Orange County, Virginia, has become one of the most popular areas for people with families. Even though it’s a mostly rural area, it is still close to large cities like Richmond, DC, Charlottesville, etc. Rural areas and suburbs have become desired locations for families looking for new homes, or vacation homes, especially during the pandemic. With that in mind, we want to cover a simple and useful Virginia home loan guide and get you one step closer to your dream house! Let’s get started!
What is a home loan?
Let’s start by defining what a home loan is. Also known as a mortgage, it is a type of loan used only to purchase a house. A lender creates a contract with the borrower for a specified amount of money. The borrower uses that money to buy a house and pays monthly installments to the lender over a period of 15 to 30 years.
When you start browsing the hottest neighborhoods in Orange County, Virginia, be sure to check with your agent what the average cost of homes is. That will tell you if your credit score will allow you to get the amount you will need to buy a house.
Let’s break down the structure of a monthly loan
One of the most critical parts of our instructional is to teach you how to calculate your monthly payment. To get the amount of your monthly loan payment, take the principal amount (the sum that the lender borrows you) and apply the interest rate to it.
Per the US Bank, for fixed-rate mortgage loans in Virginia, the interest rate depends on the term and the type of mortgage. The common types are:
- conventional fixed-rate mortgage – a kind of loan that conforms to the size of the loan and your financial budget, and the interest rate is fixed until it is fully paid;
- adjustable-rate mortgage – interest rate fluctuates and will change based on the predetermined index;
- FHA mortgage – Federal Housing Administration loan has more flexible lending requirements than a conventional loan. It also includes insurance premiums, but more of that in the next section;
- VA mortgage – Department of Veteran Affairs loan will allow eligible service members to purchase a home with a low down payment, or without a down payment;
- Jumbo mortgage – this type of loan is what you would usually use if you want to purchase a luxury home when the price exceeds conforming loan limits. To get it, you need a high credit score and a low debt-to-income ratio;
What are insurance premiums and property taxes?
When buying a home in Virginia, you also need to pay an annual insurance premium that protects your home from any damage. It also protects you from a financial loss or if someone gets injured on your property. Furthermore, you need to pay quarterly property taxes to your local municipality.
It often happens that a lender pays for both the taxes and insurance premiums. In that case, you will actually pay more than your monthly mortgage payment, and that money goes into your escrow account. Then, the lender uses it to cover the expenses when they are due.
When we consider the cost of purchasing a home, paying your real estate agent, and organizing a relocation, you can see how important it is to precisely calculate all of the expenses and know your financial limit. Through this guide, we will also teach you how to save money whenever possible. Since you cannot cut corners when it comes to paying your lender, you can at least consider consulting Verified Movers, and they will connect you with affordable and licensed moving companies in the area.
What is a promissory note?
When you sign the contract with your lender, there is also a second agreement included. It is called a promissory note, and when you sign it, you oblige yourself to repay your home loan and the interest rate. Furthermore, you pledge to stick to the repayment schedule.
A second mortgage and how to use it
It is a common practice to get a second mortgage after you purchase your house. This loan comes in two forms: home equity loan and home equity line of credit.
While with a home equity loan, you borrow a sum of money and pay it back with interest over time, a home equity line of credit works a bit differently. You can borrow a granted amount of money over time, and you can split it. That means you can borrow one amount during this year and the rest during the following year. This means you can calculate how much money you need, and you are not under the obligation to get the whole sum.
A second mortgage is calculated if you take the total cost of your home and subtract the remaining mortgage balance. If you bought a home worth $150,000, and you have $100,000 to pay, that means you own a percentage of your home in the sum of $50,000. That sum is how much you can borrow for your second mortgage.
One of the major benefits of a second mortgage is that you can spend it on anything you want. While you can do home renovation projects, you can also spend money on anything else, like paying for relocation. With that money, you can hire movers that provide an easy and stress-free process. It will undoubtedly make your life a whole lot easier and free up some time to focus on other more pressing matters.
How to secure a mortgage
When you apply for a mortgage, the first step is to research lenders and find the best interest rates for your pocket. Securing a mortgage is a lengthy process, though. The main requirements are a favorable credit score, a low debt-to-income ratio, and a down payment.
A credit score is considered good if it’s above 670. You can still get it with a lower credit score, but your interest rate will be higher. Your debt-to-income ratio should be below 36%, and the down payment is at least 20% of the price. The higher the down payment is, the lower the interest.
Virginia home loan guide made easy
Do not be frightened by the process of getting a mortgage. We hope that this Virginia home loan guide has everything you need to go through the process with ease. Once you have your dream home secured, you will have a lot to do Virginia and you will never be bored. Best of luck in buying the home of your dreams!
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