Financials First

Closing Costs – How Do You Know If You’re Paying Too Much?

First things first: There’s no need to pull your hair out over closing costs when it comes to buying a home. Just know that all home purchases come with them. It’s simply part of the process.

However, those costs can vary greatly, which is why it’s smart to ask your lender questions when it comes to the fees that are associated with closing on a home. Read More

Applying for a Home Loan? Here Are 5 Things Not to Do Before Doing So

You’ve been saving up for a down payment. You’ve researched home prices. You’ve worked through your budget, checked it twice.

Good job – you’ve done some of the things you’re supposed to do when preparing for the home-buying process. But wait! Have you considered the things you’re not supposed to do before you walk into a bank and apply for a home loan? Read More

Interest Rate vs. APR: What’s the Difference, and Why Does It Matter?

Those shopping for a home – especially when researching online – have probably come across terms like “interest rate,” or “APR.” Are they different? Are they terms a potential homebuyer should understand?

Yes, and yes.

Let’s start with interest rate, which is a fixed or variable percentage that a lender, such as a bank, gives a homebuyer for his or her home loan.

“The interest rate is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan,” says consumerfinance.gov. [1]

The APR (Annual Percentage Rate) is a broader measure of the cost for borrowing money to buy a home, and it’s also expressed as a percentage rate.

Generally speaking, the APR reflects not only the interest rate but also any mortgage broker fees, points and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

Understanding a mortgage

A mortgage payment is made up of the principal and the interest for the loan. The principal is the money you borrowed from the bank to buy the home, and the interest is the percentage-based fee that you pay for borrowing the money. Thus, paying a principal amount reduces the amount you owe, while an interest rate does not.

If you aren’t sure of the difference between fixed or adjustable interest rates, you’re not alone. 22 percent of respondents in a survey conducted by First National Bank of Omaha didn’t know the difference, either.

“Rates can be fixed or adjustable. A fixed rate never changes, but the rate for an adjustable rate mortgage (an “ARM”) can adjust higher or lower (based on an index) while you have your loan,” says creditkarma.com. [2]

“If your rate adjusts, your monthly payment will change. Adjustable rate mortgages typically have caps that limit how much and how often they can change. Most adjustable rate mortgages have a rate that’s fixed for a number of years and then can adjust.”

The rates you are offered differ depending on a handful of factors, says Kelley Harwood, Vice President of the Consumer Lending Group at First National Bank.

“How much you want to borrow; how much you’ve saved for a down payment; whether or not you have a history of paying your bills on time; the type of loan you choose – these are some of the things that help determine what kind of a rate you will receive.”

When you apply for a loan, the rates you’re offered can be either floating or locked. A floating rate can change before you close your loan. A locked rate shouldn’t change for 30, 45 or 60 days, depending on how long your rate lock lasts.

Monthly payment vs. overall cost

With interest rate versus APR, “the main difference is that the interest rate calculates what your actual monthly payment will be,” Sean O. McGeehan, a mortgage sales manager in Chicago, tells bankrate.com. “The APR calculates the total cost of the loan. A consumer can use one or both to make apples-to-apples comparisons when shopping for loans.” [3]

To put it simply, a loan with a 4 percent interest rate will have a lower monthly payment than a loan with a 5 percent interest rate (assuming the terms of both loans are identical). The same goes for an APR. The total cost of the loan with a 4 percent APR will be less than a loan with a 5 percent APR.

 

How long do you plan to live in the house?

If you don’t plan on living very long in the home you’re buying, it might make sense to pay fewer upfront fees and get a higher interest rate (and higher APR) because the total cost will be less over the first few years.

However, if you plan to stay in the home for 30 or more years, it might make more sense to take out a loan that has the lowest APR because you’ll end up paying a lower amount for your home.

“We know that some of this can get confusing, and we’re happy to explain every step of the process along the way,” says First National Bank’s Harwood. “No one should feel intimidated or overwhelmed during the homebuying process.

“This is why homebuyers love working with us – we never get tired of questions; that’s why we’re here.”

Got questions? Stop by your local First National Bank branch today and visit with a mortgage loan expert (They love explaining home loans. Seriously, it’s their thing.)

 

 

[1] What is the difference between a mortgage interest rate and an APR? – https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-mortgage-interest-rate-and-an-apr-en-135/

[2] What’s the difference between a mortgage rate and APR? – https://www.creditkarma.com/home-loans/i/mortgage-rate-vs-apr/

[3] The difference between interest rate and annual percentage rate, or APR – https://www.bankrate.com/finance/mortgages/apr-and-interest-rate.aspx

Down Payment 101: What Are Your Options When Buying a Home?

Hey, homeowner hopeful, don’t give up on your dream if you haven’t been able to save for a down payment. Not all homebuyers can afford 20 percent down, which has traditionally been the standard and is the minimum amount required for a conventional home loan without having to pay mortgage insurance. Read More

Shopping for a Home? Choosing a Mortgage Expert is No. 1 on the To-Do List.

Wait! Before you start surfing websites for home listings, picking out new furniture or anything else in the home-buying process, connect with a mortgage specialist. This is the very first step in the process of buying a home, and here’s why:

  • Being pre-qualified for a home loan tells homebuyers right away how much they can spend on a house. Once that’s done, you can zoom in on the homes in your price range and find potential properties much faster in a competitive home-buying market.
  • It also makes you more appealing to sellers – they love bidders who have been pre-approved. In a housing market where homes sell fast, and where homes receive multiple bids, the bidders who are pre-approved move to the front of the line.
  • It saves time. Being pre-approved is a great motivator – knowing they’re approved inspires homebuyers to get out there and start the search. Once you find your dream home, you can begin the closing process right away.

“Buying a home can be a stressful decision, but it doesn’t have to be,” says Kelley Harwood, Vice President of the Consumer Lending Group at First National Bank. “By getting pre-qualified early in the home-buying process, you will be more prepared and ready to make an informed decision by avoiding delays and stress in the loan process later.”

Finding the right mortgage professional for you

You don’t need to spend hours searching for the perfect match, but taking a little time to meet and have a brief discussion with a potential home lender is ideal. This person is going to be in your corner when it comes to finding the best rate for you, finding a loan that’s right for your budget, etc. You need to be comfortable with them.

When you choose a bank that has a great reputation as a home lender, you’ll be in good hands with anyone on their staff, but it’s nice to find a mortgage professional that you personally connect with. It makes the experience all the more enjoyable.

Take note on first impressions, says Zillow.com [1]. “Are they prompt to respond to your initial contact? Are they friendly and courteous? Do they honor their quote that you saw online? Are they willing to explain things to you or educate you about different choices? Do they proactively discuss the timeline of the loan (estimated closing date, when to lock the rate)? Do they discuss when/how rates will change?”

These are all important questions to ask. Comparing loan estimates from different lenders is also a smart move. As is finding a mortgage professional who is experienced in the type of loan you will get, whether that is a conventional loan, FHA loan, VA loan, etc.

How long has your potential lender been with his or her current company? Will you be working with that person throughout the loan process? The point is: Keep asking questions.

A good loan officer will get you to the closing table in a timely manner,” says mortgageloan.com. “They will communicate with you throughout the process. They will make sure your rate lock is protected or extended if need be. A good loan officer will usually be working for a good lender. Their livelihood depends on the lender they work for being proficient and competitive. If you find a good loan officer you most likely will also be finding a lender that has competitive mortgage rates and closing cost.” [2]

Find someone you trust

Ask a friend whose opinion your value about their home buying experience:

  • Did the lender explain – in easily understood language – what loans were available to you, and which was the best one for you?
  • Did they tell you about all the fees up front? Any surprise fees added later?
  • Was the lender responsive to your questions before, during and after your initial meeting?

Credit.com [3] says there are several questions you should ask your mortgage lender, too, including:

  • What are your loan programs? Do you offer FHA loans, for example?
  • Can I see a Good Faith Estimate (an approximation of payments due upon closing) right away?
  • Could you estimate closing costs for my loan?
  • Can you estimate and explain your fees?
  • How and when will you earn your income from this loan?
  • Are you certain you can get this done in time for closing?

“Whether it’s finding someone a competitive rate, explaining the advantage of points and how they work, or clarifying any fees that might be included – up front – we work with homebuyers every step of the way,” says First National Bank’s Harwood.

“You’ll find answers to every question and find confidence during every step of the process.”

Got questions? Stop by your local First National Bank branch today and visit with a mortgage loan expert (They love explaining home loans. Seriously, it’s their thing.)

 

[1] “How to Choose a Mortgage Lender” – https://www.zillow.com/mortgage-learning/how-to-choose-a-mortgage-lender/

[2] “Finding a Good Mortgage Loan Officer” – https://www.mortgageloan.com/finding-good-mortgage-loan-officer-9847

[3] “How to Find and Choose a Mortgage Lender” – https://www.credit.com/loans/mortgage-questions/how-to-find-and-choose-mortgage-lender-broker/

Home Loans Explained: Mortgage Loans Come in All Shapes and Sizes – Which is Best for You?

Fixed or adjustable?

Conventional or FHA?

Fifteen-year or 30-year?

If you’ve been thinking about buying a home, these questions might have crossed your mind. No need to be overwhelmed, though – buying a home can be a pleasant experience when you’re familiar with the types of loans that are available.

“Knowing the basics prior to meeting with a loan officer gives you a head start and will give you more confidence as you begin the home-buying process,” says Kelley Harwood, Vice President of the Consumer Lending Group at First National Bank.

Below, we provide an overview to the different types of home loans that are available.

Fixed vs. Adjustable

One of the initial considerations when applying for a home loan is whether or not you want an interest rate, and subsequently an average percentage rate (APR), that is fixed during the term of the loan, or adjustable during that period.

The interest rate is the cost of borrowing the loan amount, which is expressed as a percentage. An APR is a broader measure of the cost of a home loan because it includes the interest rate plus other costs, such as broker fees and some closing costs, expressed as a percentage. This all falls under a legal agreement, known as a mortgage.

A fixed-rate mortgage is the most common home loan. As the name suggests, the interest rate for a fixed-rate mortgage remains the same for the term of the loan, which is most often for 30 years (more length of loans below).

With an adjustable-rate mortgage (ARM), the loan and comes with lower rates and lower payments, initially, which might allow a borrower to buy a larger home that they otherwise might not be able to buy.

“Many ARMs will start at a lower interest rate than fixed-rate mortgage,” says the Consumer Financial Protection Bureau. [1] “This initial rate may stay the same for months, one year, or a few years. When this introductory period is over, your interest rate will change.”

That means the interest rate could go up or down.

“One of the advantages of the fixed-rate mortgage,” says First National Bank’s Harwood, “is that it remains constant despite what may be happening in the broader economy. That stability makes budgeting easier.”

Conventional home loan

Conventional loans are offered by private entities such as banks, credit unions, private lenders or savings institutions. They are more difficult to qualify for, compared to VA and FHA loans.

To take out a loan for a conventional mortgage, borrowers need:

  • Good credit (minimum scores vary from lender to lender)
  • A steady income (a good debt-to-income ratio)
  • To be able to afford a down payment, a percentage that usually ranges between 5 and 20 percent. (If a borrower puts less than 20 percent down, they will likely need to get private mortgage insurance (PMI), so that if the borrower defaults on the loan, the mortgage insurance company makes sure the lender is paid in full.)

“A conventional mortgage is a home loan that isn’t guaranteed or insured by the federal government and conforms to the loan limits set forth by Freddie Mac and Fannie Mae. You can get a conventional loan at a fixed or adjustable rate,” says nerdwallet.com. [2]

FHA home loan

Borrowers with lower credit scores and who may not be able to make a significant down payment often choose an FHA (Federal Housing Administration) loan. The loan is insured by the FHA, which protects lenders from financial risk.

“An FHA loan can be a good choice for younger, first-time homebuyers who have not had time to save up for a large down payment,” says Harwood.

Borrowers with lower credit scores, or who might have experienced bankruptcy, may also qualify for an FHA loan.

FHA loans require a funding fee, which includes a monthly insurance premium and may have a higher interest rate than a conventional loan to compensate for the smaller down payment.

VA home loan

A VA home loan is one that is guaranteed by the Veterans Administration through VA-approved lenders. The guarantee means that the lender is protected against loss if the borrower fails to repay.

According to the Veterans United Home Loans [3], you may be eligible for a VA loan if you:

  • You have served 90 consecutive days of active service during wartime.
  • You have served 181 days of active service during peacetime.
  • You have more than 6 years of service in the National Guard or Reserves.
  • You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.

15-year vs. 30-year mortgages

The majority of homeowners – especially first-time homebuyers – choose a traditional 30-year mortgage. It means that your home loan payments are stretched out over 30 years, or 360 payments.

A 30-year mortgage typically has a higher interest rate, but the monthly payments for a 30-year mortgage are significantly lower than they are for a 15-year mortgage.

“The loans are structurally similar – the main difference is the term of years. A shorter-term loan means a higher monthly payment, which makes the 15-year mortgage seem less affordable,” says investopedia.com. [4]

“We work with home-buyers to determine which home loan is best for them, and we’re there every step of the process to make sure all their questions are answered,” says Harwood. “Buying a home is one of the largest financial decisions most people make, but it doesn’t have to be intimidating. We make sure it isn’t.”

Got questions? Stop by your local First National Bank branch today and visit with a mortgage loan expert (They love explaining home loans. Seriously, it’s their thing.)

 

[1]  “What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan?” – https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-fixed-rate-and-adjustable-rate-mortgage-arm-loan-en-100/

[2] “What is a conventional mortgage?” – https://www.nerdwallet.com/blog/mortgages/finding-the-right-mortgage/conventional-mortgage/

[3] “VA Loan Eligibility Requirements” –  https://www.veteransunited.com/va-loans/va-home-loan-eligibility/

[4] “The 30-year and 15-year mortgages: A comparison” – https://www.investopedia.com/articles/personal-finance/042015/comparison-30year-vs-15year-mortgage.asp

 

Buying a New Home? Your Credit Score Plays a Role in the Mortgage Rate You Receive.

Let’s begin with a simple way to look at credit scores and how they typically influence mortgage rates when applying for a home loan:

  • High credit score = good interest rate.
  • Low credit score = not as good of an interest rate.

We’ll get to why a low interest rate – even a fraction lower – matters in a minute. First, let’s talk about how your credit score affects the mortgage rate you receive when applying for a home loan.

As we mentioned, if you have a high credit score, you traditionally will get a more competitive rate on your mortgage. On the other hand, having a low credit score usually means paying a higher interest rate. For lenders, it helps them measure the risk they are taking in issuing you a loan.

For example, say you have two friends who both want to borrow $100. You’re the bank in this scenario.

One friend, Jack, has a history of taking forever to pay friends back. You have to text and email him constantly asking about repayment. He’s even skipped paying some friends back all together, leaving them high and dry.

But your other friend, Jill, has always been really good at paying you back. She’s never late with her repayment – no worries, no hassles.

So, who are you more eager to loan that $100 to? Further, if you are a nice friend and you loan both Jack and Jill $100, the interest you might charge them could differ. Since Jill is so good at paying people back, you might only charge her 10 percent interest, or $10, for a total payback of $110. However, since Jack is a bigger risk, you might charge him 20 percent interest, or $20, for a total of $120.

That’s one way to visualize how a lender might look at your credit score – which includes your history of paying off debt – when they calculate the interest rate for your home loan.

The better credit history you have, the higher your credit score will be, and the lower interest rate you will be assigned.

“Your credit score isn’t the only factor a lender considers when determining the interest rate of a home loan. Monthly income and assets also play a factor,” says Kelley Harwood, Vice President of the Consumer Lending Group at First National Bank.

“But if someone has a high credit score it shows us that they have been good at fulfilling their obligations when paying debt on things like car loans and credit cards. And that can translate into a lower interest rate, which can save a significant amount of money over the term of your loan.”

Most credit scores use the Fair Isaac Corporation (FICO) model, which “grades consumers on a 300- to 850-point range, with a higher score indicating lower to risk to the lender,” says msn.com. [1] “Generally, a score of around 750 or higher on the FICO scale is considered an excellent score.”

There are several ways to help improve your credit score, which you can read about at myfico.com [2]. Three of the most common ways, says Experian.com [3], are:

  • Make sure your credit reports are accurate
  • Make payments on time (credit cards, rent, car loans, etc.)
  • Keep credit cards no higher than 30 percent of your limit

Here’s the “why” with credit scores and mortgage rates

Having a lower interest rate means paying less for your home in the long run, even when it comes to small percentages.

Consider the difference between getting an interest rate of 4.5 percent and 5 percent and how costs add up over the course of a traditional 30-year fixed home loan. Below is an example based on a conventional loan – those backed by Fannie Mae or Freddie Mac. With government-insured FHA mortgages or VA mortgages, the credit score requirements are lower.

To give you an idea of how a good credit score can help you gain a lower interest rate, and thus save you money in the long run, consider this example using calculations from the monthly loan calculator at firstnational.com [4]:

Say you want to borrow $200,000 for a home. (These figures represent principal and interest and do not include annual property tax payments or property insurance payments, which will vary depending on location.)

Borrower A: Credit score of 740 or more – $1,013/month with interest rate of 4.5 percent

Borrower B: Credit score of 700-719 – $1,043/month with an interest rate of 4.75 percent

Borrower C: Credit Score of 660-699 – $1,074/month with an interest rate of 5 percent)

Over 30 years and 360 payments:

  • Borrower A pays $364,680
  • Borrower B pays $375,480 ($10,800 more than Borrower A)
  • Borrower C pays $386,640 ($21,960 more than Borrower A)

If an escrow account is required or requested, the actual monthly payment will also include amounts for real estate taxes and homeowner’s insurance premiums. But this example gives you an idea of how interest affects the amount paid over the course of your loan, and how your credit score can affect your mortgage rate.

Bottom line: Your credit score matters, but don’t let that stress you out. The mortgage loan process doesn’t have to be intimidating.

“By working with a First National mortgage expert, you’ll find answers to every question and find confidence during every step of the process,” says First National Bank’s Harwood.

Got questions? Stop by your local First National Bank branch today and visit with a mortgage loan expert. (They love explaining home loans. Seriously, it’s their thing.)

 

[1] “How Your Credit Score Affects Your Mortgage Rate” –

https://www.msn.com/en-us/finance/news/how-your-credit-score-affects-your-mortgage-rate/ar-BBGKqGD

[2] “How to Repair My Credit and Improve My FICO Scores” – https://www.myfico.com/credit-education/improve-your-credit-score/

[3] “How to Improve Your Credit Score” – https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/

[4] Monthly Payment Calculator – https://www.firstnational.com/util/calculators/home-financing/monthly-payment-calculator.fhtml

First National Bank Awards $904,000 in Community Development Grants

At First National Bank, we firmly believe that we have the ability and a responsibility to help make our communities stronger.  That’s why we recently awarded a total of $904,000 in community development grants to 47 organizations in Nebraska, Colorado, Illinois, Kansas, South Dakota and Texas.  The grants were awarded to proven community partners who are working to increase access to safe and affordable housing and those helping to start and grow local businesses.  Learn more.