provide any additional information requested that may be necessary.