Mortgage Options for Home Buyers
For first-time buyers or even repeat buyers, it can be daunting to find out what all your credit options are. Especially when you don’t have time to commit to one after you’ve drawn up a home purchase contract. Here is an overview of the mortgage products available. I have added general terms and conditions for loans from mortgage lenders.
-Affordable home loan: a general term used to cover a variety of loan products aimed at first-time home buyers.
-Possible loan: an existing mortgage loan that can be taken over by another person; most conventional loans are not accepted; government loans are accepted with the qualification of the new person.
– Bi-weekly mortgage: half of the mortgage payment is paid every two weeks, resulting in one additional full payment towards the principal each year.
-Joint mortgage: a mortgage secured by more than one property.
-Blended Rate (or Whole) Mortgage: A refinancing plan that combines the interest rate on an existing mortgage loan with the current interest rate for an additional loan amount.
-Bridge (or Swing): A loan used to bridge the gap when someone buys a new home before they have moved on to paying off their previous home.
-Budget mortgage: another name for a loan that includes taxes and insurance along with the payment of principal and interest (PITI).
-Payment sale (also called a land contract): usually a private agreement between a seller and a buyer in which title is not transferred until all payments have been made.
-Refinance: whenever the seller agrees to finance the first or second mortgage on the property.
-Chattel mortgage: pledge of personal property to secure a note.
-Construction loan: a short-term loan granted during the construction of a house.
– Home equity loan: either a lump sum or a line of credit taken out against the equity of a home.
-Interest Only: Your monthly payments cover only the interest on your mortgage loan. Your payment does not include any principal payments to build equity. In a market moving from a seller’s market to a buyer’s market, you may lose money selling your home.
-125% loan: A loan product where you actually borrow 25% more than the current value of the property you are buying. If you have to sell the property in the first few years, you will find yourself “upside down” on the mortgage, owing more on the mortgage than you can sell the house for.
-Open mortgage: one where additional funds can be borrowed without changing other terms of the mortgage, typical of construction loans.
– Package mortgage: a mortgage secured by a combination of immovable and movable property; often used for a vacation property such as a cabin, beach condo, or ski lodge.
– Portable mortgage: a new concept; you can carry a mortgage loan with you from one property to another.
-Purchase money mortgage: any loan used to purchase real estate that serves as collateral, but usually refers to financing held by the seller.
-Reverse Mortgage: A special program for senior citizens (age 62 or older) that uses the equity in the senior’s home to provide additional income without having to sell their home.
– Subprime Loan: A loan with risk-based pricing for individuals who cannot qualify for prime conventional loans; usually has a higher interest rate; credit score and appraisal are critical.
-Mortgagor: the party receiving the mortgage, the lender.
-Mortgagor: the party giving the mortgage, the borrower.
-Mortgage: a document establishing property as collateral for repayment of the mortgage debt.
-Note: a written promise to repay a debt.
-Deed of Trust: a document transferring title to a neutral third party to provide security for the mortgage loan debt. The choice of whether to secure the loan through a mortgage or deed of trust depends on individual state law.
-Non-performance: failure to fulfill the terms of the contract; the most important condition is the agreement to make regular payments.
– Loan to Value (LTV): a percentage of what the lender will borrow divided by the market value (eg a property worth $200,000 with an LTV of 90% means the lender will borrow 90% of the value, or $180,000, and a down payment of 10%, or $20,000, will be required from the borrower.
-Qualifying ratios: the percentage of gross monthly income allowed by various loan programs.
o The front end ratio is the allowable amount for total housing costs.
o The back end ratio is the amount allowed for the total debt. Example: Fannie Mae/Freddie Mac ratios are 28/36 or 33/38 for affordable loans. FHA ratios are 29/41.
-Points: each point is 1% of the loan amount. Lenders often charge a 1% origination fee. Additional points may be charged for a discount (reduction) of the interest rate.
-Buy-down: a cash payment to the lender that lowers the interest rate; a commonly used marketing technique by new home builders. Example: Selling a property for $200,000 with a 2-1 buyout. The interest rate for the first year is 4%, the second year 5%, and the term of the loan is 6%.
-PITI: the usual components of a mortgage loan: principal, interest, taxes and insurance. The payment is credited to the principal first, after the interest. Taxes and insurance are paid from an escrow account. Interest and taxes are tax deductible.
-Principal: the balance due on the amount originally borrowed.
-Interest: the amount charged by the lender for the use of the amount borrowed.
-Conventional loan: any mortgage loan that is now insured or guaranteed by the government.
-Government Loan: Loans insured by FHA or guaranteed by VA.
-Conforming Loan: Meets Fannie Mae/Freddie Mac guidelines.
-Nonconforming loan: Does not meet Fannie Mae/Freddie Mac guidelines.
-Jumbo loan: one that exceeds current Fannie Mae/Freddie Mac loan limits.
-First mortgage (or trust): the primary loan placed on the property.
-Junior or second mortgage (or trust): a secondary loan that is sometimes used in conjunction with a first mortgage or one placed sometime after the first has closed; such as a home loan.
-Portfolio lender: one that holds and continues to service mortgage loans internally.
– Prepayment penalty: a fee charged by the lender if you want to pay off some or all of the balance due before the scheduled end of the term; penalty is not allowed on any conforming or government loans; most commonly seen in jumbo loans and ARMs.
-Negative amortization: occurs when the monthly payment is not enough to cover the interest for that month, and the additional amount is added to the principal balance; results in an increasing principal balance rather than a decreasing principal balance as occurs with a fully amortized loan.
#Mortgage #Options #Home #Buyers