What is a mortgage?
Basically, a mortgage is a loan that is obtained from a lender in order to finance a home. The mortgage works as a lien on the property. The lending company is letting you borrow money to pay for your home and in return the lender is placing a lien on your home. A lien is a form of security interest on a property in order to secure the promise of a payment for a debt or performance of some kind of obligation).
What are the types of mortgages?
Fixed Rate Mortgage: Payments for a fixed-rate mortgage remain the same throughout the life of the loan. The advantage of a fixed rate mortgage is that it is predictable because your housing cost is not affected by interest rate changes or inflation.
Types: 10-year, 15-year, or 30-year Mortgages, etc.
Adjustable Rate Mortgages (ARM): Payments for an adjustable rate mortgage increase or decrease regularly with changes in interest rates. The advantages of obtaining an ARM when buying a home is that it offers lower initial interest rates. Even the monthly payments can be lower than a fixed-rates mortgage. There is also a possibility that the borrower is able to qualify for a larger loan amount if they choose to go with an Adjustable Rate Mortgage.
Types: Balloon Payment Mortgage, Two-Step Mortgage, ARMS linked to a specific index or margin.
Which type of mortgage is right for you?
ARMS might be a better choice for you when you know with certainty that your income will continually increase in the future or if you are planning to resell your home in the near future and are not concerned about the potential increases in interest rates.
Are there special mortgages for first-time homebuyers or homebuyers with less than favorable credit ratings?
Yes. There are a number of affordable mortgage options that are helpful for first-time homebuyers. When shopping for mortgages let your potential lenders know that you are a first-time buyer, and they may have options for those who don't have a significant amount of money saved up for the down payment and closing costs, have no or poor credit history, have quite a bit of long-term debt, or have experienced income irregularities. FHA is also a good source for assistance.
What is a subprime mortgage?
A subprime mortgage is a type of loan that is available to those who do not qualify for prime rate loans because of reasons such as low credit ratings or a history that shows a reasonable possibility of defaulting on mortgage payments. Lenders often charge interest rates that are higher than a traditional mortgage in order to compensate for their burden of carrying more risk in lending to a less than ideal borrower.
What is an Escrow Account?
An escrow account is a place to set aside a portion of your monthly payments in order to cover annual charges that you will need to pay as a homeowner. It is basically a writing given to a third party (the escrow company) giving them the right to collect and hold onto a specific amount of your money in an escrow account until the performance of an act is required by the written agreement (the writing generally entails an agreement that the escrow company set aside your money for the monthly payment of your property taxes and home insurance premiums).
Do I need an escrow account?
An escrow account is usually required by the mortgage documents you sign. Lending institutions have a legal right to require an escrow account. Escrow accounts are a good idea for you and the lender because they assure that your money is being set aside for the payments you will certainly have to pay in the future, so you have the peace of mind of knowing that at least a portion of your home costs will be paid.
Homeowners Insurance is a contracted agreement between the homeowner and the insurance company. So long as the homeowner promptly pays all the premiums and meets the policy requirements, the insurance company guarantees to reimburse the owner for losses incurred due to natural disasters or human-caused damage. Oftentimes, buying a home is the largest purchase people will make, so it is reasonable to want to protect the value of their home.
Do you have to have homeowners insurance?
Yes. Mortgage companies require homeowners insurance when they lend you the money to purchase a home. Keep in mind that mortgage institutions are making a huge investment as well when they are handing you thousands of dollars to pay for your home. Mortgage companies are concerned with protecting your home because, in the unfortunate case that they are forced to reclaim your home for reasons such as defaulting on payments, they want to be able to resell the home at its true market value.
What does a home inspector do?
The home inspector is there to make sure your potential real estate investment is safe and habitable. Their main purpose is to evaluate whether the property's structure, construction, and mechanical systems meet the state standards. More specifically, the inspector should look to find if there are any repairs that are needed on your potential home's: electrical system, plumbing and waste disposal, water heater, insulation and ventilation, HVAC system, water source and quality, potential presence of pests, the foundation, doors, windows, ceilings, walls, floors, and roof. If the home inspector finds any issues with the home, he or she will give you the prices for the repairs.
Does it matter who inspects your home?
Yes. Do your research. Make sure you find a home inspector that is qualified and experienced. Purchasing a new home is an extraordinary investment. The end result can be an invigorating experience if you take shrewd, planned steps or it can end up a nightmare if you cut corners during the process. You should make sure you know what you buying. Make sure you find a home inspector that is qualified and experienced. A good place to start your search is with the American Society of Home Inspectors.