AMERICAN HOME MORTGAGE
You’ve been looking at houses for months and months, and you have finally found it--the house that’s just right. Now, you’re anxious to buy your new home, move in, and get settled. But you still have an important task ahead of you--getting a home mortgage loan. A comprehensive list of items you should consider while making your decision on home mortgage. This will help you learn about different loan options and help you choose a loan that meets your specific needs. It will also help you choose the term of your home mortgage and determine which type of lender will work best for you. Finally, it will give you details about the prequalification process and make you aware of what closing costs to expect.
Types of loans Terms are available
Fixed rate mortgage is when your interest rate and monthly payments will remain the same for the entire life of your loan. Fixed rate mortgages are offered in a variety of terms: 30 and 15 years being the most common.
Adjustable rate mortgages (ARM) are another common type of mortgage. This type of mortgage starts at a low interest rate and then adjusts based on a selected index. Adjustable rate mortgages offer a variety of repayment terms: 10/1, 7/1, 7/23, 5/25, and 5/5. A 10/1 year adjustable rate mortgage will have the same interest and monthly payment for the first 10 years. At the beginning of the 11th year, interest rate will be adjusted each year. With a 7/23 ARM, the interest and payment will stay the same for the first 7 years. On the 8th year, the mortgage rate will be adjusted and remain the same for the remaining life of the loan.
The final type of mortgage is the balloon mortgage . Balloon mortgages can be offered as 7 year balloons and 5 year balloons. The 7 year balloon mortgage will have the same interest rate and payment for the first 7 years of the mortgage. At the end of the 7th year the loan is due in full and the borrower must either repay the loan or refinance at current rates.
Types of Lenders to get the Mortgage
There are 3 main sources of mortgage lenders: banks, savings and loan associations, and mortgage brokers. Some lenders offer mortgage loans backed by a federal agency such as the Federal Housing Administration (FHA loans) or the Department of Veterans Affairs (VA loans). Loans that are not government-insured are called conventional mortgages.
Understanding Loan –to-Value Ratio
Loan-to-Value ratio is commonly referred to as LTV. The LTV is the relationship between the amount owed on the mortgage and the appraised value (or sale price if it is lower) of the home. A $100,000 home with a $90,000 mortgage, for example, has an LTV percentage of 90%. The remaining balance must be paid with a down payment. In the example above, the required down payment would be $10,000 (or 10%).
Prequalification for your loan-The lender will look at your employment history, your current income, and your credit scores to determine how much of a mortgage you can afford.
Buy-Downs/Discount Points- If you plan to stay in your property for a while, you may want to consider paying points to buy down your interest rate.
Closing Costs- Always consider the closing costs associated with your mortgage. While one lender may have a cheaper rate, their closing costs may be substantially higher. Be sure to consider both the rate and the closing costs associated with any mortgage. When putting together your interest rate and closing costs, you arrive at the Annual Percentage Rate (APR). Be sure to check the APR your lender is offering, not just the interest rate.
So once you have found the home of your choice, only the first phase has been completed. Finding a home mortgage and payment terms that fit your budget is the next important task.