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Mortgages: General Information

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You will be responsible for paying a mortgage for the next 30 years or so, so you should know exactly what a mortgage is. But understanding mortgages can be difficult. Nevertheless, you don’t need an advanced degree in economics to learn about the financing of your home. A crash course in mortgage basics will do just fine. 

 

What is a Mortgage?

A mortgage works much like other loans. When you take out a home mortgage loan, you agree to pay back the money you borrowed along with interest over a specific period of time.

In exchange, the lender (typically a bank) will pay the upfront cost of the property. The home or the property is then used as collateral to protect the lender in a situation when the borrower stops making mortgage payments.

What are the Different Parts of a Mortgage?

A home mortgage is comprised of three parts—a down payment, monthly payments, and fees. 

• The Monthly Payment: It is the amount used to pay off the mortgage over the loan’s lifetime and includes a payment on the principal of the loan and interest. Often, property taxes and other fees are also added to the monthly bill.

• Fees: This includes various costs you have to pay upfront to get the mortgage.

• The Down Payment: The majority of the loan amount will be paid over a period of time, but there is also an upfront cost that comes with purchasing the property called a down payment. Almost every lender requires this. Typically, the down payment will be about 20 percent of the overall cost of the house. The other 80 percent can be paid off with the mortgage. The larger your down payment, the better your financing deal will be—lower interest rate, fewer fees, and ability to gain equity in your home quickly.

The Different Types of Mortgages

People hail from different financial backgrounds and situations. For this reason, mortgages come in different sizes and shapes to accommodate all the unique needs and circumstances of each borrower.

There are two primary types of mortgages—a conventional home loan, and a mortgage guaranteed by a private lender or banking institution, and a government-backed loan. Within these categories, other less common payment options also exist. 

These are the most common types of home mortgages.

Fixed-Rate Mortgage

A fixed-rate home mortgage allows you to pay the same interest rate – a fixed interest rate – throughout the entire term of the loan. This is a popular choice among homebuyers as the interest rates are locked in. It gives you the much-required assurance that the rate won’t increase as time goes on. Nonetheless, fixed-rate home mortgages usually start at a higher interest rate than their counterparts.

Adjustable-Rate Mortgage

An adjustable-rate mortgage is also known as the ARM. As the name suggests, it features an interest rate that can change throughout the length of the loan. As the interest rate can vary, the monthly mortgage payments will also shift. While this option is riskier for homebuyers, most ARMs feature caps that prevent the interest rate and monthly payments from fluctuating too dramatically. On a positive note, this type of mortgage starts at a lower interest rate than others.

Government-Backed Mortgage

Government-backed mortgages are regulated by the U.S. Department of Housing and Urban Development. These home loans are designed to help homebuyers in need through benefits like lower interest rates and down payments.

Government-backed home loans come in one of the three forms:

  • Federal Housing Administration (FHA) Loans: Created to help people purchase affordable housing, FHA loans are made by a lending institution, such as a bank. However, the federal government insures home loans. They offer low down payments and are available to homebuyers with low credit scores. Apparently, this is the least expensive loan that non-veterans can get.
  • Veterans Administration (VA) Loans: the U.S. Department of Veterans Affairs administers VA home loans to provide loan benefits to the veterans who served in the United States Armed Forces during times of conflict. To apply for the mortgage, the first step is to obtain a certificate of eligibility. Then, submit this certificate with your most recent discharge or separation release papers to the VA eligibility center.
  • U.S. Department of Agriculture (USDA) Loans: The USDA home mortgage is aimed at serving homebuyers in rural areas. Administered and backed by the United States Department of Agriculture, this type of loan is for rural property buyers who are unable to get a home loan from traditional sources or have an adjusted income at or below the low-income threshold for the area. 

Interest-Only Mortgage

The interest-only mortgage allows homebuyers to not pay the principal until a specific time. This is often a beneficial option for individuals who are concerned about making monthly payments that include both the principal and interest.

However, there is risk associated with delaying principal because this type of loan pushes people to buy homes they can’t immediately afford. Nonetheless, it is still a popular option for many, especially people who don’t have enough savings to pay the principal upfront. 

Happy Home Mortgage Hunting

Buying a home is a huge deal and choosing the right way to finance it is essential. Every homebuyer has distinctive financial circumstances. Similarly, mortgages also come with a lot of variables, maybe more than any other loans. So, it is vital that you learn about the basics of a home mortgage before jumping into it.

Learning some of the basic mortgage terms ahead of time will help you understand precisely what you are signing up for. Nevertheless, if you find everything a little bit too overwhelming, it is recommended that you work with a mortgage expert to grab the best deal on what might be the most significant investments of your lifetime. 

Have Questions? Ask The Martin Group!

Your real estate agent is the best source of information about the local community and real estate topics. Give The Martin Group a call at 561-229-1779 to learn more about local areas, discuss selling a house, or tour available homes for sale.

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The Basics of a Home Mortgage: Everything You Should Know as A Homebuyer
Article Name
The Basics of a Home Mortgage: Everything You Should Know as A Homebuyer
 
Description
You will be responsible for paying a mortgage for the next 30 years or so, so you should know exactly what a mortgage is. But understanding mortgages can be difficult. Nevertheless, you don’t need an advanced degree in economics to learn about the financing of your home
 
Author
The Martin Group
 
Publisher Name
FLPalmBeach.com
 

 

 

Check Your Credit Score

Your credit score is one of the first things a lender will check to see if you qualify for a loan. It’s a good idea to review your credit report and score yourself before applying for a mortgage. If you have a low score, you will need time to raise it. Most Lenders use your FICO score. To qualify for the lowest interest rates available, you usually need a FICO score of 760 or higher.

Mortgage Refinancing

Refinancing your mortgage allows you to pay off your existing mortgage and take out a new mortgage on new terms. You may want to refinance your mortgage to take advantage of lower interest rates, to change your type of mortgage, or for other reasons.

These resources will help you learn more about refinancing your mortgage:

Making Home Affordable Program

  • The Making Home Affordable Program offered opportunities to modify or refinance your mortgages, but as of December 30, 2016, no new requests for assistance under any MHA program will be accepted.
  • However, the MHA program still offers free counseling and help for homeowners who are having difficulty communicating with mortgage companies or lenders about their needs for mortgage relief. Learn more about counseling or call 888-995-HOPE (4673).
  • Tips to Avoid Foreclosure.

Is there anything else I need to know?

  • Federal Reserve rules require mortgage companies to notify homeowners when their loans are transferred to another company. The company that takes over your loan must send you a notice within 30 days of acquiring it. 
  • Even with a new loan owner, the company that “services” or handles your loan might not change and you might continue to send your payments to the same address. If that loan servicer changes, you will receive a separate notice.
  • For more information about servicing companies, read the Federal Trade Commission’s publication “Mortgage Servicing: Making Sure Your Payments Count.”

Predatory Loans

Most mortgage professionals are trustworthy and provide a valuable service, helping you to buy or refinance your home. But dishonest or “predatory” lenders do exist and engage in practices that can put you at risk of losing your home to foreclosure. Learn how to protect yourself from and report predatory lending and loan fraud.

Report Predatory Loans

Learn how to file a complaint about mortgages and lenders, and who to send your complaint to.  

How to Protect Yourself

Learn about the types of scams that predatory lenders use to trick you. The Department of Housing and Urban Development (HUD) has counselors available across the country to help you navigate mortgage professionals, look out for scams, and choose the right loan type for you.

Predatory lenders may try to:

  • Sell properties for much more than they are worth using false appraisals
  • Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
  • Knowingly lend more money than a borrower can afford to repay
  • Charge high interest rates to borrowers based on their race or national origin and not on their credit history
  • Charge fees for unnecessary or nonexistent products and services

Do

  • Interview several real estate agents, and ask for and check references before you select one to help you buy or sell a home.
  • Get information about the current values and recent sale prices of other homes in the neighborhood.
  • Hire a qualified and licensed home inspector to carefully inspect the property before you are obligated to buy.
  • Determine whether you or the seller will be responsible for paying for the repairs.
  • Shop for a lender and compare costs.
  • Be suspicious if anyone tries to steer you to just one lender. Learn more about how to spot predatory lending and protect yourself.
  • Become an educated consumer and learn about loans, mortgage fraud, and consumer protection.

Don’t

  • Don’t lie about your income, age, or anything else on a home loan application.
  • Don’t give anyone your personal or financial information, including your Social Security number, through email or messaging.
  • Don’t use a lender, real estate professional, or contractor who cannot provide you with a license number and recommendations.
  • Don’t fall for loans or offers that seem too good to be true.
  • Don’t take out a loan offered to you by telemarketers, flyers, or door-to-door sales.
  • Don’t feel obligated or pressured to sign up for a loan or service “today.”

Reverse Mortgages

A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home. You only repay the loan when you die, sell your home, or permanently move away.

Homeowners who are at least 62 years old are eligible. These mortgages allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

Read more information about reverse mortgages.

Types of reverse mortgages

Be sure to watch for aggressive lending practices, advertisements that refer to the loan as “free money,” or those that fail to disclose fees or terms of the loan. To be a savvy consumer and help protect yourself, remember:

  • Do not respond to unsolicited advertisements
  • Be suspicious of anyone claiming that you can own a home with no down payment
  • Seek out your own reverse mortgage counselor
  • Never sign anything you do not fully understand
  • Make sure the loan is federally insured

Reporting Fraud or Abuse

If you suspect fraud or abuse, let the counselor, lender, or loan servicer know. You may also file a complaint:

FHA Loans and HUD Homes

If you’re a homebuyer, the Department of Housing and Urban Development (HUD) has two programs that may help make the process more affordable.

FHA Loans 

The Federal Housing Administration (FHA) manages the FHA loans program. This may be a good mortgage choice if you’re a first-time buyer because the requirements are not as strict as other loans. 

Am I eligible? 

Determine your down payment, closing costs and credit score before applying: 

  • Cash down payment can be as low as 3.5% of the purchase price. 
  • Your credit score doesn’t need to be high. 
  • Closing costs may be partly covered or lower than other loans.

Many condos do not have FHA approvable. Also, make sure the price of the home is within the loan limit for an FHA home in its location

How Do I Apply? 

The FHA doesn’t lend money to people. It insures mortgage loans from FHA-approved lenders against default. To apply for an FHA-insured loan, you will need to use an FHA-approved lender. 

HUD Homes 

When homeowners default on their FHA loan, HUD takes ownership of the property, because HUD oversees the FHA loan program. These properties are called either HUD homes or HUD real estate owned (REO) property. 

Am I eligible? 

Your qualifications to buy a HUD home depend on your credit score, ability to get a mortgage, and the amount of your cash down payment. You can also use an FHA-insured mortgage to buy a HUD home.  

How do I apply? 

Use the HUD Homestore to find listings of HUD real estate owned (REO) properties for sale. Click on the agent tab to find contact information to learn more about the property. 

Where do I call for extra help?

If you have a question or need more information about FHA loans or HUD homes, you can contact the Martin Group or your preferred mortgage broker.

How to Get a Mortgage

A mortgage is a loan from a commercial bank, mortgage company, or other financial institution to purchase a home or other real estate. A lender will give a loan if you meet certain requirements such as a high enough credit score and income level and have the financial ability to pay it back. The lender can take, or foreclose on, the property you’ve mortgaged if you don’t repay the money borrowed, plus interest.

Getting a mortgage is one of the biggest financial decisions you may make in your life. This overview can help you understand the process.

Starting the Mortgage Process

Before you begin searching for homes, you’ll need to take a look at your income and credit score to figure out if you can afford a home and the monthly mortgage payments. You might want to check out the Mortgage Calculator to see what a monthly payment might  be. 

Loan Options and Choosing a Lender

You can choose from different loan options  depending on the amount of your down payment, your personal preferences, and if you qualify for special loan programs. Get information about the length of the loan (typically 15- or 30-year), interest rate (fixed or adjustable rate) and loan program types (conventional, FHA or VA). 

Learn more about the benefits of each loan option.

After doing your homework about loans options, start looking for a potential lender. As you consider different lenders for your mortgage, ask questions about the interest rate for each option. These rates can fluctuate week to week. Learn about the effect of interest rates on your monthly payment.

At this point, you can get a pre-approval or pre-qualification letter from a lender. As a future home buyer, this letter shows you’re a good candidate for getting a mortgage. It’s based on your preliminary documents and credit score and shows how much they’re willing to lend you. 

Learn more about the pre-approval process.

Closing the Deal

When you’ve found a home and made an offer that has been accepted by the seller, it’s time to get loan estimates from multiple lenders. A loan estimate is a three-page document that outlines the loan terms the lender expects to offer you for a mortgage.

You’re now in the closing phase of home buying. You will need to get the home inspected and look for homeowners insurance. After the inspection, your lender will order a home appraisal to make sure the property is worth the amount you’re borrowing. Your lender will also set a date for the closing meeting.

Once the mortgage is approved, you’ll get a loan closing document from the lender, detailing all the final costs. Finally, you’ll go to the closing meeting to sign the last of the paperwork and get the keys to your new home.

Ready to Buy, Sell, or Rent a Home or Condo?

Gained from 40+ years as Realtors and Custom Home Builder, we have some tips that will help you.

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Doug Martin

Realtor® Broker
561-339-3299

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Jason Martin Realtor Real Estate

Jason Martin

Realtor® Agent
561-624-4544

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