Finding a Lender

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If you have already used the Affordability Calculator to obtain an estimate of the maximum loan amount, house price, and the types of loan programs for which you may qualify, the next step is to find prospective lenders in your area that may formally approve the loan. This is also the time for you to ask your local lenders about opportunities in the following programs:

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  • Government Loan Programs: FHA and VA offer loan programs particularly beneficial to low- and moderate-income individuals. Contact your local FHA and VA lenders to learn more about these government loan opportunities. Additionally, you may want to find out about
    opportunities through the Native American Programs and the Rural Housing Service (RHS).
  • State and Local Housing Programs: Potential home buyers can familiarize themselves with the variety of state and local housing programs that offer additional benefits in their local area.
  • Ginnie Mae's Targeted Lending Initiative (TLI): A government initiative offering increased mortgage loan availability in designated areas that have been traditionally underserved. These service offerings are especially beneficial for low-income and moderate-income home buyers.

In this section you'll be able to search for a lender to meet your needs, learn how to choose a lender, and get pre-approval from a lender.

It is a good idea to get pre-approval for a loan. Pre-approval is a formalized process that can facilitate the loan application process.

Pre-approval is a commitment on the part of the lender to provide you with a specific loan amount, however, it is not tied to a specific house. The lender will perform a detailed review of your current financial status, and you will need to provide the lender with documentation on income and debt-related information.

If you are pre-approved, it means that the lender has thoroughly reviewed your financial history, evaluated your risk, and decided that you have the ability to pay back the loan.

While pre-approval is not a requirement, it is advantageous for you to obtain a pre-approval letter from the lender. This makes your case much stronger in the eyes of the seller. In a competitive real estate market, presenting this letter to your real estate agent and to the home seller may assist you in securing a contract on a home. Since the lender has pre-approved you for a mortgage, the seller can be assured that you are serious about your offer and that the contract is less likely to fall through.

Glossary

Adjustable-rate mortgage (ARM)
A mortgage that does not have a fixed interest rate. The rate changes during the life of the loan in line with movements in an index rate, such as the rate for Treasury securities or the Cost of Funds Index.
Amortizing loan
Monthly payments are large enough to pay the interest and reduce the principal on your mortgage.
Cap, interest rate
A limit on the amount your interest rate can increase. Interest caps come in two versions:

item periodic caps, which limit the interest-rate increase from one adjustment period to the next, and

item overall caps, which limit the interest-rate increase over the life of the loan. By law, virtually all ARMs must have an overall cap.

Cap, payment
A limit on how much the monthly payment may change, either each time the payment changes or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may lead to negative amortization.
Equity
The difference between the fair market value of the home and the outstanding mortgage balance.
Good faith estimate
The Real Estate Settlement Procedures Act (RESPA) requires your mortgage lender to give you a good faith estimate of all your closing costs within 3 business days of submitting your application for a loan, whether you are purchasing or refinancing a home. The actual expenses at closing may be somewhat different from the good faith estimate.
Index
The index is the measure of interest-rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. No one can be sure when an index rate will go up or down. Some index rates tend to be higher than others, and some change more often. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where the index is reported.
Interest
The price paid for borrowing money, usually given in percentages and as an annual rate.
Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Negative amortization
Occurs when the monthly payments do not cover all the interest owed. The interest that is not paid in the monthly payment is added to the loan balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan.
Prepayment penalty
Extra fees that may be due if you pay off the loan early by refinancing your home. These fees may make it too expensive to get out of the loan. If your loan includes a prepayment penalty, be aware of the penalty you would have to pay. Ask the lender if you can get a loan without a prepayment penalty, and what that loan would cost.
Principal
The amount of money borrowed or the amount still owed on a loan

For More Information

Looking for the Best Mortgage--Shop, Compare, Negotiate
Consumer Handbook on Adjustable Rate Mortgages
A Consumer's Guide to Mortgage Settlement Costs
Partners Online Mortgage Calculator

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