First-Time
Home Buyer's Guide
continued
STEP 5 - Financing and closing the deal
With the seller's acceptance of your offer in hand, now is the time to firm
up financing. Even if you pre-qualified for a loan, you'll need to make some
decisions about what type of financing to obtain.
Fortunately, I can help you find a lender, identify the financing method
that works for you, and prepare you for the next steps.
Where to go
Finding the financing package that best suits your needs can be a complicated
process; however, your sales associate can simplify it for you. Finding
an appropriate lender is an important first step. Certain key lenders will
remain your primary sources for mortgage money. They include savings and
loan associations, mortgage bankers, commercial banks and other sources.
Some real estate companies have mortgage relationships in-house, further
simplifying the financing process.
When you apply for the loan, your lender will ask a number of questions
about your income, assets, debts/liabilities and employment history.
Assets: Have account numbers or other identification ready for the lender
for checking and savings accounts, stocks, bonds, life insurance net cash
value, automobiles, etc.
Liabilities: Provide documentation of loans, account numbers, terms of loans
and balances for installment loans, including charge accounts, auto loans,
alimony, child support, maintenance payments, etc.
Monthly income: Be ready to answer questions about base pay, commissions,
bonuses, tips, overtime, part-time work, savings interest, dividends, rental
from real estate, alimony, child support, etc.
You will also be asked about anticipated monthly housing costs -- things
such as property taxes, hazard insurance, mortgage insurance, utilities,
etc.
You will need to offer the lender a list of credit references (including
creditors' names and addresses and other information) and job histories
(including employers' names and addresses, types of businesses, positions,
dates of employment and monthly income).
Questions to ask a lender
- Do you offer different types of mortgages such as adjustable-rate
loans (ARMs) and fixed-rate loans?
- Will mortgage insurance be required for loans other than
FHA or VA mortgages?
- What reserves, such as those for property taxes or hazard
insurance, are required?
- What fees will be charged at closing, including such things
as points, loan origination, abstracts, attorney's fees, appraisals, termite
inspection reports or credit reports?
Understanding financing options
The number and variety of financing options can seem overwhelming at first,
but most fit in one of these main categories:
Conventional financing: Conventional mortgages are labeled as such to differentiate
them from government-backed loans, such as FHA or VA loans.
ARMs: The interest rate on an adjustable-rate mortgage changes throughout
the term to stay current with present interest rates. ARMs are most popular
when rates are relatively high and appear to be dropping and when the difference
between the ARM and fixed-rate is greater than 2 to 3 percent.
Standard fixed-rate mortgages: This traditional mortgage option is a loan
with a constant interest rate and level and equal payments during a set
period of time. These loans are predictable and particularly suited to people
with steady incomes. These mortgages are most competitive against the adjustable-rate
mortgage when their rates are less than 1.5 percentage points apart.
HOME BUYING TIP
For detailed information on these and other mortgage options, ask me for
a free copy of "Ways to Finance Your Next Home."
Farmers Home Administration (FmHA) loans: The government makes these loans
available to persons of moderate to very low income in rural or non-metropolitan
areas.
FHA-insured loans: The Federal Housing Authority will insure a mortgage
on a new or existing single-family house for up to 97 percent of the property
value. Downpayments on FHA-mortgages are low, and the loans are assumable.
VA-guaranteed loans: The Veterans Administration guarantees lenders against
loss if a property is foreclosed due to default. These loans are available
to eligible veterans and may be used to buy, refinance, construct or repair
a house.
What to expect in closing costs
Within three days after you apply for your loan, your lender should issue
you a good faith estimate that spells out the fees to be charged at closing.
Among them:
Fee charges: These charges cover the fee associated with the title/abstract
search and recording, as well as transfer charges.
Loan fees: An origination fee is a percentage of the loan that covers the
lender's administrative costs. The loan discount (or points) is extra interest
paid to the lender to make up the difference between market interest and
the interest of the loan.
Other charges: These may include the costs of a survey, appraisal or inspection,
as well as any additional lender's charges. Other fees and commissions,
such as for document preparation, notary service and others, are paid at
this time.
Final details and closing the deal
Take a final walk-through of the property just before closing to see that
everything is as it should be. If there are any problems or unresolved issues,
take care of them before closing.
Sign the note promising to repay the loan and mortgage, with the house as
your security for the note.
Sign the other papers fulfilling governmental regulations and transaction
information.
Look carefully over the numbers in the closing or settlement statement --
the last one to appear -- before signing.
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