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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.

Questions to Ask about an Adjustable Rate Mortgage

July 10th, 2007    Subscribe To Our Feed

Adjustable-rate loans, also known as variable-rate loans, are attractive because they usually offer a lower initial interest rate than fixed-rate loans. However, the interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered.

If you are considering an adjustable-rate loan, you should ask your lender the following questions so that you can make a more informed decision.

ARM initial interest rate and APR

• How long does the initial rate apply?
• What will the interest rate be after the initial period?

ARM features

• How often can the interest rate adjust?
• What is the index and what is the current rate?
• What is the margin for this loan?

Interest-rate caps

• What is the periodic interest-rate cap?
• What is the lifetime interest-rate cap? How high could the rate go?
• How low could the interest rate go on this loan?
• What is the payment cap?
• Can this loan have negative amortization (that is, increase in size)?
• What is the limit to how much the balance can grow before the loan will be recalculated?

An adjustable-rate home mortgage loan is not for everyone. The only way you will know if it is the choice for you or not is by gathering adequate information and comparing it with other options.

Home Loan Mortgage Information You Need to Know

July 3rd, 2007    Subscribe To Our Feed

When you finally get ready to buy your dream home, finding the right home loan mortgage information can be a daunting challenge. Thanks to the internet, however, now finding the home loan mortgage information you need doesn’t have to seem impossible.

The first thing to determine when looking for home loan mortgage information, is whether or not you can actually afford to buy a home on your current annual salary. If your credit rating is less than exemplary, you may want to consider renting until such a time as you are able to raise your credit score. Also, your average payments for housing should never exceed more than 30% of your total net income.

What Type Of Mortgage Is Right For You?

There are many types of home loan mortgages to choose from. It is a  good idea to evaluate the various options you have available.  For example, will you be happy with an adjustable rate mortgage, or ARM, in which your initial rates are fairly low and then adjust higher after a set time frame? Or would you prefer a fixed rate mortgage, in which your fees and payments will remain the same for a period of 15 or 30 years?

The Fees Involved With A Home Mortgage

There are many fees involved with getting a home loan mortgage. Always be sure that you understand the many fees involved. It is imperative to remember that most mortgage lenders will require you to carry some sort of insurance policy that will cover the entire amount of the loan in the event of your death.

Then, there is your down payment to consider. As a general rule, the lower your credit score, the more money you will need to put as a down payment. When getting home loan mortgage information from a lender, they will check your credit rating to determine the size down payment you will have to have.

Also, with any mortgage, there are numerous other fees to consider. Ask your lender for a list of all the fees you will have to pay. Some of them are: application fees, interest, escrow, and closing costs, just to name a few. The Federal Real Estate Settlement Procedures Act requires that all lenders give you a Good Faith Estimate, or GFE,  of all fees that will be due at closing within three days of applying for a mortgage.

As you can see, there is a lot to consider when searching for a home loan mortgage. If this is the first time for you to buy a home, take your time. Don’t rush. Be search to research your options thoroughly and compare home loans carefully. Choosing right home loan mortgage could save your thousands or, even, tens of thousands of dollars. Isn’t that worth a few hours of your time?

 

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