The key to consider when selecting a mortgage lender are costs and service. Understanding the terms of your loan (the amount of the monthly payment, the number of years until it's paid off, the interest rate, fees, whether a penalty is accessed if you pay off the loan early) will provide insight into the various costs. Conversations with your prospective lender or mortgage broker will enable you to make a reasonable comparison.
The good faith estimate is a legally mandated document designed to protect borrowers by requiring lenders to provide standardized disclosure of the costs associated with a loan. This written estimate details the fees you will be required to pay at closing, including the cost for all points, processing, legal fees, filing and closing fees.
The good faith estimate does provide a useful tool for comparison shopping. A careful review of good faith estimates from the lenders you are considering will help you find the best deal.
Info and terms to know when obtaining finance for a house
Type of Loans
Conventional: This type of loan requires 5% or more as a down payment. If your down payment is less than 20%, private mortgage insurance will be required until you reach 20% equity on the property. Mortgage insurance rate is determined by credit score and down payment. The lower the credit score and/or the down payment, higher the rate.
FHA Loans: The Federal Housing Administration (FHA) mortgage insurance program is managed by the Department of Housing and Urban Development (HUD), which is a department of the federal government. FHA loans are available to all types of borrowers, not just first-time buyers. The government insures the lender against losses that might result from borrower default. Advantage: This program allows you to make a down payment as low as 3.5% of the purchase price. Disadvantage: You'll have to pay for mortgage insurance for the term of the loan and it charges an upfront funding fee which could be added to the loan amount.
VA Loans: The U.S. Department of Veterans Affairs (VA) offers a loan program to military service members and their families. Like the FHA program, these types of mortgages are guaranteed by the federal government. This means the VA will reimburse the lender for any losses that may result from borrower default. The primary advantage of this program (and it's a big one) is that borrowers can receive 100% financing for the purchase of a home. That means no down payment whatsoever.
USDA / RHS Loans: The United States Department of Agriculture (USDA) offers a loan program for rural borrowers who meet certain income requirements. The program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to "rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing. Mortgage insurance is not required however it charges an upfront funding fee which could be added to the loan amount.
Portfolio Loans: Are a step beyond unique. Portfolio loans are designed to get folks approved when they are not eligible for any “normal” type of financing. These types of mortgages are commonly funded by small banks or credit unions, and are kept in their “portfolio”
Housing of Urban Development Real Estate Owned (HUD REO) / FHA 203(K): To be able to take advantage of this great program you will have to use FHA financing to purchase the property. The normal down payment for a FHA home loan is 3.5%. The main reason HUD offers the $100 down payment program is to sell HUD foreclosed homes fast and also to get owner-occupant into the homes. The homes available for this program are bid on, in most cases, the house is restricted and first available to nonprofit companies, then, for the following 10 days is restricted to owner occupants only. At that point, if the house is still be available, will be open for all bidders.
Fixed vs. Adjustable Rate
As a borrower, one of your first choices is whether you want a fixed-rate or an adjustable-rate mortgage loan. Here's the primary difference between the two types:
Fixed-rate mortgage loans have the same interest rate for the entire repayment term. Because of this, the size of your monthly payment will stay the same, month after month, and year after year. It will never change. This is true even for long-term financing options, such as the 30-year fixed-rate loan. It has the same interest rate, and the same monthly payment, for the entire term.
Adjustable-rate mortgage loans (ARMs) have an interest rate that will change or "adjust" from time to time. Typically, the rate on an ARM will change every year after an initial period of remaining fixed.
Lender Paid Mortgage Insurance (LMPI): With LPMI, your mortgage lender pays your mortgage insurance premium upfront in a lump sum and passes on the cost to you in the form of a higher interest rate. With LPMI, the interest rate often is one-quarter to half a percentage point higher, but it sometimes can be outside of that range, either lower or higher.
Down Payment Assistance Program: This program is available to qualified homebuyers to assist with the purchase of their home. Home buyers are to complete a HUD approved homeownership counseling before assistance can be committed. Normally, homebuyers can’t not have owned a real estate property for the past 3 years (must provide 3 years of tax records), their household income must be no greater than 80% median income – adjusted to homebuyers’ family size. The property must be used as their primary residence and in most cases, government grants are 100% forgivable after a set amount of time, most of them five years and one day.
Things to know
A critical step in the mortgage loan application process is to verify the sources for your down payment, closing costs and assets, as well as documenting income and debts. The lender uses this step to determine your qualifications as a borrower.
Acceptable Source for Down Payment & Closing Costs
Cash in a bank checking or savings account
CDs / Mutual funds / stocks / IRA / 401K
Proceeds from the sale of another property
Depending on the loan type, sometimes the money can be gifted to you from an immediate relative
Common Assets in a Mortgage Loan Application
Stocks, bonds, mutual funds, 401K and retirement accounts
Personal property estimates - cars, boats, antiques, jewelry, etc.
Other real estate or property with equity.
Income and Employment
The lender will want to confirm your current gross income and have evidence of stable employment. Documentation requirements may vary depending upon a number of factors such as the source of income (hourly, salary, salary + bonuses, salary + commission, commission, self-employed, etc.)
Your lender will want to review a list of all your current debts. This along with your credit report will provide the lender with a snapshot of your obligations. The lender will want to confirm that you will not be overextended when the mortgage payment is added to your current debt load.