Home Buying Process - Applying for a Loan
Finding a Lender
Home loans, sometimes called mortgages are available from a wide variety of sources, including mortgage brokers, banks, and other financial institutions. Your REALTOR® is likely to have information about who to work with to get a home loan in your area. Also, ask friends, relatives, and colleagues about where they got their loan when they bought their home.
Choosing a mortgage
A mortgage is a real estate loan for a specific amount of money will be loaned at a specific interest ratefor a specific period of time. There are a variety of mortgage types:
Fixed-Rate Mortgages are the most popular type of mortgage. They offer an interest rate that will remain the same for as long as you have your loan. Stretching out your repayment term means your monthly mortgage payment will be less than it would be with a comparable shorter-term mortgage.
Adjustable-Rate Mortgages (ARMs) offer an interest rate that adjusts periodically to keep it in line with changing market rates.
Low and No Down Payment options allow for as little as three percent down, or no down payment at all for borrowers with excellent credit but with minimal funds for a down payment. Some products come with no income restrictions for homebuyers with excellent credit.
Special Financing Mortgages were created for homebuyers with special needs, such as low- and moderate-income people who have disabilities or who have family members with disabilities living with them. Some programs are created for people in certain occupations, such a police officers and public school teachers. (See the Home Program section of this website for a list of programs available in your area).
Shopping interest rates
You may discuss with your lender whether interest rates are likely to rise while your loan is being processed. If you anticipate rising rates, it might be a good idea to “lock” the current interest rate. When you lock a rate, you may have to pay points to guarantee the rate. (Your lender can provide more specifics about this option.) A point equals one percent of the loan amount. So, if you are applying for a mortgage totaling $120,000 one point would equal $1,200.
You should know the interest rate and APR, Annual Percentage Rate, and to keep the quoted rates in mind when shopping for a mortgage loan. It’s also important to consider other fees that the lender can add on that might make a lower interest loan actually cost you more money than a mortgage with a higher rate but less miscellaneous costs.
If you lock, it’s important to get an agreement in writing that lists when the lock takes effect and how long it remains applicable. The length of the lock should last through the closing on your loan. Lenders typically provide a variety of “lock options,” and they can help you select the one that best fits your needs.
In most cases, once you’ve signed the loan application, you will have to accept the terms of the loan if it’s approved. So, you should make sure your loan application contains terms and amounts that are acceptable to you.
If your application for financing is denied, you may have to pay the lender’s processing fees — which may include, but are not limited to, an application fee and a credit report fee. You should try to identify the reasons your application was rejected. Perhaps you need to improve your credit rating before you can qualify for a loan. If you have limited funds in your savings or checking account, or you have inadequate funds for a down payment you may need to investigate other loan programs. Your lender can provide additional information if needed.
Loan application costs
Although costs and terms vary from lender to lender, most require you to pay an application fee, a credit report fee, and an appraisal fee at the time of application.
You may want to discuss with the lender which fees are non-refundable if, for any reason, you do not purchase a property after you have completed the loan application.
Qualifying for a loan
Your lender will make sure you are qualified for the loan you are seeking. You can help speed the loan process by responding quickly and accurately to any questions your lender has. It’s important to be honest about any problems you’ve had with your credit or with other loans.
Within three business days of submitting your loan application, your lender is required by law to provide you with an estimate of the closing costs you will pay. This is called a good-faith estimate. Lenders are also required to give you the government publication A homebuyer’s Guide to Settlement Costs, which explains the types of expenses you will pay at the loan closing.
The appraisal process
When you make an offer on a home and the offer is accepted you will then need to apply for a home loan (mortgage). The mortgage lender will order an appraisal from a qualified appraiser. The appraiser’s job is to look at recent sales in the area and to provide a value of the property you are purchasing. This valuation helps the lender verify the home is worth as much as you are paying for the property.
Your REALTOR® should help construct your sales contract to state the purchase offer is contingent on your ability to secure financing. If the property does not appraise for your purchase amount, then you probably won’t be able to get financing, which would prevent you from buying the home.