Mortgage 101



It’s always a good idea to get pre-approved (better yet pre-qualified) by a lender before you start looking for a condominium or home. Most will give you a free consultation. Once you’re pre-approved, you’ll know exactly what you can afford. Then you can act immediately when you find the property you want, and Sellers will be more comfortable accepting your offer.



What to Expect In Your Initial Conversation With A Lender ...



A mortgage lender will typically evaluate various areas of your financial history to determine your ability to secure a loan. They will also request documentation of your credit-worthiness as follows:


      Routine documentation you should have available:



The Loan Market ...



It is important to know that most of the financial institutions making the loans sell almost all their loans on what is known as “The secondary market”. The lender you work with is referred to as the ‘originator’. Your loan is then sold in the ‘secondary market’. The largest buyers of loans are agencies called FNMA (Fannie Mae), FHLMC (Freddie Mac), and GNMA (Ginnie Mae). These huge organizations constitute the ‘secondary market’ and write the rules for loans that they will buy. A lender must then follow the rules these agencies have written in order for the loan (borrower and property) to qualify as conventional, VA, or FHA. During the loan process, an Underwriter will evaluate your loan. Their job is to make sure that the loan fits the guidelines for a particular program(FHA, VA,  or Conventional), so the loan can be sold.


FHA Loans are government-insured loans that were instituted to assist Buyers with minimal cash and first-time Buyers to purchase a condominium or home. An FHA loan has more lenient guidelines for the borrower's credit history, allows for all or part of the funds needed by the borrower to be a gift, and has stricter requirements on the property’s condition for the protection of the borrower. FHA loans do require inspections to ensure that the property meets the FHA guidelines.


VA Loans are entitlement loans that are earned based on the number of years served in the armed forces. If you were an active service member at one time in the past. It is recommended to talk to the United States Department of Veterans Affairs to get more information about your VA entitlement. Just like FHA loans, VA loans also require inspections to ensure that the property meets the VA guidelines on the property’s condition for the protection of the borrower.


Conventional Loans meet the standards of the ‘conventional’ secondary marketplace. There are two types of conventional loans, Conforming and Non-Conforming.



The Difference Between Fixed and Adjustable Rates …



Fixed-rate mortgages are when your monthly principal and interest payments are always the same for the life of the loan. The benefit is that you always know what your principal and interest costs are. Fixed-rate loans are usually amortized (paid in full) over a period of 30, 20, or 15 years. Your monthly payments are predictable over the life of the loan. (Keep in mind that your monthly mortgage payment may include principal and interest AND 1/12 of your annual property taxes and condominium or homeowners’ insurance. So although the principal and interest will remain steady, the taxes and insurance amounts can vary.)


Adjustable-rate mortgages (ARM) allow for the interest rate to fluctuate, which makes the payment change during the life of the loan. ARMs start off with a fixed interest rate for a determined period of time (1, 3, 5, 7, 10 years), and then adjust annually after that. Typically, the shorter the fixed term is, the lower the initial rate. The lower rate means lower payments for that period of time. Once the rate adjusts, the payments can go up, if the interest rate is higher. Most loans adjust annually after the fixed-rate period.



Which Mortgage May Be Best For You …



There are literally dozens of loan products and hundreds of combinations of these products. A good loan consultant will listen to your needs, evaluate your situation, and recommend loan scenarios that fit your need. A condominium or home loan should fit into your overall financial plan, and help meet your long and short-term financial goals with the desired monthly payment and equity position.


Just calling around for the best rates on a 30-year mortgage could cost you thousands of dollars over the life of your loan if you don’t get the loan that best fits your needs. There is so much more to the condominium or home loan process than just rates. A professional loan consultation is a vital first step in the process and is usually at no cost to you.



Mortgage Calculator


Ten Questions You Need to Ask …



Your real estate professional can assist you in finding a lender for a consultation. Make an informed decision when selecting your mortgage lender. Consider asking the following questions when talking with a lender: