The lender requires an appraisal of any property for which you apply for a mortgage to make sure that its value is equal to or greater than the amount of money you wish to borrow.  The value is called fair market value meaning that the property is selling for a reasonable amount based on the current market conditions.  You need to have a certified appraiser do the work and the lender will usually have one that they can recommend to you.

Appraisers generally use a sales comparison approach to determine the fair market value of the property you wish to purchase.  This is comparing the price of the property with that of the prices for which similar properties are selling in the same area.

The amount of money required as a down payment depends on the type of mortgage program you want.  Some lenders require as little as 0% down to as much as 20% or more down.

In order to avoid the disappointment of choosing the home you want to buy and then finding out that you do not quality for that much of a mortgage, you have to look at your income and expenses.  When you total up all your expenses, including groceries, clothing and entertainment, you subtract it from your income.  This lets you know how much of a monthly payment you can afford.  If you are currently paying rent, do not include the rent in the expenses, because this will help make your mortgage payment.

If you have pre-approval for a mortgage, you know exactly what price range you can shop within for a home.  Once you are pre-approved it makes it easier to get a real estate agent to work with you to find the home you want.  Most real estate agents will not put a lot of effort into working with you if you are not pre-approved because they don’t know if you are really serious about buying or if you will get the mortgage from the lender.

A real estate agent will actively try to find a home that suits your taste and budget.  He/she will search through the listings and make arrangements for you to view the home.  Although you can spend hours searching through the listings of homes for sale, you may have difficulty making appointments to see what they look like inside without a real estate agent.

Your mortgage rate depends on the amount of money you borrow, the amount of your down payment, and your credit score.  It also depends on the market conditions at the time.  A Fixed Rate Mortgage guarantees the same rate for the entire term of the mortgage, while an Adjustable Rate Mortgage only guarantees the same rate for a certain fixed period of years, not for the entire term of the mortgage.

Most lenders will give you the option of locking the rate for a certain period of days at the time the application is taken.  You can also choose not to lock your rate at application and lock the rate during business hours at a time that is more appropriate to you.

Most homeowners refinance their mortgage at various times during the life of the mortgage.  You can refinance the mortgage to get extra money to spend on the home to increase its value or even refinance to pay off other bills.  It does extend the length of time it will take you to pay off your home.

In addition to the mortgage itself, there are costs involved in getting the paper work completed.  These include lawyer’s fees, insurance on the loan, the costs of getting title searches and bank charges that are added to the total amount of the mortgage.  In addition to these costs, you have to pay insurance on your home as well as property taxes.

With a mortgage lender, you have more control over the loan. A mortgage lender usually makes the lending decision in house and uses its own funds to close the loan.  A mortgage broker usually submits the loan to other investors and relies on that investor to fund and close the loan.

Federal and State law requires that you receive a Truth-in-Lending Statement..  The purpose of the statement is to disclose important information about your loan and to assist you in shopping for credit.

The Annual Percentage Rate, or APR, is the cost of your credit expressed in terms of an annual rate.  Because you may be paying “points” and other closing costs, the APR disclosed will in most cases be higher than the interest rate on your loan.  The APR can be used to provide a method for comparing the cost of credit for different loan programs.

The Amount Financed is your mortgage amount minus prepaid finance charges.  Prepaid finance charges include items such as loan origination fees, commitment fees (points), interest adjustments, and initial mortgage insurance premiums (if applicable).  The Amount Financed represents a net figure used to allow you to accurately assess the amount of credit actually provided.

No.  If your loan is approved in the amount for which you applied, then this amount will be provided toward your home purchase or refinancing at closing.

The amount financed is lower than the amount you applied for because it represents a net figure.  If someone applies for a mortgage of $75,000 and the prepaid finance charges total $2,000, the amount financed would be shown as $73,000, or $75,000 minus $2,000.

The APR is computed from the lower figure, based on what your proposed payments would be.  In a $75,000 loan with $2,000 in prepaid finance charges, and an interest rate of 13%, the payments would be $829.65 (principal and interest) on a loan with a thirty year term.  Since the APR is based on the net amount financed, rather that on the actual mortgage amount, and since the payment amount remains the same, the APR is higher than the interest rate.  It would be 13.31%.  If this applicant’s loan were approved he would still receive a $75,000 loan for thirty years with monthly payments at 13% of $829.65.

The Disclosure Statement has no effect on actual payments and only discloses your estimated payments.  The interest rate determines what your actual monthly principal and interest payment will be.

The Finance Charge is the cost of credit over the life of the loan. It is the total amount of interest you will pay if you make the minimum required payments over the life of the loan (calculated at your interest rate), plus prepaid finance charges, plus the total amount of mortgage insurance premiums (if applicable) charged over the life of the loan.  This figure is estimated on the initial disclosure statement.  If your loan is approved, at closing you will receive a final disclosure statement reflecting the actual terms of your loan.

This figure indicates the total amount you will have paid, including the Amount Financed and Finance Charges.  If you make the minimum required principal and interest payments for the entire term of the loan.  This figure is estimated on the initial Disclosure Statement and is estimated in any adjustable rate transaction.

This means that you will be charged interest for the period of time during which you used the money loaned to you.  The prepaid finance charges you paid in connection with your loan are not refundable, neither is any interest which has already been paid.  If you pay the loan off early, you should not have to pay the full amount of the “finance charges” shown on the disclosure.  This charge represents an estimate of the full amount the loan would cost you if the minimum required payments were made each month throughout the life of the loan.