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Home Buyers
What’s a mortgage? A mortgage is simply a loan create to assist you finance your new home. It indicates that a specific amount of money will be loaned at a specific interest rate for a specific term (a specified period of time after which such term is said to be ended). In addition, you agree to make timely payments throughout the duration.
Conventional Mortgage
A conventional mortgage is a fixed or adjustable-rate, fully amortized loan secured by a mortgage or deed of trust that is not insured or guaranteed by an agency of the federal government (such as FHA or VA). Most types of conventional loans are paid off over 15, 25, or 30 years.
Terms of a conventional loan differ among lenders, but basically a loan can be acquired even without a deposit. When the deposit is less than 20%, it is often necessary for the loan to have private mortgage insurance (PMI) to protect the lender. Private Mortgage Insurance (PMI), also known as Lenders Mortgage Insurance (LMI), is insurance payable to a lender that may be required when taking out a mortgage loan. It is an insurance in the case that the mortgagor is not able to repay the loan, and the lender is not able to recover its costs after foreclosing the loan and selling the mortgaged property. The annual cost of PMI varies between 0.19% and 0.9% of the total loan value, depending on the loan term, loan type and proportion of the total home value that is financed.
Conventional mortgages can be conforming or non-conforming. A Conforming Mortgage complies with specific Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) underwriting guidelines. A jumbo loan, which is also known as a non-conforming loan, is a loan that exceeds the maximum loan limits set by two large government-sponsored entities, the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Fannie Mae and Freddie Mac, respectively. Naturally, loans that conform to the limit are called conforming loans. Conforming loans are eligible to be purchased by both Fannie Mae and Freddie Mac. Conventional mortgages can have a fixed rate or adjustable rate.
Fixed-Rate Mortgages
A fixed rate mortgage (FRM) is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float.” Other forms of mortgage loan include interest only mortgage, graduated payment mortgage, adjustable rate mortgage, negative amortization mortgage, and balloon payment mortgage. Fixed-rate mortgages give you the security of knowing your monthly principal and interest payment will not change over the life of the loan. This type of conventional mortgage also protects you from rising interest rates. No matter how high market interest rates go, your mortgage rate remains the same. Prosperity Mortgage offers a variety of fixed-rate products, with loan terms ranging from 10 to 30 years. Fixed-rate mortgages are better for those buyers who:
Plan to stay in their homes a long time
Are on limited or fixed incomes
Are buying a home at a time when interest rates are comparatively low
Prefer regular payments with no surprises
Adjustable Rate Mortgages
An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes. During the preliminary fixed period, an ARM has a lower interest rate than a similar fixed-rate mortgage, so you’ll save on your monthly payments during the early years of your loan term. Because this type of conventional mortgage offers lower upfront monthly payments, it can help you:
Save money if you expect to move or refinance. If you plan to move or refinance before the end of the loan’s preliminary fixed period, you can take advantage of lower payments without worrying about future rate increases.
Manage your cash flow in a high-rate environment. If you are buying a home at a time when interest rates are comparatively high, an ARM can help you avoid making high monthly payments right away.
Plan for future income increase. An ARM can help you keep your payments low while your income increases during the loan’s fixed period.
Purchase a more expensive home. Because your maximum loan amount is based on the initial monthly payments, you may be able to borrow more.
Potentially improve your credit standing. The lower initial rate can make your payments easier to manage, helping you improve your credit and expand your financing opportunities if you make timely payments on your mortgage loan and other credit obligations.
After the initial fixed-rate period, the remainder of the loan term is divided into adjustment periods of one year or six months, depending on the mortgage you choose. At the end of each adjustment period, the interest rate may change based on existing market conditions.
VA Loan
Department of Veteran’s Affairs Loans are government guaranteed loans available to qualified military and ex-military personnel. Generally, there are less fees, preferred interest rates and lower down payment requirements for this program.
FHA Loan
The Federal Housing Authority insures federally qualified lenders against any default payments by the borrower. While the down payment can be as low as 2.25% of the purchase price, the FHA charges the borrower an up-front mortgage insurance premium fee to obtain mortgage insurance on the loan. The fee may be collected as a lump sum at loan closing or as a periodic amount included in the monthly payment, or both. Prepaid interest, called points, may also be charged by the lender. FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers.
Financed Closing Costs
Many lenders today will assist buyers with closing costs. In exchange for paying a somewhat higher interest rate, a lender may build into the mortgage its normal charges plus pay other closing costs up to a specified amount. These plans vary widely, so study them carefully.
Balloon Mortgage
A balloon mortgage can be an excellent option for many home buyers. A balloon mortgage is usually rather short, with a term of five to seven years, but the payment is based on a term of 30 years. They often have a lower interest rate, and can be easier to qualify for than a traditional 30 year fixed mortgage. There is, however, a risk to consider. At the end of your loan term you will need to pay off your outstanding balance. This usually means you must refinance, sell your home or convert the balloon mortgage to a traditional mortgage at the current interest rates.
Posted: May 11th, 2007 at 12:11 pm
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Home Sellers
After signing a buyer’s purchase contract to sell your house, the preparation for settlement begins. Settlement, or closing escrow, is the process of transferring the title (ownership) of the home from seller to buyer.
A lot of times, the real estate agents will help take care of these arrangements. But the buyer and seller are ultimately responsible for managing to these details.
Buyer’s Responsibilities
Buyer gets a loan.
The buyer must first secure the financing to buy the house. Usually this means taking out a mortgage loan. Most lenders require a complete financial report, including income and expenses, and credit check. In addition, most want an up-to-date appraisal of the home, a survey of the property, and any required inspections. Some lenders specify which service providers they want the borrower to use. Once all the paperwork is complete and submitted, the borrower should keep in touch with the lender until receiving commitment.
Obtain homeowner’s insurance.
Prior to buying, a hazard insurance policy should be purchase. The buyer is also required to purchase title insurance policy to protect the lender. If the buyer is interested in bringing an attorney to settlement, arrangements should be made 30 to 60 days in advance.
Receive Good Faith Estimate.
The buyer should receive a Good Faith Estimate of settlement costs a few days before settlement. Along with the loan commitment letter, the buyer must bring a certified or cashier’s check for the down payment and any other costs due at settlement. Mortgage interest from the closing date to the first payment due, escrow for property taxes and insurance, and various taxes and recording fees are included in these cost.
Seller’s Responsibilities
Select closing agent.
Usually, it is the seller that designates the settlement agent. This should be done 30 to 60 days before closing. The seller and listing agent work together to arrange inspections and appraisals and to provide needed paperwork such as previous title insurance information and any prior inspections.
Give loan payoff notice.
The sellers would need to check with their lender to get the current figures for the payoff of the mortgage, and to learn if any rebates are due for pre-paid taxes or insurance.
Joint Responsibilities
Stay on top of details.
Both the buyer and seller need to give the settlement agent any and all relevant information. Many long and detailed forms are usually signed at settlement, so requesting copies of the basic settlement forms in advance to review ahead of time should be considered. At the settlement table, the focus is on checking the exact figures to be sure they are accurate.
Designate legal representative.
In case the buyers or sellers cannot come to closing, they should notify the settlement agent in advance so a Power of Attorney form can be prepared. The person named on the form can act as the signer’s legal representative.
Once all the papers are signed and money paid, the keys are handed over to the buyer and the sale is complete.
Posted: May 11th, 2007 at 1:07 pm
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Posted in
Home Buyers
Recommend first steps for buying a home
Before looking at houses for sale, be sure you do some “research.” Here are some of the questions you’ll need answers:
Check out interest rates
What are current interest rates for 15 year and 30 year fixed rate mortgages? Also, for 1 to 3 year and 5 year adjustable rate mortgages?
Shop for the best loan
Which form of loan is best for you? Will you be in the house several years and benefit most from a long-term fixed rate, or do you want a lower, short-term rate because you plan to move soon or expect your income to increase significantly over the next few years?
Determine how much house you can afford
How much of a mortgage can you qualify for? The loan amount plus your down payment tells you how much house you can afford.
Investigate neighborhood prices
How much are the other homes in the neighborhood selling for?
Separate needs from wants
What priorities do you have for your next home? Are public transportation, community facilities, on-street parking, lot size, and privacy important? How many bedrooms and baths will you need? Will you need a home office space? How are the neighborhood schools?
You’ll be able to answer some of these questions on your own, but you may need some assistance with the others. If you do, please contact us. We can make sure you have the important home buyer’s information you need.
Posted: May 11th, 2007 at 1:11 pm
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Posted in
Home Buyers
Finally the time has come! You will be joined at settlement by your attorney or title company representative, the listing and selling brokers, and all owners. The attorney will have reviewed the title, provided title insurance, and obtained old and new lender information.
After all issues are resolved the attorney will explain the following:
Deed of trust or mortgage
Deed of trust note or mortgage note
VA, FHA, or lender forms
Settlement sheets
You and the seller will then sign all necessary documents. You will also pay the balance of the down payment and buyer’s closing costs with a cashier’s or certified check.
Open Look At Closing Costs
Prior to settlement, you will be given an estimate of closing costs by the lender under the Real Estate Settlement Procedure Act (RESPA). In addition, the lender will require an appraisal fee and a credit report fee in advance of the settlement.
Closing costs can average between 2% and 10% of the sales price. Closing costs usually include the following:
Owner and lender title insurance
Loan origination fee
Attorney fees
Mortgage insurance premium
Recording fees
County tax stamps
State tax stamps
Survey fees
In particular instances, some of the closing costs may be paid by the seller. This is mainly true for new housing, where the seller is the builder.
Other expenses which aren’t required to be listed under the law may also have to be paid at closing. These expenses will include the advance deposits held in escrow for real estate property taxes and insurance. The lender collects a fraction of these monthly and then pays the insurance and taxes when they are due.
Your closing cost may be expensive. Keep in mind that some of the items are tax deductible. The loan origination fee, prepaid interest, and property tax adjustments may be such items.
Congratulations
Once the house keys are transferred, you are the proud owner of your new home. Congratulations and enjoy your new home.
Posted: May 11th, 2007 at 1:15 pm
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