If you are considering purchasing a home for the first time, a little knowledge will go a long way in making through the process successfully. The first things to understand are your basic options.
Your Basic Options with Mortgage Loans
At first glance, the mortgage industry appears to be a fairly standardized finance industry. You need a loan, apply and a lender rejects or approves your loan. While this is generally true, the amount of the loan has a lot to do with the rates you will pay and even whether you will get the financing you seek.
Most homes under the $300,000 price level fall into a particular categorization in the mortgage industry. This category is known as conforming loans. Conforming loans are simply those that a lender can obtain a guarantee of repayment for from a third party. The third party is always a government or pseudo-government party like Fannie Mae, FHA, HUD and so on. With the guaranteed repayment security, lenders will offer you better initial and long-range terms on the loan. It is also much easier to get approved. The cap on these loans is not $300,000, but is a figure close to this amount. The exact number is dependent upon the part of the country you live in as the cap is adjusted to reflect local real estate values. The best way to find the cap for your area is to contact a lender.
Your mortgage options for homes valued from $300,000 on up are entirely different. The loans are categorized as non-conforming mortgages. Non-conforming simply means the amount of money being borrowed is in excess of what the FHA, Fannie Mae and so on will guarantee repayment. Without this security, the lender will shift more of the risk of the loan to you. In practical terms, this means you will have to pay slightly higher fees, interest rates and points, if any, on the loan. One way to combat this is to put down more money on the home. This effectively lowers the loan to value ratio, and makes the lender more comfortable with issuing the loan.
Conforming and non-conforming loans are not your only options. The mortgage industry has matured significantly in the last 15 years with the new found maturity being expressed in new loan programs. These programs include, but are not limited to, no document loans, zero interest loans, hybrid mortgages, balloon mortgages, bad credit mortgages and hard money loans to mention only a few. Simply put, there is a lender for practically every borrower these days.
When considering your mortgage options, the best approach is to identify the situation you are in and find multiple lenders that write loans for that scenario. Then it is just a matter of shopping for the best terms for your loan.
Raynor James is with FSBOAmerica.org - information on
mortgage loans.
