There are many sources of mortgage money. Mortgage companies act as brokers for institutional investors such as the Federal National Mortgage Association (FNMA) and others. There is competition between lenders and you should shop for financing. Don’t except the agent’s related company without comparison shopping. Deal only with reputable, known and recommended lenders. If the lender you choose cannot deliver your loan on time, you may lose your new home. We have not had good experiences with Internet or out-of-state lenders.
How long will application and approval take?
Most loans close in 40 to 50 days, which is standard for the mortgage industry regardless of the type of financing.
How do you “lock in” the rate and can it float down?
Mortgage lenders typically offer rate locks for 30, 45 or 60 days, though it’s possible a rate lock with a longer term could be available. Check with your lender about their rate lock options.
Fees for rate locks vary by lender, but the longer the rate lock term, the more you will pay for it. Ask the lender if you lock in your mortgage rate and then rates drop, will you be able to take advantage of a lower rate.
Will you need private mortgage insurance? What will that cost?
Lenders will require mortgage insurance when you put less than 20% down. This does not pay the loan off if you die or become disabled. It only serves to protect the lender against your default. One option to avoid mortgage insurance is to place an 80% first trust and a second trust to provide the additional financing you need.
Will the loan be “assumable” and under what circumstances?
Almost all new mortgages and not assumable. You may be able to assume (take over) the owner’s mortgage. An assumable mortgage is a financing arrangement whereby an outstanding mortgage and its terms are transferred from the current owner to a buyer. By assuming the previous owner’s remaining debt, the buyer can avoid having to obtain their own mortgage.
Be sure you understand the terms of the loan.
When making application, be sure you understand the terms of the loan and fees the lender will charge you. These may include service charges, points, appraisal fees, escrow fees, tax service fees, document preparation or lender’s attorney fees. The lender should provide you with a good faith estimate of all of your closing costs.
Certain charges collected when you apply for the loan may be non-refundable. If the lender turns down your loan, or you change your mind and transfer or withdraw your application, you will not get back the appraisal or credit report fees.
- Most contracts contain a contingency that will cancel the contract if the lender denies your loan or the property does not appraise for a high enough value. You must diligently pursue loan approval and apply for a loan within 5 days of contract ratification or you are in default. Many builder contracts do not contain these contingencies.
- You may apply for financing other than as specified in the contract, but you must obtain a contract addendum signed by the seller or you will waive the financing contingency.
- Set the settlement date and date of possession. Avoid the last few days of the month, if possible. They are the busiest and delays may result.
- If you need to sell a house in order to buy a new one, your contract can be made contingent on the sale of your house but you will need to add contingency language.