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Mortgage Loans

What is a mortgage?

A mortgage is a loan used to purchase a property, provided with interest by a lender. In most cases, the mortgage loan is used to buy a home. The lender holds the title of the property until the mortgage is paid in full, at which point the title is written over to the homeowner. These loans are also used to buy buildings, land and various other types of real estate. Mortgages are used by people of all different age groups, income levels and credit profiles. Federal Housing Authority (FHA) loans, home equity loans and mortgage refinance loans are all forms of mortgages. The price of a mortgage loan can be calculated with the interest rate and the term of the loan, plus any closing costs and fees charged by the lender.

I am a first-time home buyer. Can you describe the mortgage process?

If you know the area in which you would like to purchase a home, it is a good idea to look around at the general price level of homes in that area and examine your budget to ensure that you will be able to afford to pay off the loan over a long period of time. Before a lender runs a credit check, obtain a FICO or credit report online and examine it for any mistakes or outstanding debts that can be paid to improve your credit score, which is likely to save you money in interest down the line. Have all of your financial documents in hand when you visit a lender, including tax returns, loan statements, paycheck stubs, bank statements, and names and contact information for recent landlords.

Most lenders work with larger banks during the closing process, and it usually takes a week or two. For that reason, many experts recommend that the buyer get his credit preapproved before beginning to shop for properties in earnest. Then, the buyer visits homes within his price range, usually with a realtor.

What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage? Which is better?

The rate referred to is the annual percentage rate (APR) or interest rate, which determines the price of the loan. For a fixed-rate mortgage, the APR stays the same throughout the term of the loan unless it is refinanced. The interest rate of an adjustable-rate mortgage changes with market conditions, specifically the interest rate determined by a country’s central bank. General consensus holds that fixed-rate mortgages are cheaper and they are certainly safer for those on a fixed budget. However, there are some instances when an adjustable-rate loan can save money, if interest rates are high at the time of closing or if the home buyer does not intend to own the property for more than a few years.

What is preapproval?

Most lenders will give you a preapproved line of credit after they do your initial credit check. This is a maximum amount that you can be loaned which you are not obligated to reach. With that information, you can shop for properties within your ability to purchase and which are within your budget. Make sure to determine the amount of any closing costs and fees and consider them, the term of the loan and the APR when determining your budget for paying off a mortgage. If the amount of credit you are preapproved for is not enough for the home that you want and that your budget can handle, consider shopping around with different lenders to seek a higher amount.

What is refinancing?

Refinancing is having a lender pay off your current mortgage in order for him to issue you a new loan with a lower interest rate. This lower rate is usually obtained because either your credit score has improved or macroeconomic conditions have caused lower overall interest rates in an economy. Refinancing involves closing on a new loan and new closing costs and fees, thus the reduction in interest must to enough to cover those costs in order for refinancing to be feasible.

Are there any government programs that can help home buyers obtain loans?

There are loan assistance programs for home buyers in many nations. In the US, the most common form of government assistance is the FHA loan, which helps provide homes for buyers with less-than-perfect credit. These loans come with an additional insurance cost that protects the lender in case the buyer defaults on a mortgage. The Veterans’ Administration helps military families find homes and protects them from foreclosure while overseas and for nine months after the tour is over. The Home Affordable Refinance Program, or HARP, was developed to help lower mortgage payments of troubled debtors during the financial crisis of 2008-2009 and subsequent fallout period. The Department of Agriculture has an assistance program for rural homes, and the list goes on and on. Check with your government’s housing administration or mortgage lender to see if there is a program in your region that might benefit you.


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