January 8, 2024
What can a new borrower expect from the home loan process? There is a learning curve to think about, especially for borrowers unfamiliar with loan terms and industry jargon.
Some of these loan terms and issues may not be immediately apparent (see below), but as you learn about the home loan process, they become more easy to understand and more important to know. Here are some of the issues you need to keep in mind as you start your home buying journey.
Appraisal Versus Inspection
First-time home buyers soon learn, one way or the other, that lenders and other industry professionals sometimes use “appraisal” and “inspection” interchangeably.
Borrowers should expect to pay for each of these. Don’t skip the inspection no matter how insistent the seller is that the appraisal alone is all you need.
Insurance Issues You Should Know
A homeowner’s insurance policy is for the borrower. It is a borrower-paid policy that protects against problems specifically listed in the policy. There are nuances to be aware of. For example, you do NOT have flood insurance unless it is specifically mentioned in your policy. Water damage insurance is not to be confused with flood insurance.
Mortgage insurance is totally different. It protects the lender if you default on your FHA mortgage.
If you have mortgage insurance, don’t assume you have coverage for natural disasters, fires, theft, or other problems. This is not part of the mortgage insurance policy. You need a different kind of insurance to protect the home and its contents.
Down Payments, Cash Needed To Close
It is true that everyone wants to have closing costs considered part of the down payment. But there’s a problem with this.
Cash to close a totally separate expense from the down payment. The lender’s flat fee, appraisal fees, compliance inspections, and other payments are due above and beyond what you paid down.
Always Ask For Clarification When Needed
Never sign a mortgage if you aren’t sure about the details of any portion of the mortgage agreement. Don’t sign anything before reviewing and making sure you fully understand the legally binding contract you’re committing to.
Some borrowers decide to hire a real estate lawyer to look over the purchase agreement before signing anything.
This can help to avoid problems related to some of those potentially unanswered questions. That is one of your important rights as a borrower. If your lender seems resistant to the idea of your using legal counsel to review the contract, find a different lender.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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