First Home Basics: What Should I Expect

What should I expect?

Once you have selected a lender, you will probably go through a series of steps very similar to the following:

Prequalification

During your initial consultation, your lender will “prequalify” you for a certain mortgage amount. This prequalification is not a guarantee that the lender will loan you the money—it is merely a baseline from which you and the lender will work.

Preapproval

Following prequalification, your lender will assess your financial information and run a credit check.

Approval

After you are pre-approved, your lender agrees to loan you a specific amount of money, outlined in a written Loan Commitment.

Mortgage Selection

Once you have been approved for a given loan amount, your lender will work with you to determine precisely the type of mortgage that is appropriate for you. Mortgages vary by a variety of factors:

• Length of Term
  Most people select a 30-year mortgage. However, 15- and 20-year mortgages are also common. These shorter-term mortgages allow homeowners to pay off their loan obligation more quickly, but require higher monthly payments.
• Interest Rate
  Mortgages may either carry a fixed interest rate, in which the percentage interest rate you pay stays exactly the same over the life of the loan, or an adjustable rate. In an adjustable rate mortgage (also known as an ARM), the interest rate varies over the life of the loan. Typically, ARMs enjoy a lower initial rate than fixed rate mortgages, but there is a danger that rates could rise from year to year.
• Government Programs
  Federal and state governments offer a variety of assistance programs, many aimed at first-time homebuyers. For example, the Federal Housing Administration (FHA) and Veterans Administration (VA) both offer subsidies designed to reduce closing costs and provide mortgage insurance.

Next Topic: How Much Can I Afford?