What is the difference between a fixed rate mortgage and adjustable rate mortgage?
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With a fixed rate mortgage, the interest rate never varies and your monthly payment stays the same for the life of the loan (excluding increases due to rises in real estate taxes). With an adjustable rate mortgage (or ARM), you usually start out with a lower interest rate than on a fixed rate mortgage, but the interest rates go up (or down) after a period of time and consequently affect the amount of your monthly payment.

Should I apply for an FHA Loan?
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To make home ownership more affordable, the government (the Federal Housing Authority aka FHA) got involved in the loan business and decided to back home loans made by lenders. FHA loans are a benefit to first-time buyers in that the lender will accept a smaller down payment because FHA is guarantying payment of the loan if the borrower defaults. The down payment may be 3 to 5 percent versus 10 to 20 percent for non-government backed loans.

Will FHA make my payments for me if I can no longer afford to make my monthly mortgage payments?
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No. FHA insures the loan for the lender in the event the lender forecloses on the property. FHA does not make payments on your behalf and if you fail to make your loan payments as agreed to in your loan documents, you will most likely lose your home by foreclosure.

What is private mortgage insurance (PMI)?
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Private mortgage insurance is required by the lender if you have a FHA loan or make a down payment of less than 20 percent. The mortgage insurance is for the benefit of the lender in that the insurance helps the lender recover the cost of selling the home if you stop making payment on the loan. The cost of mortgage insurance depends on the amount of your down payment and the type of loan. Usually, there is a substantial upfront premium plus a portion of your monthly payment will include the monthly mortgage premium fee.

How do I determine how much I can afford to pay monthly for a home?
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Your debt to income ratio is considered when a lender is determining how much you can afford to make in monthly mortgage payments. Your debt is equal to the total amount of monthly payments you make each month versus your monthly gross income. For example, a lender may require that your monthly mortgage payment plus monthly debt payments not exceed more than 28 to 33 percent of your monthly gross income in order to provide you the loan.

What is a point? Do I have to pay points when I take out a mortgage?
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A point equals 1 percent of the loan amount. Points are charged by lenders as a fee for doing the transaction or in order to let the owner buy down a lower interest rate , which can lower your monthly payment. In the current market, with interest rates at record lows, you can often find lenders who will provide you a mortgage without paying points; shop around.

How do I qualify to obtain a VA loan?
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In addition to FHA, the government also sponsors loans for veterans. The loans are guaranteed by the Veterans Administration (VA) and are available to any veteran who has served 180 days active duty since September 16, 1940, or 90 days during a war. If you enlisted after September 7, 1980, you must have at least 2 years of service. You also must have been honorably discharged. To qualify for the loan, you must plan to live in the home. Taking out a VA loan often allows the veteran to purchase the home with no money down. VA loans are currently available up to $240,000.00.

How does the lender decide whether to lend you money?
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The lender looks at a number of factors, including your current financial situation, your credit history, the current lending guidelines and the property being purchased. The basic process the lender goes through involves: (1) taking your application; (2) verifying your employment, income and source of down payment: (3) checking your credit report; (4) obtaining an appraisal of the property; and (5) reviewing information to determine if you meet the lending guidelines. You should expect the loan approval process to take between 3 and 6 weeks.

What document will the lender provide me when my loan is approved?
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The lender will provide you with a loan commitment. The loan commitment is a formal offer by the lender to provide you a mortgage to buy the property. The loan commitment letter will state the terms and conditions under which the lender is willing to loan you the money.

What is the difference between the down payment and earnest money?
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The down payment is the amount the lender requires you to pay the seller (separate from the loan) when you purchase the property in order to provide you the loan. The earnest money is the deposit you make to the seller (or to the title company) when you initially sign the purchase agreement for the property and which will be counted towards the down payment .

What is a good faith estimate?
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A good faith estimate is a written estimate the lender is required by law to give to prospective borrowers and gives you a good idea as to the costs charged by the lender for the mortgage. The lender must issue the good faith estimate within 3 days after submitting the mortgage loan application.

Why do I need an appraisal of the property?
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The appraisal is an estimate of the fair market value the property and is required by the lender before issuing the loan commitment. The lender orders the appraisal and will either charge you for it at the time of closing or ask that you prepay the appraiser at the time the appraisal is ordered. The cost for the appraisal will depend on the type of property but may range from $200.00 to $400.00.

What happens at the closing?
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The closing is the process of finalizing all the aspects of the transaction. The purchaser's loan documents will be signed and the seller will provide documents to transfer ownership to you. The closing is usually done at the title company or escrow agent.