Mortgage Basics

Home prices continue to fall, according to The Standard & Poor’s/Case-Shiller Home Price Index, but most experts agree we are at or very near the bottom of the housing bust. Now might be a good time to get off the sidelines and buy a new home before increased demand pushes prices back up.

If you’ve been thinking of purchasing a new home, but feel intimidated by the mortgage loan process, here’s an overview of how it works.

1. Determine loan type. Meet with a loan officer to determine the type of mortgage loan that is right for you. The most popular options include the following:

Fixed rate – A loan whose interest rate stays the same for the life of the loan.

Adjustable rate – A loan whose interest rate is not fixed, but may move up or down as the economy changes. Often called “ARMs” (adjustable-rate mortgages), they are usually set up to have a fixed rate for the first 1, 3 or 5 years, after which they may increase or decrease.

Jumbo – A high-dollar loan whose amount ($600,300 or more for Salt Lake, Summit and Tooele counties; $417,000 or more for Utah County) exceeds the limit that large, national mortgage associations impose for loans they are willing to purchase from mortgage originators. Also called a “non-conforming” loan, it has a higher interest rate.

FHA / VA – Federal Housing Administration or Veterans Affairs loans are those underwritten to the standards of the federal government, which grants approval of the loan and insures the lender against financial loss. The required down payment is usually lower than normal.

Utah Housing – Loan designed for low-income Utah residents who meet certain requirements to receive financial help from the Utah Housing Corporation, which was created by the Utah state government.

2. Get pre-qualified. Your loan officer will pre-qualify you for a certain amount based on your financial position. You should look for homes that do not exceed this amount plus your down payment and closing costs, or consider building a new home.

 3. Obtain the loan. Once you have made an offer on a home and your offer has been accepted, your loan officer will help you navigate the loan closing process. This is when you will lock in an interest rate, submit your down payment, and pay closing costs and other fees. The whole process typically takes 2-3 weeks.

4. Pay it off. After closing on your loan, you will be responsible for making minimum monthly payments for the life of the loan, ranging from 15-30 years. When the loan is paid off, the lien is released from the title to the home.

Buying a new home is something most people do only a few times in a lifetime, so it’s to be expected that a borrower will have many questions. Don’t be afraid to ask them so you feel confident about the exact terms of your loan and all the costs associated with it.

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