Chapter 2

KNOW YOUR MORTGAGE

Federal Housing Administration (FHA) Loans

Federal Housing Administration (FHA) insured loans are made by private lending institutions such as banks, savings & loans, or mortgage companies to eligible borrowers for the purchase of a home. To secure an FHA loan, a borrower must apply and qualify with a certified FHA Lender.

 

Additionally, eligible borrowers must be able to pay a minimum of 3.5% of a home's purchase price. If the loan is approved, FHA will insure a portion of the loan's value to the lender.

Veterans Administration (VA) Guaranteed Loans

The best type of loan for you will likely be based on the down payment you can afford and the length of time you plan to
spend time in your home.


If you're considering a variable rate mortgage, you'll want to be sure to understand what a rate increase could do to your monthly payment. Be sure to ask when and how your loan payment will vary.

VA Home Loans are available to qualified veterans and their spouses. Private lending institutions issue the loans which are in turn guaranteed by the Veteran's Administration. The VA does not require any down payment on VA Guaranteed Loans and allows the borrower to receive a competitive, fixed interest rate.

Know Your Rate – And Your Terms

When you start shopping for a loan, you'll start looking at interest rates. The interest rates, terms, and fees for a mortgage will be based on your qualifications as a borrower and on the current lending market. Keep in mind though that finding the right loan is not just about finding the lowest interest rate possible. Mortgage institutions offer loans of varying terms – typically 30, 20, or 15 years. Shorter term loans can save you thousands of dollars over the life of your loan if you can afford a higher monthly payment.

 

You'll want to get a complete picture and break down what a given offer means to you on a monthly basis as well as how much money you'll be spending over the life of the loan.

 

At a minimum, you should request quotes with a few different scenarios from a few lending institutions and compare the financial impact of each situation before you determine your best course of action. Shopping around is worth your time!

When you receive quotes – ask your lender whether you're being quoted the lowest rate for the day or week. Ask what the loan's Annual Percentage Rate (APR) is. The APR will express as a yearly rate all of the fees associated with a loan.

 

If you are satisfied with a proposed interest rate, you can ask your lender if he or she can lock-in the quoted rate. There may be a fee associated with locking in a rate and the agreement will generally only last 60 to 90 days.

Chapter 2 Page 5

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