Be sure to talk with a qualified lender to obtain a pre-approval. They will have the most current interest rate information and will assist you in determining which loan program is right for you.
Of the over 50 different mortgage types available, the two largest categories are fixed and adjustable rate mortgages, each with advantages to consider.
The fixed rate mortgage is a traditional method of financing a home. The interest rate stays the same for the entire term of the loan - usually 15 or 30 years - so the interest and principal portions of your monthly payment remain the same.
Your payments are stable and predictable, but initial interest rates tend to be higher on a fixed rate mortgage than on adjustable rate loans. Many fixed rate mortgages cannot be assumed by a subsequent buyer.
The interest on an adjustable rate mortgage is linked to a financial index, such as a Treasury security, so your monthly payments can vary over the life of the loan - usually 25 to 30 years. Most adjustable rate mortgages have a lifetime cap on the interest rate increase to protect the borrower.
The lower initial payments on ARMs make it easier for buyers to qualify. Some ARMs may be converted to fixed rate mortgages at specified times, usually within the first five years.
A prequalification consists of a discussion between a home buyer and a loan officer. The loan officer collects basic information regarding the customer's income, monthly debts, credit history and assets, and then uses this information to calculate an estimated mortgage amount for the home buyer. The prequalification is not a full mortgage approval, but estimates what a home buyer can afford. A preapproval, on the other hand, is a comprehensive approach using basic information as well as electronic credit reporting. Preapprovals, in most cases, are true mortgage commitments. The lender commits to financing your home and indicates the total mortgage amount available to you.
It usually about 30 to 45 days to process a mortgage application, although it can take as few as seven days and as long as 90 days for some transactions. The actual time depends on how quickly the lender can get an appraisal of the property, a credit report and verification of employment and bank accounts
If you provide the lender with complete, accurate information, everything should go smoothly. You may face a delay if the lender discovers credit problems - a history of late payments or nonpayment of debts, or a tax lien. You may then be required to submit additional explanations or clarifications. You should also be sure to notify your lender if your personal or financial status changes between the time you submit an application and the time it's funded. If you change jobs, get an increase (or decrease) in salary, incur additional debt or change your marital status, let the lender know promptly. You may be delayed if the home you selected fails to appraise for the agreed purchase price.
Be prepared to provide verification of income (including a pay stub and recent tax returns), bank account numbers and details on your long-term debt (credit cards, auto loans, child support, etc.). If you're self-employed you may also be required to provide financial statements for your business. In recent years, lenders have been required to obtain more specific information from borrowers in order to package and sell loans to investors. If you were lending someone such a large amount of money, you'd want detailed financial information.
Principal and interest on your loan. Depending on the terms of your loan, the payment also may include hazard (homeowners) insurance, mortgage insurance and property taxes.
You cannot make these payments separately if it's an FHA or VA-insured loan. With most other loans, you can pay your own taxes and insurance if you borrowed no more than 80 percent of the purchase price or appraised value of your home. Check with your lender to be sure.
Mortgage payments usually begin about 30 days after closing. The actual date of your first payment will be included in your closing documents.
Closing costs cover processing and administration of your loan. In addition to a loan fee, you'll usually be asked to prepay interest charges, to cover the partial month in which you close, and impounds for property taxes, hazard insurance and mortgage insurance.
This calculator will help you determine your monthly mortgage payments for both fixed and adjustable rate loans at various interest rates over 15 and 30 year terms.