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Mortgage Loans and the fear

August 26th, 2008    Subscribe To Our Feed

The Current negative sentiment covering home loans and mortgages is certainly well covered by the News Media. There are many reports of people having trouble making their payments. But is it warranted?

Not all mortgages are causing homeowners problems, it is just a handful loan types that are doing the damage. The loan that has so many people in trouble is the adjustable rate mortgage.

Adjustable mortgages are a problem because they often start low, but then conditions change and all of a sudden the interest rate has increased. Some times, rarely the rates go down but most often they rise.

Most people who get caught up in adjustable rate mortgages are those who would have trouble getting a home any other way based on their credit and first time home buyers as they lack the experience to see the red flags.

What To Do If You Are Stuck

If you were one of the ones who for one reason or another signed for one of those adjustable rate mortgage loans, you still can have some hope. If you are yet to reach the point where your interest rate changes, start saving money now. It is a very good chance that your payments are going to increase and you must be prepared to pay that entire dollar amount as some people have seen their payments double.

When you do have these types of loans it is best not to bet that you will have a decrease because the loans are market based this is mostly wish full thinking.

Start looking into your other options right away and start thinking about refinancing into one of the mortgage loans that offer a fixed rate for the entire term of the loan. If you are worried about doing the refinance because of a repayment penalty, consider how much you will pay out with your payments increasing by several hundred each month, and then the cost of attorney fees from a foreclosure if you are unable to meet your monthly. Then maybe, after thinking about that, the one thousand or so prepayment penalty will not sound so bad.

Barry Jackson writes for Make You Rich A website dedicated to making you and saving you money

45 Mortgage Terms You Should Know Before Seeking a Home Loan

December 1st, 2007    Subscribe To Our Feed

Following is a list of 45 mortgage terms that you should become familiar with if you plan to buy a home. Evaluating home mortgage loan options can be quite confusing. Educating yourself in the language used by lenders will help you to find the loan that is right for you.

Amortization: repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)

Annual Percentage Rate (APR): calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Application: the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal: a document that gives an estimate of a property’s fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.

Borrower: a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Budget: a detailed record of all income earned and spent during a specific period of time.

Cap: a limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Cash reserves: a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Certificate of title: a document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Closing: also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing costs: customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.

Conventional loan: a private sector loan, one that is not guaranteed or insured by the U.S. government.

Credit history: history of an individual’s debt payment; lenders use this information to gauge a potential borrower’s ability to repay a loan.

Credit report: a record that lists all past and present debts and the timeliness of their repayment; it documents an individual’s credit history.

Credit bureau score: a number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.

Debt-to-income ratio: a comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed: the document that transfers ownership of a property.

Down payment: the portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan.

Earnest money: money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.

Equity: an owner’s financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.

Escrow account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Fair market value: the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Homeowner’s insurance: an insurance policy that combines protection against damage to a dwelling and Is contents with protection against claims of negligence )r inappropriate action that result in someone’s injury or )property damage.

Interest rate: the amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Lease purchase: assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lien: a legal claim against property that must be satisfied When the property is sold

Loan: money borrowed that is usually repaid with interest.

Loan-to-value (LTV) ratio.- a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Lock-in: since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time

Mortgage: a lien on the property that secures the Promise to repay a loan.

Mortgage banker: a company that originates loans and resells them to secondary mortgage lenders like :Fannie Mae or Freddie Mac.

Mortgage broker: a firm that originates and processes loans for a number of lenders.

Mortgage insurance: a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price.

Mortgage insurance premium (MIP): a monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.

Offer: indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Pre-approve: lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-foreclosure sale: allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-qualify: a lender informally determines the maximum amount an individual is eligible to borrow.

Principal: the amount borrowed from a lender; doesn’t include interest or additional fees.

Title insurance: insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.

Title search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower’s credit history and a judgment of the property value.

Knowing When Your Ready To Buy a Home

November 7th, 2007    Subscribe To Our Feed

All across the United States, there are millions of people looking to a buy ‘home - either now or in the future. Over the last few years, lower interest rates have come along, making it more affordable than ever to buy a home. Everyone knows that investing in a home makes a lot more sense than renting.

The first step to buying a house is to save enough money to make a down payment and pay for the closing costs. Your down payment will normally be about 15% of the price or the value of the property - whichever is lower. To be on the safe side, you should set 20% as a goal. If you aren’t able to put 20% down, you will have to acquire private mortgage insurance, which will increase the cost of your monthly payment.

In most cases, the closing costs will run you around 5% of the property price. Before you purchase the home, you should always get an estimate. An estimate won’t be the exact price, although it will be really close. You should always plan to save up a bit more money than you need, just to be on the safe side.

The amount of your monthly mortgage payment should not excede 25% of your total monthly income. Although there are lenders out there who will say that you can afford to pay more, you should never let them talk you into doing so - but stick to your budget instead. In fact, it is to your advantage to have mortgage payments that are 20% of your total income or less.

Keep in mind that there are other costs involved with owning a home other than the mortgage. You also have to pay for utilities, homeowner’s insurance, property taxes, and maintenance. It is really important to take this into consideration so that you don’t take on more than you can handle. Foreclosures are at an all time high because a lot of people did just that.

Before you fill out any applications, you should always look over your credit report and check for any errors. If you have an error on your credit report that decreases your score, it can cost you a lot of money in higher interest rates. Acquire a copy of your credit rating and go over it thoroughly before meeting with a lender.

If you build up your credit rating, save enough for the down payment and closing costs, organize your budget so that your mortgage payments do not excede 25% of your income, you should be ready to buy a home.

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