June 28, 2006

You see the home of your dreams and decide to purchase it? Now you need to pay for it.

There literally are thousands of loans available from numerous lenders, but there are some factors that will impact your loan. The amount of money you have for a down payment will play a significant part in the process. Loans with five percent down or less are available, and loans with no money down recently have begun to appear.

If you place less than 20 percent down, lenders want the mortgage guaranteed by an outside third party such as the Veterans Administration (VA) or the Federal Housing Administration (FHA) or a private mortgage insurer (PMI), which is required to protect against mortgage defaults. More than 2.5 million of these type loans are generated each year.

To get a home loan, you must fill out a loan application and provide supporting documentation, such as pay stubs, rental checks and tax returns for the past two to three years if you are self-employed. Loans can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks, credit unions and insurance companies.

When applying for a loan, you will need the following:

• A copy of your purchase and sale agreement;

• Present mortgage information;

• A two-year history of employment and verification of all income sources;

• If self-employed, copies of past two Federal Income Tax Returns;

• Information about your checking, savings and credit card accounts;

• Name, account number and outstanding balance of each of your debts;

• Applications deposits;

• Information about any assets;

• Information regarding any other assets that will be used as funds to close;

• If FHA loan, a copy of Social Security card and photo identification;

• If VA loan, a Certificate of Eligibility of DD214.

Here is a brief look at some of the available loans:

VA: The VA does not lend money; it guarantees a portion of the loan so that lenders who originate the loan feel comfortable with their risk. Qualified veterans can obtain loans up to $203,000 with no down payment.

FHA: The FHA does not lend money or make a loan, it insures loans. The down payment can be as low as 2.25 percent. Discount points may be paid by either the buyer or the seller. The FHA charges a 2.25 percent up-front Mortgage Insurance Premium (or as little as 2 percent for a first-time home buyer) that can be financed in the mortgage amount or paid in cash. The borrower must also pay an annual Mortgage Insurance Premium or .5 percent that is collected monthly.

Seller-assisted second mortgage: The seller of the house lends the buyer enough to make up the difference between the purchase price and the down payment plus first-mortgage balance (a commercial lender may also make this type loan). Terms, including the interest rate, are based on buyer-seller agreement. Often, it is a short-term (5- to 15-year) loan.

Assumable mortgage: Buyer "takes over" or assumes the mortgage obligation of the seller (with approval from the lender). The interest rate doesn’t change and sometimes is lower than current rates. Often, loan fees are also less.

Fixed-rate mortgage: On this loan, the interest rate stays the same throughout the term of the loan – usually 15 or 30 years – so the principal interest portion of the payment remains the same. Payments are stable, but initial rates tend to be higher than adjustable rate loans and often cannot be assumed by a subsequent buyer.

Balloon mortgage: A loan that must be paid off in a certain period. The advantage is an interest rate that is lower than a mortgage that is made for 30 years.

Adjustable-rate mortgage: The interest rate is linked to a financial index so monthly payments can vary up or down throughout the life of the loan – usually 25 or 30 years. Some of these type loans have caps on the interest rate increase to protect the borrower.

Some questions to consider for your lender:

• Are both fixed-rate and adjustable mortgage loans available?

• What is the interest rate?

• How long can I "lock in" the financing at the current interest rate?

• Is a "float-down lock" available in case rates drop after I have locked in?

• What are other fees a lender may charge me in conjunction with my loan?

• Are funds for a second mortgage available?

Sources for these stories include: Coldwellbanker.com, Moving.com, Federal Citizen Information Center Home Page, Realtor.com, Homestore.com, homebuilder.com, forsalebyowner.com, San Diego Association of Realtors, Monstermoving.com, Interest.com, Century21.com and Amsouth.com.