Utah Real Estate: Guide to Home Financing in Utah.

Utah Real Estate

Financing

There are a wide variety of non-conforming loans available for financing your home -- adjustable rate, balloon payment, sub-prime. But in today’s favorable economic climate, most home buyers are opting on the conventional 30-year fixed loan. Buyers who utilize this type of loan are able to lock into an interest rate and be assured that it won’t rise should interest rates go north in the future. With interest rates at or near 15-year lows, there is little reason to get too creative with your financing at this time. Should interest rates rise to levels above 9 percent, home buyers might be wise to discuss options with their lenders that could offer advantages under those conditions.

Lenders have their respective formulas to help them determine how large of loan they will approve for their borrowers. Most lenders of conventional loans require the borrower’s mortgage payment not exceed 28 percent of the borrower’s monthly income (or 36 percent of all monthly expenditures). This is a ratio lenders feel safe and comfortable with, but one that is not set in stone. Upon reviewing the borrower’s loan application, which includes a credit report, monthly paycheck stubs, total assets and other compensating factors, lenders may be inclined to ignore that ratio to some degree if they determine that the borrowers pose little threat of defaulting on their loan. As a rule, the better the credit history, the more latitude the lender will have in determining the loan amount.

The lender will also inform the borrowers the minimum amount that is required for the down payment (borrowers can determine the maximum amount). The minimum can vary from lender to lender, but is usually between 3 to 20 percent. Those who are purchasing a new home often can qualify with no money down. In lieu of a down payment, the buyers are required to invest some "sweat equity" into the house. This can come in the form of painting the home’s exterior, sheet-rocking the basement, or landscaping the yard. By performing unspecialized tasks on the house, it saves the builder money, which ultimately reduces the price of the home.

Home buyers should know that if less than 20 percent of the home’s price is paid as a down payment, the lender will require the buyer to purchase personal mortgage insurance, which, depending on the size of the loan, can run anywhere from $60 per month on up. This helps protect the lender in the event that the borrower defaults on the loan. The buyers will be required to pay this insurance until they have at least 20 percent equity in the home.

Homeowners insurance and taxes are other expenses to consider when financing your home. All borrowers are required to insure their home against disaster, and the government, of course, wants its cut each year as well. If desired, lenders can set up an escrow account that will include these expenses into the monthly mortgage payment.

Home buyers should shop around for the best possible loan. It is important to compare loan programs and rates from several different financial institutions. One lender may offer a 30-year fixed loan rate at 6.25 percent interest, while another may offer the same loan at 7 percent. Three-quarters of a point may not seem like much on the surface, but over the course of a 30-year loan that can add up to tens of thousands of dollars.

If everything checks out, you are probably looking at about one to two weeks for the loan to be processed. If things get complicated, it could take as long as one to two months. It all depends on your specific needs and situation. After the loan has been approved, it will take one to two weeks to complete the buying process. If you are closing on a home for the first time, chances are that you’ll have to complete the transaction at an escrow agent’s office or with an attorney so that they can oversee the transaction.

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