|These questions will answer the basic questions about financing. I have worked with several mortgage companies in the past and will be happy to give you the names of people you can talk with. |
They will go over all of the different options that are available. They can preapprove you for a loan so you know exactly what price range you want to stay in
1. WHAT IS A MORTGAGE?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.
2. WHAT IS A LOAN TO VALUE (LTV) HOW DOES IT DETERMINE THE SIZE OF MY LOAN?
The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $100,000, you could borrow up to $95,000 (95% of $100,000), and would have to pay,$5,000 as a down payment.
The LTV ratio reflects the amount of equity borrowers have in their homes. To protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.
3. WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH?
There are a 101 different loan products for you to choose from. Some of the more common ones are:
Fixed Rate Mortgages: Payments remain the same for the the life of the loan.
- Housing cost remains unaffected by interest rate changes and inflation.
Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases are subject to limits.
- Balloon Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
- Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan
- ARMS linked to a specific index or margin
- Generally offer lower initial interest rates.
- Monthly payments can be lower.
- May allow the borrower to qualify for a larger loan amount.
4. WHEN DO ARMS MAKE SENSE?
An ARM may make sense if you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and are not concerned about potential increases in interest rates.
5. WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS?
- In the first years of the loan, more interest is paid off than principal, meaning larger tax deductions.
- As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
- Loan is usually made at a lower interest rate.
- Equity is built faster because larger payments pay more principal.
6. CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?
Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.
7. ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?
Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities. There are several community programs targeted at first time home buyers.
8. WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?
The monthly mortgage payment pays off principal and interest. Some lenders also require that local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable) be collected from you monthly. The money is put into an escrow account and the lender pays those bills when they are due.
9. WHAT FACTORS AFFECT MORTGAGE PAYMENTS?
The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all effect the size of your mortgage payment.
10. HOW DOES THE INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN?
A lower interest rate allows you to borrow more money. Interest rates can fluctuate as you shop for a loan, so ask lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.
11. WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN?
If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees.
12. WHAT ARE DISCOUNT POINTS?
Discount points allow you to lower your interest rate. They are essentially prepaid interest, with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases, with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points may be tax deductible when you purchase a home.
13. WHAT IS AN ESCROW ACCOUNT?
Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance and property taxes.
Please don't hesitate to contact me with any questions you may have!
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