How To Understand Types of Mortgages
Basic Mortgage Facts
What You Need To Know About Mortgages
Let's face it, buying a house has to be the biggest purchase of someone's lifetime. Without knowing enough about it, you can definitely get taken to the cleaner's.
Some people prefer to just let the banks handle it and go with what appears to be the correct procedure in applying for a home loan, then being led through the process of buying the home.
However, by becoming more proactive and understanding the process better from beginning to end, you can really save yourself some headaches....and some serious money!
Let's take a look at all the pieces of a home mortgage and then some tips on how to get the most bang for your buck as recommended by the Federal Reserve.
Where did I come from? or What is an originator? This term is referring to whoever is giving you the loan. It could be the bank, a credit union or any other type of financial institution.
They give you the cash, you buy the house and in turn give it to the seller. Lending institutions can either keep your loan or they can in turn sell it to some other institution. So what does that have to do with you?
My momma told me you better shop around. You want to investigate which lending institution can give you the BEST deal.....it's as simple as that. No matter if you even have bad credit....you want to get the BEST deal.
The name of the mortgage game is comparison shopping. Look on the Internet, look in your newspaper and inquire of any lenders you can find until you get the rock bottom best deal out there.
You can hire a broker but make sure that the broker doesn't have a vested interest...as in if you go with him or her, he or she makes money off your loan. You need someone impartial to help you find the BEST deal.
Give it to me straight....I can take it! Rates. This is most important and needs to be in a language you can understand. Every lender or any company you investigate on the Internet needs to provide you with their current mortgage rates (and you may need to check daily or weekly as they do fluctuate).
Most important info of all....fixed or adjustable rate. Adjustable rates are great if they go down but if they go up, you'll get burned for a higher monthly payment so it's very important to know the ceiling on the rate. With that inflated rate, could you make the mortgage payment?
Also important is your APR (annual percentage rate) which includes all those fascinating charges included in getting a mortgage such as points, credit charges, and broker fees to name some.
Do you get my points? What are points when it comes to mortgages anyhow? They are basically more fees that you pay to the bank or a broker and are somehow linked to the interest rate. If you have a situation where you have low points quoted to you, your interest rate will be higher and vice versa........more points, lower rate.
Again, shop around and ask how much the
points are and the rates. It's also a
good idea to get the points in terms that we can all understand.....how much is
that going to actually COST in terms of dollars? Then compare which way is better for your situation. Would you be better off paying more points up front and getting a lower rate or the other way around?
What's it all about alph.....FEE? When it comes to mortgages, there are so many fees it's hard to know if you're coming or going. You may see the laundry list for the fees and think someone is including their personal car loan in there somehow!
Having fees in one lump sum and not itemized out is never a good idea . Always ask to see exactly what the fees are and don't settle for the blanket statement "closing costs". You may have to pay some fees up front such as appraisals or even application fees but the other fees can be staggering.
Find out if there are any fees that can be negotiated or eliminated altogether. Again shopping around and comparison shopping will lead you to the BEST deal!
Money Down and PMS.....I mean PMI. Some lenders require 20% down although in recent years, down payments have become less in some situations and for some loans. Be sure and ask what the current requirements are for any loan you investigate.
If you happen to be a veteran, you can get a no-money down loan called a VA loan but when lower down payments or zero down is part of the deal, you have to pay the piper somehow. That comes in the form of PMI or private mortgage insurance. Be sure to ask how much that's going to cost and for how long. It's usually added to your monthly payment.
Also look into FHA (Federal Housing Administration) or Rural Development Services programs where you can get a loan with low down payments. You can also ask if lenders have any special programs they are offering and again challenge other lenders to match these offers if you like their rate better.
How to Pick a Mortgage
Summing Up The Basics of Mortgages and Loans
Whatever route you decide to go, remember to always, always, always shop around. Compare and get into the haggling or negotiating game. It's your money after all that you're going to be paying out for a long, long time.
Do the math and see if a 15-year mortgage might not be a better deal. You'll pay more per month of course but you'll be done in half the time! You'll also save an incredible amount in interest!
Many people also attack their principal and interest by taking out a 30-year loan with the best rate that they can find and then throwing extra money at it (like $100 or more) per month. You'll pay it off much quicker this way, too.
Always make sure you know your credit score and have your credit report yourself before you begin any loan shopping or make any plans to buy.
It's important to be confident when you go into negotiating for a huge deal like a mortgage and without that information you can get blindsided or talked into an exorbitant mortgage that you will later have to try and undo such as refinancing.
Whatever you do, plan ahead, and ask many, many questions to make sure you fully understand the ins and outs of mortgages and loans before you sign on the dotted line.
Buying a home should be a rewarding experience and not one of the worst of your life!
Wishing you every success in finding the home of your dreams that you can afford.
Check out Google's Mortgage Comparison Calculator!
How Credit Affects Your Mortgage Options
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