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Mortgage 101: First Time Home Buyers Must Read!
By: John R. Blakefield
There is so much information available to the first time home buyer both on and
offline; there really is no excuse for the home buyer to not be educated when
going into the mortgage buying process. However, it can be difficult to gather
all the mortgage facts and terms into one easy to understand, compact guide.
Here I have gathered the basics of a mortgage and what it involves. This is a
broad overview and it will give you the “big picture” regarding mortgages and
the mortgage process. Use it as a general guideline as to what should occur when
you purchase your first home.
After finding a home that you feel is in the right community, has the amenities
you want, room enough for your family, close to freeways and good schools, or
whatever it is that is important to you and your family, and within your price
range, it is time to put an offer in with your broker.
During escrow, or the time where funds are founded to purchase the house, you
will meet with your real estate agent or broker, who may have suggestions for a
mortgage lender. A mortgage lender is an entity that actually provides you the
funds to purchase the property. Mortgage lenders can be commercial banks,
private lenders, mortgage banks, and many other entities that have the ability
to finance your purchase.
You can use the mortgage lender that your agent or broker provide, or you can
ask them to shop more lenders that may get you a better deal. A broker is
usually in contact with many different lenders so that they may be able to work
out a better deal than you shopping yourself.
Another option is to shop mortgages yourself. This will take a lot of time and
energy, but you may find an option that works best for your financial situation.
Using online services can be a great way to shop and compare mortgages.
After you have found and discussed basic terms with your mortgage lender, it is
time to put in an application. This application will include your credit
history, total income and expenses, as well as any short and long term debt.
Needless to say, the better financial environment that you have, the better deal
you will be able to obtain.
You and your mortgage lender, or broker, will discuss the terms of a mortgage
including mortgage rate, life of the loan, payments, fees, and any other
contingencies such as prepayment penalties or Private Mortgage Insurance.
The mortgage rate is the amount you will pay in interest for borrowing the
money, and it dictates how your monthly payments are determined. For example,
you may choose a fixed rate mortgage where the interest rate, as quoted by your
lender, remains the same for the entire life of the loan, or how long the loan
will last. This could be anywhere from 5 to 40 years depending on your financial
arrangement with your lender. If you choose an adjustable rate mortgage, then
the interest rate will fluctuate according to the current market rate at the
time of the change.
Another option to be considered would be a bi-monthly payment, where you take a
single monthly payment, divide it in two, and pay every 15 days rather than 30
days. This will yield approximately two extra payments a year, building the
equity in your home faster, and saving you money in interest!
There are many terms to be discussed regarding the mortgage. Besides mortgage
rates and interest rate, life of the loan, and payments, you may discuss Private
Mortgage Insurance and prepayment penalties.
Private Mortgage Insurance (PMI) is extra insurance paid by the home owner in
exchange for not putting down at least 20% of the property purchase price. This
assures the mortgage lender that you will pay back all the money. It often
results in thousands of extra dollars, so it is recommended that you negotiate
not to have PMI or wait until your finances are in a better position to pay a
larger down payment.
Prepayment penalties are fees paid to the mortgage lender if the home owner
chooses to pay off the mortgage before the life of the loan is complete. The fee
is usually a percentage of the final amount owed on the property. This too can
be negotiated not to a part of the mortgage agreement.
After negotiating the terms of the mortgage, and filling out the application,
you either qualify or don't qualify for the loan. If you do, congratulations and
welcome to your new home! If you don't, don't worry. There are many mortgage
lenders out there who would like your business. If it is a financial issue, find
a mortgage lender who works with difficult cases. Ask for the exact reason why
you did not qualify, and try to rectify the problem or find someone who might
give you a higher interest rate or more strict terms in exchange for financing a
higher risk loan.
Here is your crash course in mortgages. You should have a good idea as to the
process, and the most important elements of a mortgage. Continue your research
and education so that the process runs more smoothly and you have a better
chance in getting the best deal for your situation.
About the Author:
John R Blakefield is a mortgage and real estate specialist. For more
information, articles, news, tools and valuable resources on home mortgages or
investment loans, refinancing, debt solutions, visit this site:
www.scourtheweb.com/mortgage/. |
