Information on Home Lending
The home lending process can become confusing for many home buyers. All of the loan types and costs can become overwhelming as you try to determine which lender and loan is right for you. Sometimes a little bit of education before you start shopping for a loan can make the process much less frustrating.
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Choosing a Lender
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The first step in the process of getting a mortgage is choosing a lender. Shop around carefully to find a lender who offers competitive interest rates, a variety of loan products and low fees and closing costs. Always inquire about private mortgage insurance fees if you will place less than 20 percent down on the cost of your home. These fees can vary tremendously from one lender to the next and will greatly increase the cost of your loan.
Choosing a Loan
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When choosing a loan, first consider the interest structure you want. Loans can be either fixed or adjustable rate. Fixed rates do not change over the life of the loan, whereas adjustable rates can increase or decrease based on the loan terms. Then, decide whether you want a conventional loan or one backed by the government. If you have a low down payment, government loans, such asFederal Housing Administration or Department of Agriculture loans, may be more affordable because of the lower mortgage interest requirement. Otherwise, the terms are fairly comparable between conventional loans and federal-backed loans.
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Approval Process
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Once you have the loan in mind and have chosen a lender, you will need to apply for pre-approval. Your lender will need proof of your employment and income for the past two years. Then, you will fill out the mortgage application. The lender will consider your income, employment stability and credit score when deciding whether or not to offer the loan to you, and what terms you will receive on it.
Closing
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The closing is when you officially accept responsibility for the home loan and receive the keys to your new house. At the closing, you will sign documents that give you the task of repaying the loan according to its terms. Your lender will show you documents that indicate exactly how much the loan will cost over its lifetime, including all interests and fees. You will also pay closing costs, which may include mortgage-related fees like a loan-origination fee, the cost for the home appraisal and the price of pulling your credit rating. Ask your lender how much this will be before you go to the closing so you can have the funds ready to pay these costs.
Repayment
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After you have moved into your home, you will receive your first bill for your home loan. This bill will charge one fee to pay both the mortgage and the principal. Almost all home loans are amortized. This means the lender will put more of your monthly payment toward the interest on the loan, with only a small percentage going toward the principal, early in the life of your loan. As you progress through the loan's term, the lender will place an increasing percentage toward the principal each month, with less being sent to the interest portion of the loan until the loan is paid off.
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- Photo Credit keys to your house image by Keith Frith from Fotolia.com
