|
Finding Financing
Once a contract becomes binding, you'll probably have to
arrange for financing. Depending on the terms of the contract,
the purchase of the home may be contingent upon you finding
the right financing.
Lenders
 Most
homebuyers get loans through savings institutions and mortgage
bankers and, to a lesser extent, from commercial banks, credit
unions, other private sources, or even the seller. Sellers
often can offer a competitive interest rate and attractive
terms. Check on specifics.
Types of loans
In general, three broad categories of loans are available:
1. Private vs. government loans. Most mortgage loans are
made by savings institutions, banks and mortgage companies.
Generally, a lender will require you to buy mortgage insurance,
particularly if you make a low down payment. This insurance
may be paid at closing or added to the loan amount. VA loans
require no mortgage insurance, but only qualified veterans
may apply for them. Mortgage insurance protects the lender,
to a degree, in the event of default.
On government (FHA and VA) loans, the government does not
actually loan the money but rather guarantees (or insures)
to repay the lender if you default for some reason. Government
loans have important advantages -- they generally require
a lower down payment than conventional loans and often have
a lower interest rate or points. On the down side, government
loans limit the amount you can borrow, often take longer to
process, and sometimes have higher closing costs.
2. Fixed rate vs. adjustable rate. On a fixed rate mortgage,
the interest rate stays the same over the life of the loan,
usually 15 or 30 years. That means your payment will not change
except for adjustments on taxes and insurance.
Adjustable rate mortgages (ARMS) have interest rates or monthly
payments that can go up or down over time. These mortgages
typically start out with a lower interest rate, lower monthly
payments, and lower fees and points than fixed rate mortgages
and often appeal to first-time homebuyers, younger couples
who expect their incomes to grow in the coming years, and
people who might not have much cash for down payment and closing
costs.
If you consider an adjustable rate mortgage, ask the lender
to explain the terms fully. Ask about the interest-rate cap
(the maximum rate you will be charged no matter how high rates
go in the market), the index that will be used to calculate
future interest rates, and how index charges will affect your
mortgage.
3. Assumable vs. new loan. Some loans, particularly FHA and
VA loans as well as some adjustable rate mortgages, are assumable.
That means a buyer can assume an existing loan usually on
the same terms as the previous owner.
Assuming a loan may save some costs and time. As the buyer,
you would typically pay the lender a fee at closing for processing
the assumption.
The true price of financing
When shopping for a loan, don't judge the loan by the interest
rate alone. Compare several items in the entire loan package,
including:
- Points on a low-interest-rate loan can be double those
for a loan with a higher interest rate, causing you to pay
more up front.
- Total fees charged by the lender. Some lenders will absorb
the cost of many services, while others do not, so ask in
advance.
- Term. In general, the longer the life of the loan and
the more fixed the payment, the more you can expect to pay
over the life of the loan. For example, a 30-year, fixed-rate
loan will cost more in interest than a 15-year, fixed-rate
loan.
- Penalties. Ask what penalties will be charged if you pay
off the note early. A prepayment clause could require you
to pay a penalty if you pay off the loan early, such as
refinancing the loan at a later time.
Loan approval process
From the lender's viewpoint, approving the loan, based on
your financial standing, is only part of the risk; the other
part is the property itself. The lender may require an appraisal
to verify that the home is worth the loan as well as a physical
survey to discover any encroachments on the property. Repairs
may be required. Insurance must be purchased. Verifications
of employment, deposits, and other matters must be obtained.
Loan documentation and conveyance instruments must be drawn
and approved. In addition, the title company must research
the title and arrange for paying off any liens, taxes, and
other costs. All these conditions and others must be satisfied
before a transaction can close.
Hazard insurance
As another protection, the lender may require insurance to
protect against fire and storms. (Flood insurance could be
required if the house is in a flood plain).
If you would like to have a mortgage officer contact you
about financing your home, please fill the form below:
* required
|
