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| Now that you've found your dream home, you're anxious to move in and get settled — and that means getting a mortgage loan with terms and payments that fit your financial situation. |
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What to Look For
Begin by asking these questions:
- What types of loans are available? 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 Department of Veterans Affairs (VA loans). Loans that are not government-insured are called “conventional mortgages.” Insured mortgages usually have lower down payments but might have other restrictions; for example, being available only for certain kinds of homes or for properties valued below a specified price.
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- What's the length of the loan and the down payment required? In general, the longer the term and the larger the down payment, the lower your monthly payments — and the converse.
- What's the interest rate? The amount of the down payment might influence the interest rate (as a rule, the larger the down payment, the lower the interest rate — and the converse).
- Is the interest rate fixed, adjustable, or variable? Interest rates might stay fixed for the life of the loan (fixed-rate mortgages), change (adjustable-rate mortgages, or ARMs), or combine fixed and variable rates (convertible mortgages). Although the initial rate of an ARM is usually lower than that of a fixed-rate mortgage, the rate might change during the lifetime of the loan.
- How will the size, interest rate, and down payment on the loan affect your mortgage?
- Does the lender offer special programs to help veterans, low-income, or first-time homebuyers?
The Mortgage Application Process
To figure your mortgage payment, the lender will ask how much you want to borrow, based on your financial condition and the appraised value of the property. Lenders usually will lend the borrower up to a certain percentage of this value, such as 80% or 90%, taking a down payment for the difference. If the appraisal is below the asking price of the home, the down payment and the amount the lender is willing to lend you might not cover the price. In this situation, the lender might suggest a larger down payment to make up the difference between the price of the home and its appraised value.
Factors that might help you obtain loan approval include:
- Down Payment. If your proposed down payment is too low, the lender might offer other types of mortgages with lower down payments.
- Appraisal. Is the size of the mortgage you need too high, based the property's appraised value? If similar houses in the neighborhood have sold at comparable prices, suggest that the lender re-examine the appraisal to see if the appraiser might have undervalued the property.
- Credit History. If the lender questions your ability to make the monthly payments, ask how your debt ratios compare to the lender's standards. If there were special circumstances surrounding old credit problems, ask for a chance to explain.
The mortgage loan approval decision is usually made within 30 days after the lender receives all the necessary information. Applications for FHA or VA loans might take longer.
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