Step 8: How to get a mortgage

You’ve found the home of your dreams, now you need to buy it! If you are like most people, you need to secure financing in the form of a loan, also known as a mortgage. There are several steps involved in getting a loan:

Securing a loan

Banks are the traditional source of mortgage funding. They offer face-to-face service. You should reach out to your bank and talk to their mortgage division.

Mortgage brokers generally offer a large variety of loans, which includes loans for individuals with less than pristine credit. You can also meet with a broker face-to-face.

Online mortgage providers offer a large variety of loans, convenient round-the-clock shopping and instant comparisons between multiple loans. They often lack personal service.

You should also ask your family, friends and coworkers for referrals, as well as your housing counselor. You need to compare costs, products, types of service and what and who you are most comfortable with. Once you have settled on a lender, you’ll have to determine which loan is best for you. This is also known as the loan terms. There are several different types of loans:

  • Fixed-rate mortgage – this means that the interest rate is “fixed”, i.e. never changes for the life of the loan
  • Adjustable-rate mortgages – with this type of loan, the interest rate changes throughout the life of the loan.
  • Balloon-payment mortgages – instead of paying back the loan over the course of the loan, the last payment is a large payment representing the final payment and balance of the loan.
  • Graduated payment mortgages- low initial monthly payments which gradually increase over a specified time frame
  • Bi-weekly mortgages – paying your mortgage every two weeks over the course of the year results in 13 mortgage payments as opposed to 12. The additional payment goes towards the principal balance.

A good resource on loan options is:

http://www.consumerfinance.gov/owning-a-home/loan-options/

There are several steps and lots of paperwork is needed to apply for your loan. First make, sure you have discussed and understand the details and the terms of your loan. You will be asked to sign multiple documents, and understanding what you are signing is critical. Your housing counselor can help you – HPF is here is help you make your home a reality.

Here is a good source of information:

http://www.consumerfinance.gov/knowbeforeyouowe/

www.bankrate.com

Closing Settlement

Your bid has been accepted. You’ve secured a mortgage, now you are at closing or settlement! Where and what is that? The closing, also known as settlement, is where you will actually take possession of your new home. It is at this time the title is transferred to you and where you will receive your keys to the property.

If you are obtaining a loan to purchase the property, your lender has three days from the time of the loan application to provide you with a Good Faith Estimate of your loan costs so there are no surprises about costs. In addition to the principal and interest, your loan costs may include private mortgage insurance (PMI), flood and/or hazard insurance, escrows, taxes, etc. The Good Faith Estimate will break out all the costs. If you do not receive this in a timely manner speak to your lender.

In most parts of the country, you will sign a number of documents that will be explained by your settlement agent. Check with your settlement agent for more details on how the closing is conducted in your area. Once all of the signing is done, the house is yours!

Here is a good resource for closing costs:

http://www.homeclosing101.org/costs.cfm

And if you want more details on home buying and closing costs:

http://www.homeclosing101.org/resources.cfm

Insurance

Often times, insurance is overlooked in the home buying process, but like the mortgage, it is something you pay for as long as you own your home – which in some cases could be longer than it takes you to pay back your loan. Homeowners Insurance financially protects your home and possessions in the event of a disaster. Typical coverage is for full replacement of your home and valuables.

There are several factors to consider when looking for homeowner’s insurance, and they include:

  • What is the value of your home as well as your possessions in the event of a flood, fire or other disaster?
  • How old is your home or roof?
  • How far from a fire station or fire hydrant is the property?
  • Is the property in a flood, hurricane or earthquake zone?

All these and more impact the cost of insurance.

For more information, visit:

http://www.iii.org/article/home-buyers-insurance-checklist

Insurance is an important consideration when purchasing a home. If you are uncomfortable with the cost of insuring a particular house, keep looking for one that better fits your financial situation. If you do not already have an insurance agent or company representative, get recommendations from family, friends or co-workers or check with your state’s insurance department.

For a listing of state insurance departments visit:

http://www.iii.org/state-organizations

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