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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 overwhelm you.

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 why.

YOUR INCOME
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.

YOUR DEBT
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.

PROPERTY VALUE
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.

CASH NEEDED
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 own funds.
This is just a generalized overview that is listed above and should not be considered conclusive.


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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 an investment.
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 options.

CONVENTIONAL LOANS
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.
FHA Mortgage
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.

VA Mortgage
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.

B/C Loans
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.