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Basics of mortgage for a home buyer

Author: Anonymous Post Date: 12th Apr, 2004 12:01 am Post Subject: Basics of mortgage for a home buyer
You may have the desire of getting a home of your own, but lack of finance may prevent you from fulfilling your dream. This is where proper mortgage understanding can help you a lot. It provides a financing option that can make your dream come true. Proper information on mortgages can help you get the best deal.

Mortgage is a legal process through which a borrower takes a loan for the purchase of residential or commercial property from a lender. The same property is kept as the security for the loan that you have taken out.

Anyways, if you take out a mortgage loan, you have to repay it. Mortgage lenders are concerned with your financial ability to repay the loan. They take into consideration your credit score, your monthly gross income, and the down payment amount, so as to judge your credit worthiness.

In order to repay the loan, you have to make monthly mortgage payments. This amount is determined on the basis of the mortgage rate of interest. The interest rate charged on your loan depends upon your credit score, discount points and down payment. Getting a lower rate is also possible if you can pay a part of the loan amount as prepaid interest or points. You may get a loan at fixed rates, variable or adjustable rates or a combination of both the rates.

The loan application that you have submitted goes through a process of review before the lender gives his or her approval. After the lender approves the mortgage, he/she decides upon the date of closing. The closing involves the signing of legal documents including a mortgage note which obligates you to repay the loan on time.

At closing, the lender requires you to pay the costs of originating and processing the loan. You will also have to deposit property taxes and insurance premiums into an escrow account which ensures that these payments will be paid on time. The remaining part of the taxes and insurances are paid along with the monthly mortgage payments in order to protect the lender from tax liens and uninsured losses.

The monthly mortgage payments include the following:
  • The loan principal is the amount that you borrow in order to purchase a property.

  • The interest that you pay for taking the loan. The interest payment depends on the mortgage rate which fluctuates with changes in the economy.

  • Escrow payments including property taxes and insurances to prevent losses against fire, theft, and disasters.

  • PMI (Private mortgage insurance) premiums which you require to pay along with monthly instalments in case you have made a down payment of less than 20% of the sale price or home value, whichever is less.


Apart from these, there are three important things on mortgage that you need to remember.

Mortgage term:

The mortgage loan is paid off within a specified time period known as the loan term that varies from 10 to 50 years. The monthly payments vary depending upon fluctuation in rates as in case of adjustable-rate mortgages, or ARMs. The payments also change on the basis of fluctuation in taxes, and insurance premiums for both ARM and fixed-rate mortgages (FRMs).

Ownership of the property:

While you are repaying the mortgage, the title of ownership of the property still remains with you. But if you fail to pay off the outstanding balance, the lien created in the mortgage allows the lender to take away your home. He or she gets the right to sell off the property in order to get back the loan balance.

Information on mortgages:

You may apply for a mortgage with a bank, a credit union or a broker, depending upon your requirements. But you should have detailed information about mortgages and you need to shop around for the best loan package, that is, which offers a reasonable rate and does not require extra charges in the form of hidden fees.

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Posted on: 12th Apr, 2004 12:01 am
You, the borrower, may have the desire of getting a home of your own, but lack of finance may prevent you from fulfilling your dream. This is where proper knowledge on the basics of mortgage can help you a lot. It provides a financing option that can make your dream come true. Proper information on mortgage can help you get the best deal.


What is a mortgage?

Mortgage is a legal process through which you take out a loan for the purchase of residential or commercial property from a bank or a financial institution, also known as the lender. The same residential or commercial property is kept as the security for the loan that you have taken out.
Anyways, if you take out a mortgage loan, you have to repay it. Mortgage lenders are concerned with your financial ability to repay the loan. In order to judge your creditworthiness, they take into consideration the following things -
  • Credit score
  • Your monthly gross income
  • The down payment amount
  • Assets

Repayment of the loan

In order to repay the loan, you have to make monthly mortgage payments. The monthly mortgage payments include the following:
  • The loan principal is the amount that you borrow in order to purchase a property.
  • The interest that you pay for taking the loan. The interest payment depends on the mortgage rate which fluctuates with changes in the economy.
  • Escrow payments including property taxes and insurances to prevent losses against fire, theft, and disasters.
  • PMI (Private mortgage insurance) premiums which you require to pay along with monthly instalments in case you have made a down payment of less than 20% of the sale price or home value, whichever is less.
This amount is determined on the basis of the mortgage rate of interest. The interest rate charged on your loan depends upon your credit score, discount points and down payment. Getting a lower rate is also possible if you can pay a part of the loan amount as prepaid interest or points. You may get a loan at fixed rates, variable or adjustable rates or a combination of both the rates. Have a look at fixed rate mortgages (FRMs) and adjustable rate mortgages (ARMs).

FRMs

Mortgage rate in case of FRMs is fixed. The borrower has to pay fixed monthly mortgage amount to the lender under this agreement. In other words, the mortgage payment remains same throughout the term of the loan.

ARMs

Mortgage rate in case of ARMs varies with the change in the market rate of interest. So, the monthly mortgage amount that the borrower pays to the lender also varies under this agreement. Here, the mortgage amount varies over the term of the loan.

How mortgage loan process works?

The loan application that you have submitted goes through a process of review before the lender gives his or her approval. The lender appoints a person, who is known as underwriter, to judge your creditworthiness. The mortgage underwriter verifies your loan application and gives green or red signal to the lender. After the lender approves the mortgage, he/she decides upon the date of closing. The closing involves the signing of legal documents including a mortgage note which obligates you to repay the loan on time.
At closing, the lender requires you to pay the costs of originating and processing the loan. You will also have to deposit property taxes and insurance premiums into an escrow account which ensures that these payments will be paid on time. The remaining part of the taxes and insurances are paid along with the monthly mortgage payments in order to protect the lender from tax liens and uninsured losses.
To sum up, mortgage loan helps you in fulfilling your dream of owning a home. The loan however has to be paid off within a specified time period known as the loan term that varies from 10 to 50 years. Again, while you are repaying the mortgage, the title of ownership of the property still remains with you. But if you fail to pay off the outstanding balance, the lien created in the mortgage allows the lender to take away your home. He or she gets the right to sell off the property in order to get back the loan balance. You may apply for a mortgage with a bank, a credit union or a broker, depending upon your requirements. But you should have detailed information about mortgages and you need to shop around for the best loan package, that is, which offers a reasonable rate and does not require extra charges in the form of hidden fees.

Tips for a first time home buyer

Buying a home, especially for a first time home buyer, is indeed a very challenging task. Chances are there that out of excitement to own your dream home, you may commit mistakes. Here we briefly discuss about some important things that you need to consider before taking out a mortgage loan.

Type of home

First of all, you need to fix up your mind regarding the type of home that you want to buy. It may be a traditional home, a condominium, a single-family house or a multi-family house.

Amount of mortgage loan

You need to know the approximate amount of mortgage loan that you will qualify for. This will help you a lot to make the right purchase.

Your affordability

You will have to repay the mortgage loan that you take out. Make sure that the mortgage loan that you have taken out is well within your affordability.

Costs of a mortgage

Apart from the monthly mortgage payment amount, a mortgage loan may also include various other costs such as closing costs, taxes, loan processing fees etc. You should have perfect knowledge about all the costs associated in a mortgage loan.
All these considerations will surely help you a lot to make the right mortgage purchase.
iiiI am Canadian. Do you offer land loans for the State of Hawaii. And if so, what is the minimum down payment requirment and maximum loan amount you allow?
Posted on: 01st Feb, 2006 11:50 am
Hi Renee,

Welcome to MortgageFit Forums.

We will try to help your requirements with our strong network. It will enable us to serve you in a better way if you give us some required details.

Have you got citizenship in U.S.? There is some other information which you are required to provide so that the down payment and maximum loan amount can be determined.

We would like to know about your income, assets, credit history and your credit score.

Also you need to give some more details on the property that you intend to buy. If you face any problem in disclosing these you may leave your e-mail address or your phone no. so that you con be contacted for discussion.

We will feel happy if we can help you and your queries.

God bless you.

For MortgageFit,
Samantha
Posted on: 01st Feb, 2006 12:03 pm
my husband will be getting payment for half the equity in the house. i'd like to pay it by using equity in the house. his name will be removed from the deed. then, i would like to refinance the principal balance to a 30 year term which would include the equity i borrowed. does this require a whole new mortgage, is it a refinance, is it a home equity loan, or some combination of those (or is it not even possible to do this?) what other options are available? thanks!
Posted on: 10th Feb, 2006 03:08 pm
Hi,

You may combine an existing first mortgage with a home equity loan. If the combined, refinanced loan is more than 80% of the home's value, then you need to pay PMI.

Regards,
Blue
Posted on: 10th Feb, 2006 04:34 pm
Hi,

I think refinancing will do in this case. Through refinance you can consolidate your debt by combining a home equity loan with you original mortgage and have one manageble payment.

James
Posted on: 10th Feb, 2006 05:11 pm
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