Understanding Real Estate Financing
Understanding mortgage loans is something that overwhelms most individuals. Today
there are numerous options for a borrower to choose from and often leaves one completely
confused. Real estate financing for the single family home does not have to completely
Listed below is some information on financing to help you to have a general idea
of the financing process and some information on some of the loans available today.
Because there are so many option, this site will not provide a conclusive reference
on residential mortgage loans.
APPLYING FOR A MORTGAGE
Most borrowers get completely overwhelmed and stressed out while applying for a
mortgage. This does not have to be the case. If you have some understanding of what
is involved during this process, you will find the process to be rather systematic.
Listed below are some of the things the lender will examine and some of the reasons
The lender will first want to determine whether you are classified as an employed
individual or a self-employed individual in your job status. If you are an employed
individual, the lender will want to determine that your position is secure and you
are not on probation. This is to ensure that you will be able to make repayment
on the loan. If you are self-employed, most lenders will want to see that you have
been self-employed for two years and require copies of your income tax returns.
(You may find some variations to this based on which lender you are working with).
Your income will be part of what determines how much of a mortgage you can obtain.
In addition to the banker looking at what this new mortgage payment will cost you,
they must also take into consideration any outstanding debt you currently have.
This will include car payments, credit cards, student loans, child support payments,
and personal loans to name a few. Be prepared to supply a lender with all information
regarding your current outstanding debts.
YOUR CREDIT HISTORY
One of the first things a lender will do is to acquire your credit report. This
will supply the lender with information on how timely you have paid your bills.
You need to expect that if you have late payments, the lender will inquire as to
the reason for this occurrence. They will also expect that you have no delinquent
accounts. A credit score will be issued on your credit history and will determine
what type of loan for which you may be eligible. The higher your credit score, the
more options that will be available to you. It is important to supply the lender
with all credit information requested. There are loans available in some cases,
even with blemishes on a buyer's credit report.
The lender looks to use the property as collateral. Because of this, the lender
will require that an independent appraisal of their choice be performed on the property.
This will let the lender know that there is sufficient value in the home in the
event that a default occurs.
Depending upon the type of loan that you select, a borrower will be faced with various
settlement costs and a downpayment. It is important that you discuss who is permitted
to pay any of these costs, or if some can be financed. Some loans do require the
borrower to have a specific portion of the funds needed at closing to be his/her
This is just a generalized overview that is listed above and
should not be considered conclusive.
SOME TYPES OF LOAN OPTIONS
One of the good things about real estate financing today is the numerous options
available to you as a borrower. Not all of these may suit your needs or even be
a possibility, but hopefully the information listed below will give you a general
understanding of some of the types of residential loans available. A lender does
consider an owner occupied home differently than a property that will be used as
Likewise, a distinction is made if there is any commercial space within the dwelling
or more than four residential apartment units.
What is stated below will primarily focus on owner occupied, single family mortgage
A conventional loan is one that is not insured or guaranteed by the government.
Depending upon your credit history, you may be able to secure a conventional loan
with only a 5% down payment by paying private mortgage insurance. There are even
some lenders that will allow you to have less than a 5% down payment. With a conventional
loan you can choose between either a fixed rate for your interest or an adjustable
rate mortgage loan. These loans are typically written for a period of 15 or 30 years,
and generally there is no prepayment penalty. While talking with your lender you
may want to look at all of your options under this type of loan.
An FHA loan is one that is insured by the government. However, you will secure this
loan through a lender. One of the benefits of an FHA loan is the reduced down payment
requirement. The home will need to meet minimum condition standards in order to
qualify for FHA financing. At various times, you will find a variety of FHA loans
available which include fixed rate, adjustable, and rehab loans. You will need to
speak to a lender to determine which are available in the market today. These loans
are typically written for a 15 to 30 year term.
A VA mortgage is one that is guaranteed by the government, however, you will secure
this loan through a lender. This loan is available to individuals who have a Certificate
of Eligibility from the Veteran's Administration. These loans are geared to help
a veteran purchase a home with no down payment. Again, these are generally written
for a period of 15 to 30 years.
City, State, County Mortgage Bond/Special Community Loans
From time to time, special mortgages will be offered to encourage home ownership.
Some of these do require the borrower to be a first time home buyer with income
restrictions, while others do not. Some require the property be in a specific area
and price range, while others do not. These loans generally have a very good interest
rate. Do not assume that you are not eligible for one of these loans. It is worth
your while to inquire with a lender as to your possible eligibility.
Sometimes a borrower can not meet the standards required under the above stated
loans, and yet may still be eligible to obtain a mortgage. Some lenders will grant
a mortgage to an individual who has lower credit scores. Generally these mortgages
do require a larger down payment and have a higher interest rate. What's listed
above is only a sample of the loans available today. You may have questions involving
other loans not discussed above. We hope that you will contact us here at Neighborhood
Realty Services so that we may be able to answer some of those questions for you.