Home loans can be used for various reasons, but the primary reason is typically to purchase a home. While there are almost numerous specialty programs available out there, your best bet to find the right program is to talk with a knowledge mortgage lender or broker in your area. We will talk a bit about FHA and USDA Rural loan programs here on our site, but there are many other programs around the country, often based on your geographical area and local economy. All this being the case, there are some general factors that are present in all purchase transactions, and you’ll want to keep these in mind.
While there are some programs available that don’t require it, a down payment will be quite helpful. For an FHA loan, you will need at least 3.5% down. For a conventional mortgage you might be able to get by with only 5% down, but in most cases will need 10% down. Keep in mind that you will most likely need to “source” your down payment – prove where it came from. If it is your cash, you’ll have to show bank statements showing that money sitting in your account. If it is a gift from a family member, you’ll need them to sign a “gift letter” stating that it was indeed a gift and that they do not expect it to be repaid.
Be sure to plan for Private Mortgage Insurance (PMI).
Some other upfront costs you’ll need to plan for are the appraisal and home inspection. The appraisal is required by all mortgage lenders and is required to be paid outside of closing most of the time, meaning you have to pay it out of pocket. The lender or broker will arrange the appraisal appointment, as it is now illegal to request a specific appraiser due to potential bias-driven fraud. The appraisal is required in advance of closing to ensure that the home is worth at least what is being borrowed. This assures the lender that the collateral is sufficient for the security of the loan funds. The inspection is often not required, but is strongly recommended for all home purchases. A home inspector does not determine home value, but inspects the homes structures and features to look for any potential problems. All states in the U.S. have minim requirements for licensed home inspectors (make sure your inspector is properly licensed!), but some inspectors may go “above and beyond” and be even more thorough than required. Inspectors will examine parts of the home such as the condition of the foundation, the electric system wiring, the roof condition, wood material condition, evidence of water damage, etc. Many lenders will also require a termite inspection, which is typically separate from a standard home inspection, but can typically be setup and grouped together. These are costs that you would have to pay yourself, out of pocket, immediately following the signing of the sales contract. Please be aware that should the deal fall through for any reason, you will still be responsible for these costs and they will not be refunded.
Lastly, keep in mind that purchase transactions are not always a smooth process. The sales contract negotiation process alone can have bumps along the way, even after the initial contract is agreed upon. Aside from that, the loan underwriting process can at times be complicated and stressful. Prepare yourself for potential hang-ups and hurdles, and try to be as flexible as possible. This includes negotiating a reasonable closing period for the purchase of the home. If you try to close too quickly, you may not leave enough time for everything to get taken care of appropriately.
If you would like to speak with a mortgage loan specialist about your options, please feel free to fill out our mortgage loan application, beginning with the form on the right side of your screen. Once complete, we’ll get you in touch with someone who can help you!