Buyer’s guide to the mortgage loan process


By Kathy Henne



When you’re ready to purchase your next home, you’ll usually have a mortgage loan. Here are several types of home mortgage loans and their descriptions:

FHA financing means the Federal Housing Administration has insured the repayment of the loan to the lender. Since there is less risk involved for the lender, a smaller down payment is needed. There are many programs out there to help buyers with good credit purchase a home with FHA loans and a seller contribution for the closing costs. Many times the home sells for over the listing price when the buyer needs this type of help from the seller. The home must meet certain criteria to be approved for the FHA loan.

VA financing means the loan is guaranteed by the Department of Veterans Affairs. Qualified veterans can obtain VA financing on their primary residence without a down payment. However, the VA charges the buyer a funding fee. The home must meet certain criteria to be approved for the VA loan.

Conventional loans aren’t insured by FHA or guaranteed by VA. The lender usually doesn’t require the home meet the criteria of the FHA or VA loans. Some first time home buyer loans may require the home meet certain criteria. Many lenders will not make loans on foreclosure properties, so if you’re considering purchasing a foreclosure property, it’s wise to find this out in the beginning.

With an adjustable rate mortgage (ARM), the interest rate changes at certain times during the loan. There are usually caps that will be the highest or lowest the rate can be. Some of these can change at any time. Others change yearly. Still others remain fixed for the first few years and then can change yearly after that. The interest rate of ARM’s is usually lower than fixed rate loans.

Fixed rate loans will stay at the same rate throughout the life of the loan. If you have your taxes and insurance escrowed with your payment, your payment may increase when your taxes or insurance go up, but your principal and interest remain the same.

A balloon loan has a fixed rate of interest for the life of the loan. Let’s say you have a seven-year balloon loan. At the end of the 7 years, the entire remaining balance is due. At this time you can take out a new loan for the remaining balance. Usually the interest rate on a balloon rate is less than a 30 year fixed rate.

When you’re ready to buy your next home, your first stop is your local lender. After you have your pre-approval letter, it’s time to shop for that home. Once you’ve made your selection, it’s back to your lender. You’ll complete a loan application and the lender will require you to pay an application fee to cover the appraisal, credit report, and other expenses. The lender will have the home appraised, check with your employer, and verify the source of your down payment. The underwriting department will look at all the documents and may request more information. Then the lender will contact a title company to perform a title search on the property and prepare the closing documents. Right before closing, the lender will probably re-verify your employment and credit, so don’t make any major purchase at this time or you may find you no longer qualify for the loan and you’ll loose the house. When this is completed, you go to the closing, sign a huge stack of documents, and purchase your home.

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By Kathy Henne

Contact the Kathy Henne Team RE/MAX FINEST by calling (937) 778-3961.

Contact the Kathy Henne Team RE/MAX FINEST by calling (937) 778-3961.