Frequently Asked Questions

FAQs

How much house can I afford?

Our rule of thumb is that you want your total house payment to be about 29% (or less) of your gross monthly income. You should also budget about 40% of your gross monthly income for the total of your payment + maintenance expenses. If you set that extra 10-11% aside in a savings account even when you don’t have maintenance expenses that month, you’ll never have to worry about having enough to cover unanticipated maintenance expenses, replacing appliances or furniture when necessary, etc.

What’s the minimum down payment?

Banks (lenders) usually want you to have some skin in the game before they loan you hundreds of thousands of dollars to buy a house. That said, the Utah Housing Program will loan up to 3.5% of the purchase price for a down payment. The VA program does not require a down payment. FHA requires 3.5% down. If you have extremely good credit, you can get Conventional financing for as little as 3% of the purchase price, but if you put down at least 20%, you avoid having to pay mortgage insurance on your Conventional loan – which can be a significant saving.

Are there special programs for first-time homebuyers?

Yes, we offer the Utah Housing Program, which provides first time buyers with funds for down payment. In addition, we offer Home Possible (Freddie Mac) and and Home Ready (Fannie Mae), which provide first-time buyers with reduced interest rates and reduced mortgage insurance rates, which would save you money on your monthly payments.

What is mortgage insurance? What’s the difference between different loan programs as far as mortgage insurance is concerned?

Mortgage insurance is an insurance policy that compensates lenders for their losses in the event a borrower defaults on their loan. Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. The insurance premium is paid by the consumer. As a consumer, the better your financial position, the less likely it is that you will need to pay for mortgage insurance. We would guess that 60-70% of all Utah homeowners are paying some form of mortgage insurance. When we research your loan options, we will be able to show you how much (if any) you’d be paying every month for mortgage insurance. Typically, people making a down payment of less than 20 percent of the purchase price of the home will need to pay for mortgage insurance. Mortgage insurance also is typically required on FHA and USDA loans, regardless of your equity in the home, so once you have 20% equity (the percentage of the home’s value that you own free and clear) or more, we would contact you to let you know about your options for switching loan programs and eliminating your mortgage insurance expense. If you are required to pay mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both.

Why do mortgage lenders all have different rates and closing costs? Is there really that big of a difference between them?

Sometimes there’s a big difference, but usually when that happens, the difference is in the way the two loan officers approach the structuring of your loan. For example, if one loan officer thinks you want to lowest possible payment, they will structure the loan to give you the lowest payment possible. But that usually means you’ll be paying more in closing costs. If the other loan officer thinks keeping the closing costs down is most important to you, they will roll some of those costs into the loan amount – which means your payment will be higher, assuming both lenders are charging the same interest rate. Your strategy should be to find the lender who can help you structure the loan according to what is most important to you at this point in your life, and the only way anyone can do that is to ask you the right questions, so they really understand your priorities (and that’s what we do at Direct Mortgage). 

What’s included in a mortgage payment?

There are typically 4 costs included in your mortgage payment – what we usually abbreviate as PITI 

Principal (the part of your payment that directly reduces how much you owe), 

Interest (the amount you owe in interest for that month), 

Taxes (the amount the lender puts in escrow to pay your property taxes), and 

Insurance (what the lender puts in escrow to pay your homeowners insurance).

Is it a good time to buy right now?

It’s a good time for some people to be buying right now … and whether you’re one of those people depends on your current circumstances, and whether you want to own a home (or a different home). If you do, we offer a free consultation (we call it a Strategy Session. We’ll get some basic financial information from you and ask you about your current living situation and your reasons for considering a change. We’ll help you evaluate whether buying a home now makes sense for you in terms of both your finances and your quality of life. The local housing market is constantly changing, and we keep track of those changes so we can inform and advise our clients. If you’re a first-time Homebuyer, check out our free report, The Smart Way to Buy Your First Home. And if you already own a home but are thinking of moving, check out our free report, Strategies for Selling Your Home and Buying Another in Today’s Market.

I’m self-employed. Do you have other ways to document my income other than tax returns?

Yes, we offer loan programs that will accept bank statements as a way of verifying your income for purposes of qualifying you for mortgage financing. For more information, see Self-Employed & Wishing You Could Get the Same Service from your Lender as You Give Your own Customers Every Day?