The
most common types are 30-year
and 15-year fixed mortgages where
the interest rate is fixed for
the term of the loan. Other types
include adjustable-rate mortgages,
called ARMs, where the interest
can vary over time, hybrid ARMs,
jumbos, assumables and seller
financing.
Step
2: Determine how much house you can
afford.
Considerations:
•
Equity
in your current home (if you own).
•
Amount
you can put down.
•
Monthly
payments you can manage.
•
Real
estate taxes.
•
Closing
costs and insurance -- homeowners
and possibly private mortgage
insurance if you put less than
20 percent down.
•
Monthly
payments on debt obligations including
credit cards, alimony and student
loans should not be more than
36 percent of your pretax income.
Step
3: Check your credit.
•
A potential lender will check your credit report immediately. Get all three of your credit reports to check for errors and clear up problems.
Step
4: Prequalification and preapproval.
•
If
you haven't found a home yet,
consider getting prequalified,
which means that a lender will
review your financial history
before you find a home, or preapproved,
which means that a lender will
check your credit and provide
you with a letter stating that
you've been preapproved for a
certain amount. Both of these
will help improve your purchasing
power.
Step
5: Gather the necessary paperwork.
Step
6: Find a lender.
•
Check
the rates and lenders on Bankrate.com.
Remember that just because a loan
has the lowest rate doesn't mean
it's the best one for you. In
addition to the rate, check on
points (prepaid mortgage interest
which will increase your upfront
costs), APR and other fees associated
with a given loan. Compare mortgages
and talk to several lenders before
you apply for a loan.
Step
7: Assess your potential home.
•
Hopefully you've found your dream home by this time. Be sure to thoroughly evaluate the home to make sure it's what you really want. An appraisal is part of the mortgage process and will ensure that you're paying the appropriate price for your home.
Step
8: Prepare for closing.
•
Make sure the closing is scheduled before your loan commitment and any rate lock-in will expire. And be sure there is enough time to finish any loan documentation and complete any home inspections or repairs.
Step 9: Closing day!
•
Congratulations, you're about to own a new home! At the closing you will have to sign legal documents and pay closing costs. Closing costs could include surveying, taxes, insurance, attorney fees, agent fees, points, loan origination fees, PMI and balance of down payment.
Step
10: Servicing the mortgage.
•
At closing, your mortgage lender must tell you who will be servicing your mortgage loan. Traditionally, the mortgage banker would service the loan for the life of the mortgage on behalf of the investor. However, the servicing may be handled by a third party.
