Home Loans

A home loan is commonly referred to as a “mortgage”. But technically, a mortgage has a specific definition. There are two security instruments in use: a mortgage, which is an agreement between you and your lender, and a deed of trust, which involves an agreement between you, your lender, and a third party called a trustee. In California and roughly half the states, deeds of trust are the standard instrument. Either works; the main differences surface if the house goes into foreclosure.

Choosing the Right Mortgage

There are various types of mortgages available, including fixed-rate, adjustable-rate, FHA, and VA loans, among others. Each has its advantages and considerations; choose on the basis of how long you expect to hold the loan and how much rate risk you can carry.

Application Process

After selecting a lender, you’ll need to complete a mortgage application. This will require detailed financial information, including income, assets, debts, and more. The lender will also perform a credit check.

Underwriting

Once your application is submitted, it enters the underwriting phase. During this time, the lender verifies your financial information and assesses the risk of lending to you. This process can take several weeks.

Closing

After your mortgage is approved, you’ll move to the closing phase. This involves signing a stack of documents, paying closing costs, and finally, receiving the keys to your new home.

A loan secured by the property and used to purchase it is home acquisition debt. Under the tracing rule of IRS Notice 88-74, restated in IRS Pub. 936, debt incurred within 90 days before or after the purchase is treated as acquisition debt up to the purchase price — which is what lets a cash buyer put the mortgage on afterward and keep the interest deductible (section ““Cash Offer” — No Loan Contingency”). See section “Home Loans/Mortgages” for more details.