The Mortgage Process: An overview

Most people will require a mortgage when purchasing a new home. This means a bank or other financial institution finances the purchase by allowing you to borrow enough money to buy a home for sale and make it your own. You, the borrower, slowly pay the money back with interest over a period of many years.

Once you have chosen a bank or mortgage broker and gone through the thorough application process, you will be informed of how much the institution is willing to loan you. If you have money saved up for a down payment, it is easy to combine the two figures and then your real estate agent will come up with a list of properties in the general price range of homes for sale that you should be looking at.

Keep in mind that your monthly mortgage payment is more than just repayment of the loan with interest. In that monthly payment there are also property taxes, insurance on the property and PMI (private mortgage insurance) which is required by loan institutions if you are borrowing more than 80 percent of the homes value (your down payment is less than 20 percent).

Your Realtor will be able to tell you the annual property taxes of each home you look at. But for the purpose of figuring out how much they can loan you, financial institutions will estimate the cost of these extras and factor that in to the equation of how much you are allowed to borrow.

Next comes selecting the “right” mortgage for your needs. It may be your first home purchase, or perhaps you are looking at new home construction or simply selecting from the many homes for sale in New Hampshire. As you narrow down the search criteria for a home, your mortgage broker can tell you about financing programs specific to your needs and the benefits or draw back of each type of loan.

Mortgage Types: An Overview

Conventional or Government-Backed
In a conventional mortgage, a private lender assumes the risk of losing its money if you default on your loan. A government-backed loan is basically insured by the government, meaning the government is not the lender but it does promise to pay back some or all of the lender’s money if the borrower defaults. This reduces the risk for lenders when it comes to foreclosures.

Who is Fannie Mae?

Fannie Mae is a private company and government-sponsored entity that buys loans from mortgage lenders then packages them in groups and sells them to outside investors to insure they have the funds freed-up to continue buying loans.

Who is Freddie Mac?

Freddie Mac is a government-sponsored entity that essentially does the same buying, packaging and re-selling process of loans from mortgage lenders to outside investors.

These types of loans may be good option for anyone who may not qualify for a conventional loan. Government-backed loans tend to have a lower down payment requirement and less-stringent credit score requirements, though they may carry a higher interest rate.

What are some Government-Backed Loans?

FHA loans: These loans work well for first-time home buyers and are an option to anyone who qualifies. They typically provide competitive rates, less-stringent credit requirements and lower down payments than other types of loans.

VA loans: Available to eligible veterans and their spouses only, these loans offer low down payments and lower interest rates.

The difference: Fixed-Rate versus Adjustable-Rate

Fixed-rate mortgages have the same interest rate (the percentage of added cost for being able to borrow the money) for the entire span of the loan. Adjustable rate mortgages (ARMs) means your interest rate may change throughout the life of the loan.

Once you choose a mortgage product and find that perfect New Hampshire home (or maybe the ideal home over the border in Massachusetts or Maine), the next step is placing an offer, negotiations, a home inspection and finally, the closing on your home mortgage.