US Mortgage Corporation (NMLS ID#3901). Corporate Office is located at 201 Old Country Road, Suite 140, Melville, NY 11747; 631-580-2600
or (800) 562-6715 (LOANS15). Licensed Mortgage Banker-NYS Department of Financial Services- AK, AL, AR, CA, CO, CT, DC, DE, FL, GA, IA,
ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MS, MT, NC, ND, NE, NH, NJ, NM, OH, OK, OR, PA, RI, SC, SD, TN, TX, VA, VT, WA, WI, WV, WY State
Banking Departments/Regulators. Rates, fees and program guidelines are subject to change without notice. Certain restrictions may apply.
Some loans arranged through third parties. First mortgages only. Not all products and/or programs are available in all states.
An Introduction To
First-time home buyers always seek to find information about the various mortgage loan options
to finance their home purchase. This is your first step in the home purchase process. It is more
important to make financial arrangements to buy a home before you even begin to look for a
suitable property. Fix your budget before you scour for properties.
Once you fix the budget, figure out how much of the budget you can fund from your savings.
Most lenders will require you to make a down payment on the purchase price of the property. If
you can fund a certain percentage of the price, you can begin to look for lenders who can fund
the rest of the purchase. After this, you have to check your credit report. A good credit score is
very important for a loan approval process. If your report shows delayed payments, too many
debts, and other such negative factors, then it will make a huge impact on the loan approval
process. If you have a good credit score, lenders would offer you loans at lower interest rate. For
a borrower with a low credit score, the interest rates charged are higher.
There are many types of loans to suit the various situations of a borrower. The following chapters
encompass the different loan options that you can choose from to finance your home purchase.
Understand each loan and decide for yourself which is best suited for you.
Generally when you wish to purchase a house, you could apply for a mortgage loan with any
financial institution. While you borrow a loan from the lender to buy a property, a mortgage
agreement is filed. The property is held as security, which may be foreclosed by the lender if
you default on your loan. It is a good option if you wish to close the debt by repaying before
the deadline of mortgage agreement to reduce the amount you pay as interest in total.
A loan application process can start even before your purchase. It is advisable to seek
pre-approval for the loan from the lender by producing necessary documents well before
your purchase. Lenders require a lot of paperwork that includes proof of your income, credit
report, tax return documents, documentation of all your assets, etc. Your credit report is very
important in the loan approval process. Lenders are generous to borrowers with a good credit
score. If you have a credit score over 700, you are likely to get a loan at low interest rates
unlike borrowers with a bad credit score.
The risks involved in conventional home mortgage include that of foreclosure if you default on
the payment. These loans do not cover processing costs during your purchase. A conventional
loan is not easily available for buyers with a bad credit report. However, it is indeed a great
option for good credit score holders as they can make relatively low monthly mortgage
payments with flexible terms of the loan agreement. This type of loan has many restrictions
and eligibility criteria.
There are mainly two types of mortgage loans depending on the interest rate and period of
payment. Fixed-rate mortgage is a loan in which the interest rate is fixed for the complete
period of the mortgage agreement. As a borrower, you will have to make the same amount
of payment every month until you clear your debt. A variable or adjustable rate mortgage is
a type of loan where the interest rates fluctuate with time. The interest rate may increase or
decrease according to the change in bank policies, regulations of the central bank, etc. In this
case, there is a disadvantage for the borrower as in he might end up paying more interest on
Usually, after purchasing a property, you would be expected to make a down payment on the
loan. The down payment you make depends on the cost of the property and also decides the
loan to value ratio. This ratio indicates the risks in the mortgage loan. If the ratio is high, then
the property value upon foreclosure may not be sufficient to cover the balance loan amount.
One of the major factors in the loan process is the value
of the property. Any appreciation or depreciation in
the value of the property could affect the terms
of the loan or the loan approval process. The
lenders use their own appraisers to estimate
the value of the property you wish to purchase.
The normal time period is very long for the
mortgage payments on a conventional mortgage
loan. Due to this, a borrower might have to pay
a large interest on the principal.
You can get a mortgage loan that is insured by FHA (Federal Housing Administration), also
known as an FHA-insured loan. If you have a low annual income and cannot afford to buy a
home, the FHA loan assists you in the purchase. Typically the lender would pay almost 1% of
the loan amount as premium for the mortgage insurance to the FHA on behalf of the borrower.
This loan was initiated as a result of the Great Depression which occurred in the 1930s. It was
during this time that many foreclosures happened which caused great loss to lenders.
The FHA on its own does not provide loans. Instead, it insures loans provided by private lenders.
While approaching for any loan, you have to contact a mortgage broker or several lenders.
You have to find out if they have the permits from the Department of HUD (Housing and Urban
Development) to provide FHA insured loans.
Generally, FHA-insured loans are provided to help moderate and low income families purchase
homes at lower processing costs, interest rates, and monthly payments. Lenders are encouraged
to provide loans to even those borrowers who have a not-so-good credit score, as this loan
protects the lenders against default on mortgage payments. However, if your credit score is
less that 650, it might be hard for you to get such loans. If the interest rates decrease during the
period of the mortgage agreement, you may think about refinancing your loan to get the benefit
of low monthly payments.
VA Loan For
A long-term loan provided for the US veterans to purchase homes is known
as the VA loan. It was initiated by the Department of VA (Veteran Affairs) to
help veterans own homes in areas with shortage of housing credit. If you are
a veteran, it helps to finance your home purchases in cases where you cannot
find private funding. This type of loan does not require any down payment on
the principal amount. Typically, you can buy homes in rural areas, towns, and
small cities. VA loans do not apply for large cities or metropolitan areas. There
are three options in this loan.
The first option is that you can borrow a 103.15% of a property purchase price
without the need for a PMI (private mortgage insurance). This way, you can use
the money to pay for the property and the other costs involved in the sale or
use it towards home improvements. The second option is that you can borrow
20% of property value as a second mortgage in addition to USD6000 for home
improvements. The third option available is to borrow 90% of a property value
to refinance an existing mortgage.
You can approach Fannie Mae and get an application form 1003 (form 65 in case
of Freddie Mac). Fill out all the particulars on the form. Any false statements on
the form may lead to penalization. The paperwork involved for the loan approval
• Tax returns proof of recent two years
• Credit report
• Documents of finances and other assets (accounts, properties, etc.)
• Proof of your annual household income – W2 statements of recent two years
• Copy of recent two or three pay stubs.
Opting for a PMI (private mortgage insurance) will help you qualify for those
conventional mortgage loans which are not backed by the government. PMI is
a private sector insurance program associated with the FHA-insured loan and a
VA loan. It reduces the lender’s risk by insuring the loans and helps you finance
home purchases in areas where VA loans are unavailable. The borrower will
be charged only with a VA funding fee in addition to the monthly mortgage
A funding fee is an amount that you need to pay the Department of VA as per
the US law. The fee may be included in the loan amount or paid in cash to the
VA. If you are disabled, you will receive almost ten percent of compensation
due to which you will be exempted from the funding fee. The VA loan can cover
home, farm, or business purchases.
You can refinance an existing loan using a new VA loan that comes at lower
interest rates. Existing VAloans can also be cleared by making regular payments
and these have no extra charges if paid off before the given deadline.
Veterans and their surviving spouses are eligible to get this loan. However, if
the veteran remarries, the previous spouses cannot apply for a VA loan. The VA
loan program is designed to help the veterans and thus has features that suit
the needs of any moderate- or low-income veteran families.
FHA 203(k) - The Home
If you want to buy a run-down house with a dream to fix it up, there are hardly many lenders who
would agree to finance your purchase. You might acquire the house at a low price but the repair
costs would be higher. Many foreclosed homes or government-owned homes come under this
category where they are poorly maintained. In such cases, you can approach lenders for an
FHA 203(k) loan. This loan is also known as rehabilitation loan and is designed to help buyers
remodel new purchases.
The loan is endorsed by the Federal Housing Administration and helps to make purchases or
rehabilitate uninhabitable properties. The loan amount includes the costs for property remodeling
and repair that includes labor and materials. It can also include up to six months of mortgage
payments during property renovation. The only eligibility criterion for an FHA 203(k) loan is
that the borrower must be able to make monthly mortgage payments. The normal factors like
confirmation of annual income, credit report, etc., also play a role in the loan-approval process.
FHA 203(k) loans are of two types. Regular 203(k) mortgages are provided for those properties
that require structural repair. Modified or streamlined 203(k) mortgage is provided for properties
that require normal repairs. It covers refinancing and also purchase of the properties. It is
a big loan and takes a longer closing time. But, it is a good option as it includes purchase
Maria Amalia Arrua
Mortgage Loan Originator
201 Old Country Road, Suite 140
Melville, NY 11747
Office: (631) 750-0565
Cell: (516) 554-7272