Loans

Loan is amount of money that has been borrowed. Loans are used to finance the purchase of securities, and which may be terminated (called) at the discretion of the borrower or the lender on demand. Lenders are good at numbers. They calculate the risk that a loan might not be paid back. They also know which kinds of loans they can be more flexible with, giving borrowers options that may make it easier to get a loan.

An adjustable rate mortgage (ARM) is a good example. It is easier to get approved for an ARM than it is to get approved for a Fixed Rate loan. Because the initial interest rate and monthly payments are both typically lower on an ARM, your ability to repay the loan is easier to determine.
Banks have different types of loans available. Knowing the correct type of loan to ask for is essential in getting the bank to approve your loan. There are two types of loans:
» Fixed Rate Mortgage
» Adjustable Rate Mortgages
» Balloon mortgage
» Convertible Loans.

Fixed Rate Mortgage:

A Fixed Rate Mortgage is one in which the rate remains the same across the life of the loan. The advantage is that monthly payments will remain the same. However, if you lock into a higher interest rate, the rate will not change, even if interest rates go down in the future. Some fixed rate mortgages you will probably hear about are:
» 30-Year Fixed Rate Mortgages
» 15-year Fixed Rate Mortgages

Adjustable-Rate Mortgages:

Adjustable Rate Mortgages (ARMs) have become on of the most popular and effective tools for helping some prospective homebuyers achieve their dream of homeownership. The ARM offers lower initial rates by sharing the future risk of higher rates between borrower and lender. ARMs can be an excellent choice of financing under certain conditions, such as rising income expectations, high interest rates, and short-term homeownership. Each ARM has four basic components:
» Initial interest rate, which is typically one to three percentage points lower than that of most fixed rate mortgages.The initial interest rate is tied to certain economic indicators that dictate in part what the monthly payments will be.
» Adjustment interval, at the time between changes in the interest rate and/or monthly payment will be.
» Index, against which lenders measure the difference between what they are making on their investment in the mortgage and what they could be making on other types of investments.
» Margin, or the additional amount the lender adds to the index to establish the adjusted interest rate on an ARM.

Balloon mortgage:

One way of shortening the length of your mortgage is to purchase a balloon mortgage. It works like an ARM or a fixed-rate mortgage for the first several years. After that period of time has expired, you owe a large payment -- sometimes the remaining balance on the loan. The advantage of this type of loan is that it keeps monthly payments low.

Convertible Loans:

A convertible loan is an ARM that can be converted to a fixed-rate mortgage after a specified number of years. There may be a cost associated with this.

Loan Process:

The Loan process is explained below. It consists of the following steps:

Pre-Qualification:

Pre-qualification occurs before the loan process actually begins, and is usually the first step after initial contact is made. The lender gathers information about the income and debts of the borrower.

Application:

The application is actually the beginning of the loan process and usually occurs between days one and five of the loan. The buyer, now referred to as a "borrower", completes a mortgage application with the loan officer and supplies all of the required documentation for processing. Various fees and down payments are discussed at this time and the borrower will receive a Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) within three days that itemizes the rates and associated costs for obtaining the loan.

Processing:

Processing occurs between days 5 and 20 of the loan. The "processor" reviews the credit reports and verifies the borrower's debts and payment histories as the VODs and VOEs are returned.The processor also reviews the appraisal and survey and checks for property issues that may require further discernment. The processor's job is to put together an entire package that may be underwritten by the lender. Lender underwriting occurs between days 21 and 30 or sooner. The underwriter is responsible for determining whether the combined package passed over by the processor is deemed as an acceptable loan.

Closing:

Closing usually occurs between days 25 and 45 of the loan (depending upon the designated length of your escrow). At the closing, the lender "funds" the loan with a cashier's check, draft or wire to the selling party in exchange for the title to the property. This is the point at which the borrower finishes the loan process.

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