The homebuying process in Massachusetts

There are two basic types of interest rates you amy receive, either a fixed rate mortgage or Adjustable Rate Mortgage (ARM).

• Fixed rate mortgages have interest rates that do not change throughout the life of the loan.
• ARMs are variable rates, meaning the rate changes periodically during the life of the loan. For example, a 5/2 ARM means the interest rate remains fixed for 5 years, but changes every 2 years then after.

A loan term is how long you have to pay off your mortgage loan. For example, common loan terms for mortgages are 30, 20, or 15 years.

The type of mortgage you will receive is based your individual situation. There are different types of mortgages available.

• Conventional Mortgages are not guaranteed or insured by any government agency and are typically have fixed terms and rate.
• FHA Loans are mortgages are offered by the Department of Housing and Urban Development and Insured by the Federal Housing Administration. When you choose an FHA Loan you will pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
• Special mortgage loan examples include but are not limited to USDA Loans, VA Loans and Jumbo Loans. Most special loan programs are restrictive and you will have to meet certain requirements such as veteran status or income levels.

In order to gauge how much you can spend when purchasing a home contact a bank, credit union, mortgage lender, or mortgage broker to find out you can borrow.  Borrowed amount is based on your income, periodic obligations, down payment, and credit history.

The difference between a broker and bank, or lender, is that a broker originates a loan but only to be funded by a bank or a lender.  A bank/lender both originate a consumer loan application and fund the loan.

• Find a Massachusetts state-chartered bank or credit union
• Find a mortgage company (mortgage lender or broker)

The bank, credit union, mortgage lender, or mortgage broker will give you a prequalification letter showing the amount of loan you are qualified to borrow. A property with a specific address is not required in order to be prequalified for a mortgage loan.

Shopping for a home after receiving your prequalification letter can relieve a lot of stress knowing how much you are qualified to borrow. Searching for  homes to buy is the fun part of the process. There are many websites available for aid you in your home search.

• Homes for Sale (HUD)
• Zillow
• Realtor.com

The U.S. Department of Housing & Urban Development (HUD) has also developed a Home Buying Wish List, which can narrow down "must have" features in a new home, and a Home-Shopping Checklist to help compare homes when looking for a new home.

A formal loan application is required once a consumer finds the home they would like to purchase. The consumer's bank, credit union, mortgage lender or mortgage broker may ask consumers if they would like to lock the rate offered at the time of application or "let it float". Consumers choosing to lock the rate means that the interest rate quoted will remain the same until the loan is closed; whereas a floating rate may change (higher or lower) as the interest rate in the market changes between the date of application and date of closing.

Before signing any legal documents or contracts an attorney should be consulted to review the documents. Consult an attorney throughout the home buying process to ensure all deadlines and requirements are met in order to reach the final purchase stage.

• Massachusetts Bar Association Lawyer Referral

After finding a home that fits your budget and other wants/needs, make an offer on the property. The offer will include the amount of money the you want to pay for the property and other information such as property inspections. An offer is a legally binding contract and an attorney should be consulted prior to submitting into any contract.

Once the offer has been accepted by the buyer, you will have to sign a contract, also known as the purchase and sale agreement. A purchase & sale agreement (P&S) is a legal document prepared and agreed to by attorneys representing both the buyer and seller in the home purchase transaction. The P&S is signed by both the buyer and seller, and will include final sale price and all terms of the purchase. The P&S is a legally binding document and an attorney should be consulted prior to entering into any contract.

You must provide all documents requested by your lender in a timely fashion, making sure to meet all deadlines in the P&S. Documents which a lender will request may include but are not limited to tax returns (2 years), latest pay stubs, and income/employment verification.

Within three days of receiving an application, the lender will issue disclosures, including the Loan Estimate. The disclosures help understand your rights and the cost of the mortgage loan. The Loan Estimate provides you with interest rate and closing cost details.  The Loan Estimate will also help you shop around for a mortgage loan with a better term and rate.

When a you receive the "clear to close" message it generally means all conditions of the loan have been met. Once a "clear to close" message has been issued, the mortgage lender prepares all the documents and sets to wire the funds in order to complete mortgage loan.

Coordinate your closing date with the lenders settlement agent, the seller, and attorneys. Closing documents will be signed when all parties agree to meet and the sign legally binding documents to purchase the home.

After signing the mortgage paperwork, the mortgage loan servicer may or may not be the same company which financed the loan. There is a likelihood of consumer mortgages being sold to other lenders. Most mortgages are sold into the secondary market; lenders rarely keep the mortgages they make.

While the mortgage lender is the financial institution which financed the mortgage loan, the mortgage servicer manages the loan by processing monthly loan payments, responding to inquiries, keeping track of principal and interest payments, and managing the escrow account (if applicable).

• Use the MERS^® website to locate your mortgage loan servicer or call the MERS^® Servicer Identification System toll free at 888-679-6377.