Originally posted by: Aimster
Thank You
& I don't plan on living in it for 5 years.
Fairfax, VA you either are a millionaire or you live paycheck to paycheck saving a little here and there. Never enough to retire comfortably when you are old just enough for a rainy day.
I'll be in Texas in 5 years. Living in my nice house paying little to no mortgage and having a big savings account. Can't wait.
Aimster- What leads you to think that you'll be in Texas in 5 years? Who do you work for? The reason I ask is that I'm in Houston, and I could very well be in Fairfax in 5 years...
If you haven't done the research yet, keep in mind that ARMs come in various "flavors". By this I mean that different ARMs have different time periods over which you will be locked in, and different time periods over which they will adjust. Finally, they can have "rate of change" limits on the interest rate (in terms of how quickly it can increase or decrease), as well as a final maximum rate cap.
For example, a 3-1 ARM can begin to adjust after 3 years, and can adjust every year after that. It may have a maximum readjustment amount of, say, 1% with a maximum readjustment cap of 5% above your current rate. This would mean that in year 4 your rate could increase from 4.25 to 5.25, and over the course of the loan could max out at 9.25% (yikes!). Of course you would need to iron out all these numbers with your lender.
As far as how the preapproval letter works, it doesn't really matter. The pre-approval letter lets the seller know that you have a bank willing to loan you enough money to buy the house. They don't really care what type of loan it is.
After your offer is accepted and you are under contract, you will go through a much more rigorous loan approval process with your lender/bank. You can change your loan type at that time with your lender. Keep in mind that FHA loans have quite a few more "hoops" that they will make you and the seller jump through to get the loan. Google FHA loan requirements to learn more about these. Lots of inspections...
As a part of your contract that you will draw up you will need to put up earest money that will be held by an escrow company. This earnest money is typically 1% of the agreed upon sales price of the property, and it will be credited to you upon closing. However, make sure that you include a financing clause in the contract. The financing clause will give you a certain period of time after you are under contract (2 weeks, 20 days, whatever you specify and the seller agrees to) in which you have time to secure the necessary financing. If the bank will not give you financing for whatever reason (say the appraisal of the property comes back at a lower value than the agreed upon sales price), then the financing clause allows you to recover your earnest money and walk away from the deal. If you don't have this clause or the financing falls through, then you would lose the earnest money.
Typically with a contract on a home you will also pay an "option" fee. I don't know what that will run you in FFX. In Houston I paid $10 a day for a minimum of 10 days. This gives you time to get a home inspection (you absolutely must do this). The money you pay for the option gives you the unrestricted right to walk away and recover your earnest money during the option period. If the sale goes through, the earnest money is credited to you at closing.
Finally, I don't know how this works in VA, but in TX we use "title" companies that will do the necessary research to make sure the property has a clear deed. In other parts of the country you need to go through a real estate lawyer. Either way, the title company or the lawyer will make sure that no one has a lein or other claim on the property that you are trying to buy. In TX, the title company "insures" the clear title to the property in the loan amount. This means that if the title company somehow "missed" a lein or other claim on the deed, they would have to pay to clear the claim or pay the loan amount in full. (there may be additional details I am missing here, but in any case you need to make sure that you hire someone that will clear the title, this is standard practice).
Hopefully you are working with a real estate agent who will help guide you through this process and will help in drawing up the contracts. Feel free to reply or PM with additonal questions. I just bought a home down here in Houston in February, so I'm very familar with the process.
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