FINANCE OPTIONS

Frequently Asked Questions
Should I get pre-qualified?
Should I get pre-qualified by more than one lender?
What type of loan is right for me?
Should I get a 30 year or 15 year loan?
Is it unreasonable to ask the seller to pay for closing costs?
How do I choose the right lender?

Should I get pre-qualified?
It is always a good idea to be pre-qualified.  When you are pre-qualified you know the amount you are able to borrow for your purchase.  Without knowing how much you can spend you may spend weeks looking for a home to find the perfect one only to find out later that it is out of your price range.  Contact an experienced lender to start the pre-qualification process before you start looking.  Your Realtor® can connect you with great lenders in your area. (top)

Should I get pre-qualified by more than one lender?
No.  Filling out one application from a trusted lender is enough.  Lenders will assess your application and check your credit report and scores before letting you know how much you are pre-qualified for.  Having more than one lender check your credit report can affect your credit score.  Your Realtor® can recommend a reputable lender and help you walk through the pre-qualifying process. (top)

What type of loan is right for me?
Before making the leap into home ownership you should explore different financing options.  Your Realtor® is a valuable resource in this area and can most likely refer you to a lender that they trust.  Your lender will help you with the pre-approval process and can recommend the right type of loan for you base on your circumstances.  Furthermore working with a lender from the start can make the entire loan process smoother.  They will guide you through the necessary paperwork and work closely with you and your realtor to find a home that works best for you.

FHA Loans
An FHA loan is insured by the Federal Housing Authority and usually requires a smaller down payment than a conventional loan, typically around 3.5 to 5 percent.  FHA loans are very popular with first time homebuyers who in most case do not have a lot of case on hand to use as a down payment.  Most FHA loans are in the $150,000 or less range.

Advantages of an FHA Loan
 FHA loans have several advantages over conventional financing.  They require a small down payment and usually allow for a higher debt-income ratio, making it easier for first time purchasers to qualify.  FHA loans are also assumable, which mean you can assume the FHA loan of another person or vice versa, if you qualify.

Disadvantages of an FHA Loan
FHA loans require dual insurance.  Since FHA loans are considered high risk, you may have to fist pay an up-front MIP (Mortgage Insurance Premium), a one time fee that protects the lender in the case of a loan default.  Also, a second MIP is factored into your monthly loan payments.  Finally, since FHA loans are considered high risk, the interest rates are usually higher than a conventional loan.

VA Loans
A VA Loan is guaranteed by the Veteran’s Administration and is available to any active duty or military veteran.  The largest benefit of a VA loan is that you don’t need a down payment; very little cash is required to move in.

Disadvantages of a VA Loan
VA loans require a funding fee that is typically “rolled into” the loan amount.  This can mean that the mortgaged value of your home can be higher than the actual value.  If you only plan to live in your new home for a short period of time you run the risk of losing money when you sell.  In a scenario such as this your mortgage obligation could be higher than the market value of your home.

Conventional Loans
Conventional loans require a larger down payment than other financing options, typically at least 20% of the purchase price of the home.  But are viewed as much less of a risk to the lender and may, as a result, have a lower interest rate.  You may also have to pay PMI (private mortgage insurance that lenders require to protect themselves in case of default), PMI is usually “rolled into” your monthly mortgage payments.
Typically conventional borrowers pay all of their closing costs.  Furthermore, the appraisal process focuses not only on the market value of the home, but on its “as is” condition and may have an affect on how much your lender will approve for the home. (top)

Should I get a 30 year or 15 year loan?
By far a 30 year loan is most common.  The advantage of having a longer term loan is much lower mortgage payment as they are spread out over 360 months.  The downside is the higher amount of interest that you will pay over the life of the loan.  A shorter term loan will save you money in interest.  However your monthly payments are typically much higher. (top)

Is it unreasonable to ask the seller to pay for closing costs?
It is not unreasonable to ask the seller to pay closing costs; it is all part of good negotiation.  Remember though to take into consideration the market, the time the home has been for sale, the condition of the home and more when making that decision.  You should consult your Realtor® they will be able to determine the best course of action. (top)

How should I choose a mortgage lender?
A knowledgeable mortgage professional can help set goals to secure a loan that is suited for your needs.  Home loans are available from a number of institutions – banks, credit unions, mortgage bankers and mortgage brokers.  Not all lenders are trustworthy and finding the right lender can be frustrating.  Consult with a Realtor®.  Most have worked with lenders in your area and can guide you to the one that will fit your needs. (top)

You can also see a list of recommended lenders in your area by clicking here.

Homeowner Services of America and its subsidiaries do not warrant this information to be accurate.  Consult your mortgage professional or Realtor® before making a lending decision.