Making Sense of Mortgages and Mortgage Rates

One of the most significant financial decisions you can make is buying a house. Going through the mortgage process and buying a home is very exciting, but can be unnerving because of all of the different terminology involved. The process is not hard, but it will require many different steps along with abundant paperwork. If you are prepared and understand the process, however, getting a mortgage will not seem so intimidating.

Types of Mortgages

Picking a type of mortgage can be an interesting process. There are so many rates and types of mortgages available. Some you may qualify for while not others. The following is a list of mortgages, the type of rates charged, and the requirements for each:

• Variable Rate Mortgages — Variable rate mortgages gives you a loan with a fluctuating interest rate over the life of the loan. It is also known as an adjustable rate mortgage (ARM).The change in rate will be based on the current rates set by the government. With this type of loan, you will notice that your payment can vary each month. You will have the option of a standard variable loan or a basic variable home loan. The standard variable allows some flexibility, such as the option to make one large payment. A basic variable is cheaper and does not have any special features seen in standard variable loans.
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• Fixed Rate Mortgages — Fixed rated mortgages gives you a fixed interest rate that does not change over the life of the loan. This is ideal for those who do not want to rely on the market fluctuations to change the monthly payment. Lenders will provide a fixed rate for a period of five years. At that time, you cannot make any extra payments or early payoffs without penalization.
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• Jumbo Loans — A jumbo loan allows you to buy a home when the market is increased. Payments for these loans are very high compared to other mortgage types.
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• Balloon Mortgage — Balloon mortgages have a fixed rate for a certain amount of time. The principal is not completely amortized. The balance of the principal will be due at the end of that time, which will be largest part of the balance. You will have low monthly payments at first, so it is an ideal loan if you intend to sell the house before you get to the end of the loan.
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• VA Home Loans — Veteran Affairs loans, or VA loans are designed for military service members or those who are no longer in service that wish to buy a house. There is no down payment required, and no mortgage insurance is needed. The rates for these loans, however, can be higher than other more conventional loans.
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• Federal Housing Administration (FHA) Loans — An FHA loan is one that is subsidized by the government. It includes a low down payment with included closing fees. The interest rates for these loans are quite low.

Applying for a Mortgage

After you have made a decision on the type of loan you want or can qualify for (an online mortgage calculator and various resources can help with this), you next need to apply for a loan. It is not a difficult process once you have gathered all of the required documents. You should expect to provide your income status, your employment history, current address, and other pertinent information.

Your lender will need to check your credit and need to see any documentation on defaults on other debts. You will need to supply a list of your monthly expenses and a list of your assets in detail. This will include items like cars, bank accounts, investments, property, and savings deposits. After the lender verifies this information, you may be asked for more information depending if you are considered a good risk for a loan.

Next, you need to fill out your loan application. You can do this in the lender’s office or via the internet. You may also be able to complete your application over the phone, by mail, or by fax. It is important that you remember that you must submit your hard copies of documentation to the lender, no matter which application option you choose.

Once you have submitted the application and your information has been verified, your loan request will either be approved or rejected. If approved, you will need to satisfy the lender in the event of loan default, no matter the cause. Lenders will not typically provide you with over 80 percent of the loan amount. This is because they are concerned about losing money should the loan default. If you fully finance your home at 100 percent, you will need to pay the mortgage insurance to protect the lender from loan default.

After the paperwork is finished, the lender will require an assessment of the property. An appraiser and property inspector hired by the lender will go to the property to determine if it is suitable for mortgage lending. The appraisal team can require the seller of the house to make repairs before the loan can move forward. If the seller refuses, you may have to make some hard decisions about what to do, as you will not likely get financed for that particular home.

Once all of those details are finished and the loan is approved, you will get a letter of offer. This will signify the end of the mortgage process and give you all the details of your loan. Check over this information carefully to ensure it is accurate, and enjoy your new home!