Home Financing Tips
At Adcock & Associates Real Estate Services, we want to assist you in every aspect of your home buying process, including the best options for home purchase funding.
Home purchases are the greatest financial investment that nearly every individual, couple or family will make in a lifetime. There are a lot of factors and considerations that go into securing a home loan. With so much at stake, it is important for home buyers to understand the process and lender expectations, and to work with an experienced and credible mortgage lending institution. The right decision can easily save home buyers several thousand dollars over the life of the loan.
We encourage you to take a few moments to learn more (or to remind yourself) about steps to take before you begin the loan qualifying process, information about materials you’ll need to have for your loan application, as well as information about our preferred lenders and other lending programs that may of value to you.
One final note – It is always a good idea to pre-qualify for a loan before you begin your home search process. This gives you a clear understanding of how much home you can afford in today’s marketplace, and it also eliminates a time-consuming step that must take place before you can purchase a home. Often times, a seller will take the offer from a buyer if they know they’ve already qualified for their mortgage.
Very few people have the luxury of paying cash for a new home. When purchasing a home, most buyers must finance it using a mortgage.
In this section we’ll help you address the many questions you will encounter when financing a home purchase:
* What is a mortgage?
* What is the difference between pre-qualification and pre-approval?
* What types of loans are available to me?
* How much can I afford to spend on a new house?
* What are the possible outcomes when I apply for a loan?
What is a Mortgage?
A mortgage is a legal document that secures a loan against a house. It may also be referred to as a Deed of Trust.
When you secure a loan to pay for a home, you will sign a promissory note and a mortgage at the closing proceedings.
Below are some helpful hints to aid you in the process of applying for a home loan:
Before you even begin looking at homes to purchase, you should contact a mortgage specialist to get pre-qualified or pre-approved.
It is a good idea to obtain a copy of your credit report prior to contacting a mortgage specialist, so you can clear up any errors that may appear on your report.
This is an informal way to see how much you may be able to borrow. Pre-qualifying can usually be done online by providing the mortgage specialist with your income, your long-term debts, and the amount of down payment you can afford. Pre-qualification will let you know the price range of homes you can likely get a mortgage for. This process is intended as a guide and is not a commitment from the lender.
This is a mortgage lender’s commitment to loan money to you. When getting pre-approved, you provide your loan specialist with all of the necessary financial records needed to apply for a loan. Getting pre-approved will provide you with the exact amount that you can afford and it shows sellers you are serious about buying a home.
Both options increase your chances of having your Offer to Purchase accepted by the seller. A seller is more likely to accept an offer from a buyer who already has funding versus one who still needs to get a loan.
Below are some of the financial records your mortgage specialist might need to process your loan application:
* W-2s or tax returns for the past 2 years.
* Proof of gross monthly income for the past 30 days.
* Proof of investment income, including rental incomes.
* A list of creditors, including account numbers, balances, and monthly payments.
* Two months’ worth of banking statements.
* A copy of the sales contract for the property you wish to purchase.
* If you are selling a home, you must also provide its sales contract to your lender.
During the application process, you can expect the lender to:
* Verify all of the information you have provided
* Run a credit report to see your past payment history and outstanding credit balances
* Check your FICO score (a points system indicating your credit worthiness)
Tip: Be careful not to apply with too many lenders, in that numerous checks against your name within a recent period can throw up a red flag and cause your credit worthiness to go downward.
Types of Loans
There are several different types of loans available when applying for a mortgage:
These loans are broken down into two types:
A Fixed-Rate loan is generally a 15-year or 30-year loan. The interest rate of this type of loan does not change during the life of the loan; therefore, your principal and interest mortgage payment will stay the same until the loan is paid off.
A Variable-Rate loan is one in which the interest rate will change over the life of the loan period. These types of loans are commonly referred to as Adjustable Rate Mortgages, or ARMs.
These loans generally have a fixed rate for the early life of the loan, such as the first 3, 5, or 7 years, and then roll over to a variable rate loan once the fixed period ends.
Government Program Loans
These loans are insured loans through either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). A government program loan generally requires a smaller
down payment than a conventional loan. In addition, the interest rates on these loans are commonly below the current market rates. FHA loans have special programs for first-time home buyers and low-income home buyers.
This type of loan is for buyers who plan to close on their new home before they can sell their current one. A bridge loan can be set up to completely pay off the old home’s mortgage, or it can be set up by adding the financial obligation of the new home to the existing amount of debt. A bridge loan is a short-term loan, usually one year, and includes large, prepaid interest.
First Time Buyer Loans
The state of North Carolina and some banks have programs to assist first time home buyers. These programs can provide down payment assistance and provide other benefits such as tax savings. Visit http://www.nchfa.com/home-buyers for more information about state programs.
Once your loan application has been processed, the lender will make a decision.
If the lender approves the loan, you will receive a Commitment Letter from the lender. The Commitment Letter may include certain conditions, such as repairs to the home, before the final approval is made. Also included in the Commitment Letter is the “lock-in” rate. This is the lender’s promise to make the loan to you at a specified interest rate and number of points. A lock-in rate is generally honored for a certain period of time, such as 30 days. If the lock-in period expires before your closing date, you may have to pay additional fees to extend your lock-in period.
If the lender decides to reject your application for a loan, you will be sent a rejection letter notifying you of their decision. If you receive a rejection letter, you may present this to the seller to reclaim your earnest money you offered with the Contract of Sale. This letter is proof that you complied with the purchase agreement, and have been formally rejected for a loan.