Obtaining Financing

Most people need a mortgage in order to purchase a home. While many financing options are available, these are the most common:

FHA Loans
Insured by the Federal Housing Administration,FHA loans are popular because of the lower down payment required. They exist to help finance low to average-priced homes. The maximum loan amount varies by county. In addition to principle, interest, tax and insurance, FHA loans require a payment of a monthly Mortgage Insurance Premium (MIP) of .5% of the loanbalance.

VA Loans
Guaranteed by the Veterans Administration, VA loans are available to buyers with VA eligibility and typically require no downpayment, though closing costs and fees must be paid at the time of closing. Most new homes and many resale homes may be financed under the VA-guaranteed loan method.

Conventional Loans
Almost any home can be financed with a new conventional loan. Normally, twenty percent of the purchase price is required as a down payment, but this can vary with special circumstances.

Other Considerations:

Fixed Rate Mortgages
These are mortgages where the monthly payment amount remains fixed over the life of the loan. Many buyers choose fixed rate loans because they like the security of knowing their payments won't go upover time.

Adjustable Rate Mortgages
"ARMS" are popular because they enable buyers to qualify for a more expensive home than they would otherwise. Buyers qualify based on a lower rate at the beginning of the mortgage period, which then adjusts over time in accordance with a specific formula. Buyers take the risk that payments could rise over the life of the loan -- sometimes substantially. Many ARMS are tied to specific national economic indices, however, which means a possibility of payments adjusting downward as well as upward.

Mortgage Loan Term
This refers to the number of years allowed for repayment of the mortgage. A longer mortgage term (such as the typical 30 year loan) allows for lower payments, but the mortgagee pays a great deal more interest over the life of the loan. 15 year loans have become popular over the years because buyers know they'll build equity faster and end up paying far less for their home. But the higher monthly payments mean they buy a less expensive home than they could qualify for with a 30 year loan. Each buyer has to decide which option works best for them. Lenders may also offer loans that have 10 and 20 year repayment periods.

Mortgage Pre-Qualification
Buyers are well-advised to go through the "Pre-Qualification" process with mortgage lender prior to their home search. This will give you an accurate idea of the mortgage amount you can qualify for, which determines how expensive a home you can buy. The mortgage company will issue you a "pre-qualification letter" stating the maximum mortgage amount they would lend. This document is useful to have before you enter into the negotiating stages for any property -- especially in a strong market where multiple offer situations can occur. Sellers will give greater consideration to your offer if they know you are financially able to complete the transaction. Many lenders offer a quick and easy pre-qualification process. We recommend Julia Danyliw and A Grade A Mortgage, who offers pre-qualification at no cost or obligation. Call Julia at 303-570-6171 for more information.

Mortgage Application Process
The mortgage application process can take place before or after you've entered into a contract topurchase a home. In a strong real estate market, getting mortgage PRE-APPROVALis a good idea. It removes any question as to whether you will be able to obtain financing and complete a purchase transaction. Whether you go through the loan application process before or after signing a sales contract on a home, the lender will need certain documentation from you to assemble a loan package for consideration by the underwriting department.