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This section is intended to discuss the basic principles of mortgage financing. How much a family can afford in a home is discussed elsewhere.

Finance Programs. Twenty years ago, mortgage programs were few enough and simple enough that this page could have adequately provided an overview of the available programs. But with the high interest rates in the 1980's, lenders were forced to come up with creative alternatives to the long term, fixed rate mortgage. While the need for these creative solutions is substantially lessened with the moderating of interest rates, the programs have worked well and have given buyers much more flexibility in approach to buying a home. The most significant change from conventional mortgage financing of a generation ago relates to lower down payment requirements and the adjustable rate mortgage.

Down Payment. Traditionally, 20-25% down payments were required to purchase a home. Today, a qualified buyer can almost always buy a home with a smaller down payment, with some programs requiring 5% or less down. The down payment requirement is there to protect the lender's investment in the case of default. As the down payment goes down, the risk of the loan goes up. The use of mortgage guarantee insurance has made it possible for lenders to make such higher risk loans. The downside to this, is that mortgage guarantee insurance, requires insurance payments, which equate to a somewhat, although not significantly, higher interest rate. Both the federal government, through the FHA and VA and private agencies have programs based upon the mortgage guarantee principle.

Finding a Lender. Banks and savings and loans were traditionally the major source for home mortgages, but today, there are many other options available. Mortgage companies, which work with a number of lending sources, often have very competitive lending options available.

Mortgage Application. Another downside in the increasing complexity of mortgage programs, is that the paper work for these loans has become quite oppressive. Almost all financing applications will require the borrower to fill out a lengthy financial application, provide verification of employment and have a detailed credit investigation completed. This is too be expected, but also brace yourself for a mound of paperwork that is shoved in front of the borrower with a "sign here" explanation. Unfortunately, your confusion with truth in lending disclosures, APR and other forms from the federal government, cannot be cleared up through this web page.

Appraisal.

Seller Disclosure Laws

Closing Paper Work

Why own your own home?

How much house can I afford?

Why use a Realtor?

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