Financing

Once your loan application has been processed, the lender will make a decision.

Loan Approval

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.

Loan Denial

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.

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:

Conventional Loans

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.

Hybrid Loans

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.

Bridge Loans

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.

Loan Approval

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.

Loan Denial

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.

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