Mortgage

A mortgage is a home loan that is secured by your property. Most of the time a mortgage is going to be the biggest investment in your life and therefore careful thought has to be taken into consideration when deciding what the "right" mortgage is for you. A mortgage can be either a fixed rate or an adjustable rate. Be careful when you are told that a rate is fixed because sometimes a rate is said to be fixed, yet it is only fixed for a certain number of years and then it becomes adjustable. A mortgage loan is usually amortized for anywhere from a 5 year term up to a 30 year term. There are even now some 40 year home mortgage terms available now and there are even a couple of 50 year term coming out now as well. A mortgage payment is based upon 4 common elements: 

Principal: this is the amount of your mortgage payment that is applied towards the balance of your loan to bring the balance down. Paying principal is how you pay your mortgage loan off.

Interest: this is the amount of your mortgage payment that is based on your interest rate. All of the money applied towards interest does not help to pay the loan down but instead is part of the cost of borrowing the money to obtain the mortgage loan.

Taxes: your taxes are the property taxes that are required by your city, county or state auditor normally. Most of the time the county auditor determines your property taxes. Property taxes are usually based on how much your home and land are worth or assessed by your county auditor. Your annual property taxes will usually be divided by 12 and added to your monthly payment in the form of an escrow account.

Insurance: your homeowners insurance is what you pay on your property to insure your home against damage from the likes of a fire, tornado, etc... This insurance is different from PMI, private mortgage insurance, which is required by the lender if you do not put enough money down on your home. PMI can be avoided though, even without putting enough money down. Ask me how to accomplish this and save some money.

I am sure you noticed the term escrow account above. Escrow accounts actually can mean a few different things. One of the more common items that the term escrow is used in is to establish an account for your property taxes and insurance. If you want your mortgage payment to be all inclusive so that you dont have to pay any money out of your pocket for property taxes and/or homeowners insurance you will have this included into your mortgage payment. To include this in your mortgage payment you will have an escrow account established to pay for your insurance and taxes. You mail one check to your lender each month that is all inclusive of everything, Principal, Interest, Taxes and Insurance and the lender will apply the money for your taxes and insurance to your escrow account. The money in your escrow account will accrue until the taxes and/or insurance are due and then they will be paid out of the money from your escrow account.

Another way the term escrow is commonly used, is to refer to money that is put down as a down payment or for earnest money. Someone, either the Realtor, title company, attorney, or the mortgage company will hold your money in escrow, in a separate account, for a purchase transaction. Some companies will charge you a fee to hold your money in escrow. Most do not but it is not a bad idea to check ahead of time to be sure. This is a ridiculous fee and should not be assessed.

A fixed rate mortgage is a rate that is fixed for the life of the loan, whereas an adjustable rate mortgage will be fixed for a short term and then after the fixed period is up it will become an adjustable rate. Some adjustable rates, adjust every month, some every 6 months and some every 12 months. A balloon mortgage is a mortgage where the payment is amortized over the full term of the loan, however the loan is actually only for a certain period of time. An example of a balloon is: a mortgage that the payment is amortized over 30 years but the loan is due in 15 years. This is normally expressed as 360/180, which means payment is based on 30 years or 360 months but loan is due in full in 15 or 180 months.

There are interest only loans which are actually becoming one of the most popular home loans on the market in this day and age. Interest only loans can provide you with a payment that is considerably lower than a normal principal and interest payment. On an interest only loan, the only part of the payment that is due is the interest only portion. You are not required to pay any money towards principal, however you are able to if you desire. This type of home loan program provides you with much more flexibility in your monthly mortgage payments. Most interest only loans are done on an ARM loan. The rate will be fixed for a certain period of time and then the rate will become adjustable.

Another popular mortgage program is the Pay Option ARM. This is somewhat similar to the interest only loan, yet you have multiple payment options each month on your monthly statement. Most common are a 30 year payment option, a 15 year payment option, an interest only payment option and a minimum payment option, which most often will incur negative amortization. Negative amortization is when you dont even make enough of a payment to cover the interest portion of your monthly payment and your loan balance increases instead of decreases. These loans are not right for everyone and should be carefully discussed with your mortgage professional. Call me for an honest opinion as to whether this loan type may be right for you.

There are hundreds of other mortgage programs to choose from and different variations of each to consider. A good loan officer or mortgage consultant will be able to help you make an educated decision on what mortgage loan is best for your. A loan officer is also referred to a mortgage broker, a mortgage consultant, a mortgage professional, loan consultant amongst many other things. Working with an experienced loan officer is very important to your home-buying or refinancing experience.

There is a lot of other information involved with the home buying and refinancing process so please check out my other pages to find out more information about how to pick a house, what is important when deciding on a home, how much you can qualify for, how much of a payment you could qualify for, and how to pick out your home loan. Fill out the contact form listed below or call me at 888-418-4467 to find out any information you might be interested in.

Mortgages for Dummies - There is a lot of information involved when it comes to buying a home, obtaining a mortgage or refinancing a mortgage. You have closing costs to consider, interest rates to look at, mortgage loan programs to decide between, and much, much more as well. While having a home can be a very rewarding experience obtaining a mortgage loan can sometimes be a very scary and overwhelming experience. There is way too much information for the average consumer to learn, to become an expert in the area of mortgages. However by taking a little time to learn the basics of mortgages and the mortgage process, a consumer can end up saving tens and possibly hundreds of thousands of dollars on a home loan, which is normally the biggest investment in a consumers life.

An important factor to remember when shopping for a home is affordability. Most mortgage loans had interest rates that did not change over the life of the loan. In the past, choosing a fixed rate mortgage loan meant comparing interest rates, payments and fees. Today, many loans will allow for smaller payments for a set period of time to help you qualify for a larger loan amount.

The first place to start would be to check your credit. You should pull what is commonly referred to as a tri-merge credit report. This will pull data in from all three credit bureaus. You should verifiy that all information is correct and updated. It is very common to find errors and you will probably want to correct them before applying for a mortgage.

On your report you will be given three credit scores. Most lenders use the middle of the three scores to base their lending decisions on. A qualified mortgage professional can help you through this process and advise you best on how to correct any errors.

Consider being preapproved before shopping for a new home. Most sellers look more favorably upon an offer to purchase if it is submitted with a preappoval letter. You will also be able to find out how much home you can afford by being preapproved.

Is an ARM the right loan for me? - Deciding if an Adjustable Rate Mortgage (ARM) is right for you will depend on your personal financial situation. Once your financial goals are decided then the terms of the ARM will also come into play with your decision.

Pre Qualify Before You Buy - A pre-qualification allows you to get an idea of your borrowing potential before beginning your home search. Pre-qualification is usually free and the buyers ability to purchase a home can be confirmed fairly quickly. This step alone will increases the buyers leverage position with both Realtors and sellers.

In order to be Pre-Qualified you will need to provide your Mortgage Broker with income and asset documentation along with authorization to run a credit report.

The Pre-Qualification process with a mortgage professional also helps the buyer structure the offer on the property. At the suggestion of some experienced mortgage brokers, many home buyers are able to purchase their target properties with less money down by asking the sellers for a concession instead of haggling for a lower price.