What You Should Know
Before Buying a Home
- Before you start looking
for a home, get pre-qualified for a loan. Banks,
credit unions and mortgage bankers make home loans;
mortgage brokers process them. The lenders will
take an application, process the loan documents,
and see the loan through to the funding stage.
- If you have marginal or
bad credit, consult your lender. You may
be able to qualify for a loan depending on how
long ago and what reason(s) caused the bad credit.
A lender should be able to advise you on whether
your credit history will prevent you from qualifying
for a home loan.
- You will need a down payment. Down
payment requirements vary depending on the type
of loan. Many down payment assistance programs exist.
These programs may loan or grant you the funds
necessary for the down payment. Consult with a lender
about programs available in your area.
- You
will need funds for closing costs Closing
costs are charges for services related to the closing
of your real estate transaction. They include,
but are not limited to:
- Some
loans have "points" and
some do not. A point is a loan origination
fee equivalent to 1% of the loan amount. Together
with the interest rate they constitute the yield
on your loan for the lender. Some lenders charge
a higher interest rate to compensate for charging
no points. It is important to comparison shop
lenders to make sure your loan is at a competitive
yield.
- Should you select a mortgage
with a fixed rate or an adjustable rate? The
answer to this question depends on whether
mortgage rates are at a high or a low point
when you purchase, and on how long you plan
to live in the home. If rates are high, an
adjustable rate might be attractive since subsequent
rate drops could reduce your monthly payments.
Additionally, lenders may offer a low
rate during the first few years of an adjustable
mortgage to make it appealing to you. If interest
rates are low you might want to take a fixed
rate to protect yourself against the possibility
of rising interest rates.
- Be aware
of the two main types of loan categories.
- Conventional Loans. Conventional mortgage
loans are available with fixed or adjustable
interest rates. Some loans may require
mortgage insurance.
- Government
Loans. These include
Federal Housing Administration (FHA) fixed and
adjustable rate mortgage loans, and
Veterans Administration (VA) fixed rate mortgage
loan
- If
you are a low or moderate income homebuyer,
there are special programs designed to
help you. These
loans are available through private lenders,
as well as local and state housing agencies,
like the California Housing Finance Agency
(CalHFA). Most lenders specializing in
real estate mortgage loans are aware of these
types of loan programs.
- Why might
I have to pay mortgage insurance? Mortgage
insurance protects the lender from potential
loss if you should default on your
mortgage loan payment. Generally, conventional
loans that require larger down payments
do not require mortgage insurance.
Mortgage insurance is always required
on FHA mortgage loans.
- Many
organizations offer home loan counseling
to prospective homebuyers. These organizations
provide classes for homebuyers to cover the steps
to homeownership. They will cover home selection,
realtor services, lenders, loan programs, homeownership
responsibilities, saving for a down payment,
and other important pieces of information. Many
first-time homebuyer programs require homebuyers
to attend this type of class to be eligible for
selected programs.
Homebuyers interested
in applying for financing should contact one of
CalHFA's approved
lenders.
CalHFA does not lend money directly to consumers. CalHFA works through and uses approved private lenders to qualify consumers and to make all mortgage loans. CalHFA purchases closed loans that meet CalHFA's requirements. The fees consumers pay could be different depending on the lender and the program.
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