Mortgage and Home Financing Information
Fixed Mortgage Rate vs. Adjustable Mortgage Rate
There are a number of different mortgage loan types available in the market today. The two most common are detailed below. This will give you a brief idea of the type of mortgage loan that best suits your particular needs.
Fixed Rate Mortgages
The fixed rate mortgage is the most common because your principal and interest payment is set for the chosen amount of time and will not change. The two most popular fixed rate loans are:
30 year fixed rate mortgages
15 year fixed rate mortgages
If you plan to be in your home for the duration of your loan and want the stability of an unchanging payment, the fixed rate mortgage is designed for your needs.
Adjustable Rate Mortgages (ARM)
The adjustable rate mortgage became most popular when interest rates were on the rise. They offered the borrower a lower initial rate allowing them to purchase the home by providing lower payments. Under certain circumstances, an ARM can be ideal. Situations where you expect income increases in the near future, higher rates, or you plan to be in the home for a short time are all suited for this type of mortgage.
Some ARM loans have fixed rate terms. For example, a 5/1 ARM offers a total financing term typically from 10 to 30 years, however, for the first 5 years of the loan the rate will be fixed. After that, the rate will adjust annually for the remaining term of the loan.
ARM loans generally have four terms or components that must be understood in order to make your decision. They are:
- Initial Rate - Usually lower than current fixed rates, the initial rate will establish your payment.
- Adjustment Internal - This indicates how often the rate will be allowed to change - either an increase or decrease.
- Index - The indicator lenders utilize to measure their risk and establish the initial rate. Generally the Index is based on the one year Treasury Bill (T-Bill).
- Margin - The amount the rate can increase or decrease at each interval. The Margin is added to the Index to establish the rate adjustment.
- Note: Lenders who offer ARM loans are required to disclose information regarding the four components listed above at application and again at closing, so all terms are understood and agreed upon.
Procedures for Home Financing
Once you have chosen your new home, agreed on a purchase price and gathered the appropriate financial information, you are ready to proceed with the application process. The staff at Farmers National Bank welcomes opportunities to discuss this process in further detail. Please call (859)236-2926 or e-mail us, if we can be of assistance in making one of the most important decisions you may make in your lifetime. Welcome to your new home and our community!
Step #1: Loan Officer Meeting
The first step in any loan process is to meet with your loan officer and provide him/her with the information necessary to complete a successful application. Our lenders at Farmers National Bank will explain the process in detail and answer any questions you might have regarding home ownership. You will be provided with an initial Good Faith Estimate to give you an idea of the closing costs required. A good relationship with your lender is the cornerstone to this process.
Step #2: Appraisal and Credit Report
Once the application is complete, an appraisal of the property you wish to purchase is ordered along with a complete credit report. Both of these items are necessary to verify the value of the home, credit and other valuable information.
Step #3: Processing and Underwriting
Your lender at Farmers National Bank will continue to process your application - verifying in writing your job, income, debts, assets, liabilities and all other important information. Once all information is complete, your loan package will be submitted for underwriting - where the final decision is made. Once the decision regarding approval is reached, a Farmers National Bank representative will notify you to set up dates for closing, etc.
Step #4: Loan Approval and Closing Day
A closing date and time will be established with all parties and the chosen closing agent. You must provide information regarding the insurance agency for homeowner's coverage and either pay your insurance premium before the closing, in which case you will need a receipt at closing, or ask that the premium be added to your closing costs. You will be notified of the total amount due at closing and be provided with a final Truth-in-Lending Statement prior to closing. This will allow you the time necessary to prepare the funds for closing and give you an opportunity prior to closing to ask any questions.