So you have decided to buy a home and are looking for a home loan package that suits your needs. Before you start, the first step in buying a home is mortgage pre-qualification, or getting a quick snapshot of your financial situation - your income, existing debts, savings, employment, etc. These factors are analyzed to determine your mortgage loan eligibility and how much you can afford.
Mortgage pre-qualification can be done by a mortgage broker or by a local banker. A mortgage broker will have access to several loan programs from which you can choose. Your local banker will be limited to provide you only with his bank's programs. A mortgage broker can help get you a loan and guide you to select the loan most beneficial to you and your long-term goals and then, help you manage that debt over time. You could find a good mortgage broker by asking relatives or friends. If they have no referrals, you could go online and look for a mortgage broker.
After getting pre-qualified, a pre-approval letter is issued by your mortgage broker or banker. This is written documentation that shows you have the support of a lender who is willing to finance your home purchase.
All home loan programs can be divided into 2 categories (conventional loans or government loans) and in three different types of loans (fixed rate, adjustable rate, and a combination of fixed and adjustable). It is important that you know your current and long term goals so that you can compare the different loan programs and narrow down your choice into that which fits your goals. The amount of your monthly payment also depends on what loan program you choose.
FHA, VA and RHS are government loans. Any loans other than these 3 are conventional loans. The Federal Housing Administration (FHA) administers FHA loans that generally have lower down payment requirements. It is easier to qualify for FHA loans than conventional loans. VA loans are guaranteed by the U.S. Dept. of Veterans Affairs. It allows veterans and service persons to obtain home loans with favorable loan terms. The Rural Housing Service (RHS) of the U.S. Dept. of Agriculture guarantees rural residents can have loans with minimal closing costs. In addition to this, they guarantee no down payment.
There are conforming conventional loans and non-conforming ones. Certain terms and conditions are detailed in conforming loans that follow the guidelines set forth by Fannie Mae and Freddie Mac. These are two stockholder-owned corporations that purchase mortgage loans and sell them into packages to investors. Both corporations established the guidelines for conforming loans which include: maximum loan amounts, borrower credit and income requirements, down payments, and suitable properties. Those loans outside of Fannie and Freddie's guidelines are non-conforming loans.
After you've owned your home for a few years, you might be interested in tapping into the equity in your home by refinancing your mortgage. Banks offer several kinds of home-equity financing options. If you refinance, the process of refinancing a mortgage is simply taking out a new mortgage. Almost the same procedures (and costs) are done. Since you've gone through them before, you shouldn't find the process difficult.