What You Should Know Before Buying a Home

Preparation: Get Pre-Qualified for a Loan 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.

Credit Assessment: Consult Your Lender 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.

Down Payment: Understand Your Requirements 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.

Closing Costs: Plan A head You will need funds for closing costs. Closing costs are charges for services related to the closing of your real estate transaction. They include:

• Escrow fees charged by the company handling the transaction
• Title policy issuance fees charged by the title insurance company
• Mortgage insurance fees
• Fire and homeowners insurance
• County Recorder fees for recording your deed
• Loan origination feesConsult your lender for an actual estimate of these costs, as well as information about loan programs which can assist in financing your closing costs.

Understanding Points and Interest RatesSome 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. It is important to comparison-shop lenders to make sure your loan is at a competitive yield.

Fixed Rate vs. Adjustable Rate MortgagesShould 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.

Loan Categories: Conventional vs. Government LoansBe aware of the two main types of loan categories:

• Conventional Loans: Available with fixed or adjustable interest rates. Some loans may require mortgage insurance.
• Government Loans: Include FHA fixed and adjustable-rate mortgage loans and VA fixed-rate mortgage loans.

Special Programs for Low or Moderate Income HomebuyersIf 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. Most lenders specializing in real estate mortgage loans are aware of these types of loan programs.

Understanding Mortgage InsuranceWhy 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.

Home Loan CounselingMany organizations offer home loan counseling to prospective homebuyers. These organizations provide classes for homebuyers to cover the steps to homeownership. Many first-time homebuyer programs require homebuyers to attend this type of class to be eligible for selected programs.