Understanding Mortgages

We recommend that before you begin your house hunting, you begin the loan pre-qualification process. Getting pre-approved requires that a lender verify your financial information, and it serves as their commitment to lend a specified amount based on that information. It will give you a number of advantages:

• When you find a property, sellers will take your offer more seriously given that you have a lender that has committed to backing your offer.
• It does give the assurance that you’re looking at homes you can confidently afford to finance. Your efforts will be focused on properties that match your financing abilities.
• You’ll have an edge over other buyers who aren’t pre-qualified. In situations where there are multiple offers on a property, this can be the difference between having your offer accepted or losing the property to another buyer.

Conventional Loans

Conventional loans are viewed as the most secure loans because their loan-to-value (LTV) ratios are the lowest. The borrower generally makes a 20 percent down payment and borrows the remaining 80 percent of the value of the property. This is important because lenders need to know that if a property goes into foreclosure, they can get out of it what they have invested in it. Insured conventional loans require less down payment.

When making a conventional loan, the lender is relying on the appraisal of the real estate (as the only security) and on the reliability of the prospective borrower as indicated in his/her credit history. No additional guarantees or insurance is necessary.

Federal Housing Administration (FHA) Loans

FHA loans are insured by the Federal Housing Administration and must be made at FHA-approved lending institutions. FHA insurance provides the lender with additional security against borrower default. FHA down payment requirements are less and most of your closing clsts and fees can be included in the loan. Nearly half of all homebuyers use this program.

Veterans Affairs (VA) Loans

The Department of Veterans Affairs provides guarantees for loans for eligible veterans and their spouses. Under this program, the VA does not actually lend the money; rather, it guarantees loans made by approved institutions. These loans are available with little or no down payments and at comparatively low interest rates.

Rural Housing Loan Programs

The purpose of this loan program is to enable eligible low- and moderate-income (up to 115 percent of the Area Median Family Income) rural residents to acquire modestly priced housing for their own use as a primary residence. The program is available for the purchase and repair of existing and newly constructed dwelling.

There is no required down payment, but families must be able to afford the mortgage payments, including taxes and insurance.