Which Loan IS best for You .pdf
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US Mortgage Corporation (NMLS ID#3901). Corporate Office is located at 201 Old Country Road, Suite 140, Melville, NY 11747; (631) 580-2600 or
(800) 562-6715 (LOANS15).
Branch Office: (NMLS ID#875077) 200 Lakeside Drive, Suite 270, Horsham, PA 19044. Residential Mortgage Lender License-New Jersey Department
of Banking and Insurance. Licensed Lender-Pennsylvania Department of Banking. Rates, fees and program guidelines are subject to change
without notice. Certain restrictions may apply. Some loans arranged through third parties. First mortgages only. Not all products and/or programs
are available in all states. This document is not intended as an offer to extend credit nor a commitment to lend.
An Introduction To Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . Page 01
A Conventional Home Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . Page 03
An Insurance-Backed FHA Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 05
VA Loan For Veterans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 07
FHA 203(k) - The Home Improvement Loan . . . . . . . . . . . . . . . . . . Page 11
An Introduction To
M ortgage L oans
First-time home buyers always seek to find information about the various mortgage loan options
to finance their home purchase. This is your first step in the home purchase process. It is more
important to make financial arrangements to buy a home before you even begin to look for a
suitable property. Fix your budget before you scour for properties.
Once you fix the budget, figure out how much of the budget you can fund from your savings.
Most lenders will require you to make a down payment on the purchase price of the property. If
you can fund a certain percentage of the price, you can begin to look for lenders who can fund
the rest of the purchase. After this, you have to check your credit report. A good credit score is
very important for a loan approval process. If your report shows delayed payments, too many
debts, and other such negative factors, then it will make a huge impact on the loan approval
process. If you have a good credit score, lenders would offer you loans at lower interest rate. For
a borrower with a low credit score, the interest rates charged are higher.
There are many types of loans to suit the various situations of a borrower. The following chapters
encompass the different loan options that you can choose from to finance your home purchase.
Understand each loan and decide for yourself which is best suited for you.
Generally when you wish to purchase a house, you could apply for a mortgage loan with any
financial institution. While you borrow a loan from the lender to buy a property, a mortgage
agreement is filed. The property is held as security, which may be foreclosed by the lender if
you default on your loan. It is a good option if you wish to close the debt by repaying before
the deadline of mortgage agreement to reduce the amount you pay as interest in total.
A loan application process can start even before your purchase. It is advisable to seek
pre-approval for the loan from the lender by producing necessary documents well before
your purchase. Lenders require a lot of paperwork that includes proof of your income, credit
report, tax return documents, documentation of all your assets, etc. Your credit report is very
important in the loan approval process. Lenders are generous to borrowers with a good credit
score. If you have a credit score over 700, you are likely to get a loan at low interest rates
unlike borrowers with a bad credit score.
The risks involved in conventional home mortgage include that of foreclosure if you default on
the payment. These loans do not cover processing costs during your purchase. A conventional
loan is not easily available for buyers with a bad credit report. However, it is indeed a great
option for good credit score holders as they can make relatively low monthly mortgage
payments with flexible terms of the loan agreement. This type of loan has many restrictions
and eligibility criteria.
There are mainly two types of mortgage loans depending on the interest rate and period of
payment. Fixed-rate mortgage is a loan in which the interest rate is fixed for the complete
period of the mortgage agreement. As a borrower, you will have to make the same amount
of payment every month until you clear your debt. A variable or adjustable rate mortgage is
a type of loan where the interest rates fluctuate with time. The interest rate may increase or
decrease according to the change in bank policies, regulations of the central bank, etc. In this
case, there is a disadvantage for the borrower as in he might end up paying more interest on
Usually, after purchasing a property, you would be expected to make a down payment on the
loan. The down payment you make depends on the cost of the property and also decides the
loan to value ratio. This ratio indicates the risks in the mortgage loan. If the ratio is high, then
the property value upon foreclosure may not be sufficient to cover the balance loan amount.
One of the major factors in the loan process is the value
of the property. Any appreciation or depreciation in
the value of the property could affect the terms
of the loan or the loan approval process. The
lenders use their own appraisers to estimate
the value of the property you wish to purchase.
The normal time period is very long for the
mortgage payments on a conventional mortgage
loan. Due to this, a borrower might have to pay
a large interest on the principal.
You can get a mortgage loan that is insured by FHA (Federal Housing Administration), also
known as an FHA-insured loan. If you have a low annual income and cannot afford to buy a
home, the FHA loan assists you in the purchase. Typically the lender would pay almost 1% of
the loan amount as premium for the mortgage insurance to the FHA on behalf of the borrower.
This loan was initiated as a result of the Great Depression which occurred in the 1930s. It was
during this time that many foreclosures happened which caused great loss to lenders.
The FHA on its own does not provide loans. Instead, it insures loans provided by private lenders.
While approaching for any loan, you have to contact a mortgage broker or several lenders.
You have to find out if they have the permits from the Department of HUD (Housing and Urban
Development) to provide FHA insured loans.
Generally, FHA-insured loans are provided to help moderate and low income families purchase
homes at lower processing costs, interest rates, and monthly payments. Lenders are encouraged
to provide loans to even those borrowers who have a not-so-good credit score, as this loan
protects the lenders against default on mortgage payments. However, if your credit score is
less that 650, it might be hard for you to get such loans. If the interest rates decrease during the
period of the mortgage agreement, you may think about refinancing your loan to get the benefit
of low monthly payments.