Financing Your Home

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Applying For A Loan

To consider your loan request, the lender will:

• Need the property address and proof of insurance.



• Require a property valuation to estimate the home’s market value.



• Verify your income and check your credit and employment history.



• Request a good faith deposit or application fee to cover costs associated with processing your loan application. This deposit will be credited back to you at closing. Application fees are generally nonrefundable.



• Verify that you have the funds needed to close.

Mortgage lenders require proof of insurance before they will fund your loan. Many lenders require only fire and hazard insurance up to your loan amount, but you should consider adding flood insurance, even if it is not required. You should also consider purchasing extra protection for your personal possessions.

The USAA Educational Foundation publication, Homeowners Insurance, offers more information.

Selecting A Loan

Fixed-Rate Loans. Also known as conventional loans, fixed-rate loans are usually repayable in 15 or 30 years and are usually the preferred type of mortgage when interest rates are low. Because the interest rate remains constant, your principal and interest payment remains stable for the life of the loan. Note: Your total monthly payment could change with an increase in property taxes or homeowners insurance rates.

Adjustable-Rate Mortgage (ARM) Loans. ARM loans may be a good choice if you will be staying in your home for a period of time less than the fixed period of your ARM loan. Many offer 30-year terms with lower initial interest rates than comparable fixed-rate loans. An initial, low fixed-rate period is followed by intervals when the interest rate fluctuates and your mortgage payment generally increases. It is important to remember that while there will be up-front benefits, the uncertainty of future interest rates could result in higher payments in future years.

The Department of Veterans Affairs (VA). The VA offers loans to individuals with qualifying lengths of military service. They generally require a funding fee, but no down payment. VA-financed homes must pass rigid property valuations and be your primary residence. Consult your lender or the VA at www.homeloans.va.gov for more information.

The Federal Housing Administration (FHA). The FHA offers government-backed mortgage loans through approved lenders. Buyers must pay a mortgage insurance premium (MIP). Homes must pass rigid property valuations and be your primary residence. Consult your lender for more information.

Interest-Only Mortgage (I-O) Loans. Most mortgages that offer an I-O payment plan have adjustable interest rates, which mean that the interest rate and monthly payment will change over the term of the loan. An I-O mortgage provides flexibility in the early years of the loan. Initially you pay only the interest or can choose to repay some portion of the loan balance. After the interest is paid, you must pay the remaining balance over a shorter period of time, resulting in a significant increase (sometimes double or triple the original amount) in the payment amount. In a declining housing market, you could have a minus value in your home and an increasing mortgage payment.

Assumable Loans. You assume the seller’s mortgage loan and interest rate, taking responsibility for their payments — a good idea if the original loan rate is lower than the market rate. Closing costs are generally much lower than when a new loan is established. Few fixed-rate loans are assumable.

For more information on ARM and I-O loans, visit www.federalreserve.gov.