Applying for a Loan
Finding a Lender
Mortgages are available from a wide variety of sources, including mortgage companies, commercial banks, and other financial institutions. Your real estate sales professional is likely to have information about who to work with to get a mortgage in your area. Also, ask friends, relatives, and colleagues about where they got their mortgages.
There are online sources of information that may be helpful. Our list of Housing Opportunity Lenders who also are familiar with some of the housing assistance programs found on this website can help focus your search.
As you begin working with your lender and apply for your mortgage, take advantage of the glossary found on this website that will help you become familiar with some of the terminology used in the home-buying process. Also read through the HUD handbooks that you'll receive when you apply for a loan. One is about closing costs and the other is about adjustable rate mortgage loans.
Choosing a mortgage
Choosing the right mortgage is a very important step in the home buying process. For more information, click here to access the HUD "Looking for the Best Mortgage" guide.
There are several different types of mortgages, among them:
- Fixed-Rate Mortgages - These are the most popular type, and offer an interest rate that remains constant for the duration of the loan.
- Adjustable-Rate Mortgages (ARMS) - These come with an interest rate that will adjust from time to time to keep pace with changing market rates. If you consider an ARM, be careful to understand the terms and conditions as well as how much and when it adjusts.
- Low and No Down Payment options - These may waive the down payment requirement entirely, or require as little as three and one-half percent down, depending on the borrower's credit.
- Special Financing Mortgages - Some programs are created for people in certain occupations, such as police officers or public school teachers. Others seek to assist those with low or moderate incomes, disabilities, etc. See the Home Program section of this website for a list of programs available in your area.
Shopping Interest Rates
You should know the interest rate and APR (Annual Percentage Rate), and keep the quoted rates in mind when shopping for a mortgage loan. Ask your lender if interest rates are likely to increase during the time that your loan is being processed. If so, it may be a good idea to lock in the current rate – although you may have to pay points to do so. Ask your lender for more information about that option.
If you choose to lock the interest rate, make sure the starting and ending dates of the lock are clearly disclosed in writing, and cover the time needed to close the loan.
Loan application costs
Most lenders will require you to pre-pay an application fee, credit report fee and/or appraisal fee when you apply for your loan.
You may want to discuss with the lender which fees are non-refundable if, for any reason, you do not close on the loan.
The lender is required by law, within three (3) days of applying for the loan, to provide you with a good-faith estimate of the closing costs you'll be responsible for paying. You should also receive a government publication called Shopping for Your Home Loan, HUD's Settlement Cost Booklet, explaining any and all expenses you may pay upon the loan closing.
The appraisal process
When you make an offer on a home and the offer is accepted, you will need to apply for a mortgage loan. The mortgage lender will order an appraisal from a qualified appraiser. The appraiser's job is to look at recent sales in the area and to provide a value of the property you are purchasing. This valuation helps the lender verify the home is worth as much as the buyer is paying for the property.
If the property does not appraise for your purchase amount, you may not be able to secure financing or you may need to work with your lender to change the terms of your financing.
Your real estate professional should help construct your offer to purchase to state the purchase offer is contingent on your ability to secure financing. A contract may very likely be contingent on the appraised value coming in at or above the purchase price. If it doesn't appraise at that level, the contract may be voided or renegotiated.