Understanding process of home mortgages

First of two parts

You’ve been looking at houses for months and months, and you have finally found it, the house that’s just right. Now you are anxious to buy your new home, move in and get settled. However, you still have an important task ahead of you, namely, obtaining a mortgage loan. It doesn’t have to be an arduous experience, but it can be very tedious. You will need to answer many questions and provided a lot of documentation about your personal finances, to show that you will be financially able to meet the scheduled payments for the lifetime of the loan.

Both the lender and the borrower have certain responsibilities in the mortgage process. We will advise you of those responsibilities as you move through the application and credit evaluation stages, as well as the protections that exist if you think you have not been treated fairly because of your race or sex.

Buying a home is the largest single expenditure that most consumers undertake, so you’ll want your mortgage also to be just right.

When you buy a home, you pay part of the purchase price through the down payment. The rest is financed by a mortgage loan. When you sign the mortgage loan documents, you agree to repay the lender the money you borrowed plus interest, in regular installments. Generally, this agreement covers a significant period of time from 15 to 30 years; so it’s important to find the mortgage and terms that are just right for you.

Once you have found the home of your choice, you may think that your shopping days are over. Actually, only the first phase has been completed. Next comes finding a mortgage and payment terms that fit your budget. Where you shop and what you look for are important.

You might start by looking for a mortgage at the bank where you have your checking or savings account. But, don’t limit yourself. A wide variety of institutions make home mortgage loans, including savings and loan associations, commercial banks, mutual savings banks, and mortgage companies. The mortgages these institutions offer will have varying features.

One way to find the creditor with the most attractively priced loan is to look in your local newspaper; check to see if it publishes a shopper’s guide to mortgage credit. These shopper’s guides are available in many localities and can be used to identify the lenders with the low rates. But basically, the way to find the loan with the most attractive terms is to shop around.

You should have in mind some of the things to look for in a mortgage loan. For example, what types of loans are available from a given institution? Does the lender make privately or federally insured or guaranteed loans? Some lenders offer mortgage loans backed by a federal agency such as the Federal Housing Administration (FHA loans) or the Veterans Affairs (VA loans). Loans that are not government insured are called conventional mortgages. Insured mortgages may be more attractive than conventional mortgages in some ways, such as lower down payment requirements. But they may be more restrictive in other ways; for example, they may be available only for certain kinds of houses, or for properties whose value is below a specified price.

Other factors important to your mortgage decision are the length of the loan and the down payment required by the lender. The longer the term and the larger the down payment, the smaller your monthly payments will be. The interest rate is important, too, and in some cases the amount of the down payment will influence the interest rate that you pay (the larger the down payment, the lower the interest rate.) In addition, mortgage loans may have interest rates that will stay fixed for the life of the loan (fixed rate mortgages), that may change (adjustable-rate mortgages or ARMS), or that represent a combination of fixed and variable rates (convertible mortgages). The initial rate of an ARM is generally lower than the rate available on a fixed-rate mortgage, but remember, the rate may change during the lifetime of the loan. Don’t hesitate to ask the lender how one loan differs from another, how the different features of the loan will affect the mortgage, or whether, if you made a higher down payment, it would affect your chances to qualify for the mortgage.

When you’re shopping around, you will find that some home mortgage lenders have special programs to assist veterans, low-income, or first-time home buyers. Ask the lender if such programs are available.

Next week we will make you familiar with the mortgage application process and explain your rights under Federal laws that offer consumers protection regarding home ownership.

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