Apply For A Loan
Loan processing time varies based on the lender, the type of loan and
level of activity in the marketplace.
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.
Your lender will tell you if you must carry flood insurance,
which is a separate policy from homeowners coverage.
Selecting A Loan
Select a loan that complements your investment strategy. For some, it is best
to pay down the loan amount quickly. Others may want to pay a mortgage more
slowly to take advantage of applicable federal income tax deductions and invest
surplus funds where they might earn a higher rate of return. Ask your lender or
financial planning professional about the type of loan best for you.
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.
VA Loans. The Department of Veterans Affairs (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.
FHA Loans. The Federal Housing Administration (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.
For more information on ARM and I-O loans, visit
www.federalreserve.gov/pubs/mortgage_interestonly/mortgage_interestonly.pdf.
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.
Understand Mortgage Payments
Whatever type of loan you select, you typically will repay it in a monthly payment
comprised of principal and interest.
- The principal portion of the payment lowers your outstanding loan balance.
You are paying back a portion of the original amount you borrowed.
- The interest portion goes to the lender as payment for loaning you the
outstanding principal balance. The lower your interest rate, the less your
mortgage will cost over time.
- Your monthly payment may also include property taxes and homeowners
insurance costs. If so, the lender holds these funds in escrow and pays the
local property tax office and your insurance company when those bills are due.
- Depending on the down payment amount, you may be required to purchase mortgage
insurance from the lender. This protects the lender if you are unable to repay the loan.
Reduce Mortgage Costs
You can save interest charges by paying your mortgage loan in full sooner,
as long as your loan has no prepayment penalty. You can:
- Make an additional lump sum payment toward principal annually.
- Increase your monthly payment by a fixed amount.
- Put additional funds toward your principal balance as available
(such as when you receive a bonus or monetary gift).
Some lenders offer bi-weekly payment plans which require making 26 payments
each year — one every other week — equaling one-half the regular monthly principal
and interest payment. This results in making one extra month’s payment each year.
Because some lenders charge a fee for this option, it may be better to simply make
an extra monthly payment on your own. However you choose to pay your mortgage loan,
avoid “deals” asking you to pay a fee to reduce the term.
The Home Inspection
No matter how good a home looks at first glance, there may be underlying problems with the
construction, foundation, heating and cooling systems, wiring and more. The inspection is meant
to uncover structural or mechanical defects — not cosmetic problems such as scratched floors,
chipped tiles or dirty walls. Even newly constructed homes should be inspected.
- Schedule the inspection early enough to give the seller time to make needed repairs before
closing. Do not sign closing papers until the repairs are complete.
- Choose an inspector qualified to examine every part of the home: roof, foundation, wiring,
heating and cooling systems, plumbing, water heater and appliances.
- Confirm that the inspector will provide an inspection for wood-destroying insects
that is acceptable to your lender.
Attend the inspection and ask the inspector questions to learn as much as you can about the home.
Obtain a detailed report about the findings and schedule a follow-up inspection of any items repaired
by the seller. If possible, conduct a final walk-through of the home just prior to closing. Make sure
the property named in the contract — such as appliances and window coverings — is in place and that no
new damage has taken place in or around the home.
Know When To Terminate
Your contract’s conditions should allow you to terminate your purchase agreement with no monetary penalties if:
- You cannot get financing.
- The home appraises below the contract sales price.
- The home inspection uncovers major structural or mechanical defects.
- The property boundary lines are not as represented by the seller.
- The title search reveals undisclosed easements or liens that will not be satisfied at closing.
- There are problems with the deed.
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