Mortgages Explained

A lendor (you) wants a house and you sign a legal contract for 10, 20, 30 or more years stating that you will pay the lender his money back. This includes any fees, interest and other amounts.  Once you pay for the house you will receive a deed.

In Kentucky if you do not pay for the property that you signed a legal contract for you will enter into a "lien," where the mortgage company holds the mortgagee (you) a lien on your property and the mortgage company can foreclose on this lien and sell your property in the event you default under the mortgage (don’t make the payments).

It is best to have a down payment a lump sum of money you pay up front that reduces the amount of money you have to finance. You can put as much money down as you want, or you can sometimes pay as little as 3 to 5 percent of the purchase price. The more money you put down, though, the less you have to finance and the lower your monthly payment will be.  Lower the principle (loan amount you are borrowing) so the interest when calculated on the principle will be low.

The Mortgage Payment Consists of:

- Principal – This is the amount of money you are borrowing and the seller is accepting for his property.

- Interest – This is the amount of money the lender is charging you for borrowing the money.

- Taxes – Property tax is accessed on all property and a borrower can have the tax money added to your monthly mortgage payment and held in escrow until it is due.

- Insurance - There are several types of insurance that can obtain when you get a mortgage to protect your house and possessions.  You can have hazard insurance to protect against losses from fire, storms, theft, etc., and if your home is in a flood risk zone and you're getting a federally insured loan, you'll need to have flood insurance. Unless you have at least 20 percent equity in your home, you may have to pay private mortgage insurance (PMI). This can sometimes be pretty expensive, so it makes sense to put as much into your down payment as you can. (Equity is the portion of your home's value that you have already paid for.)

The Principal + Interest + Taxes + Insurance is called the PITI part of your mortgage. 

Mortgages are paid off in incremental monthly payments that gradually lower the principal of the loan. This is called amortization.

Types of Mortgages

Adjustable-rate mortgages (ARM) have an interest rate that changes according to the market rates and economic trends.
• How often your interest rate adjusts is determined by the terms of the loan.
• Caps, or limits – determine how high your interest rate can go over the life of the loan and how much it may change with each adjustment.
• The interest rates for ARMs can be tied to one-year U.S. Treasury bills, certificates of deposit (CDs), the London Inter-Bank Offer Rate (LIBOR), or other indexes.

Balloon Mortgage:

A balloon mortgage offers an initial interest rate that is lower than fixed-rate mortgages keep a low fixed rate for five to seven years and then requires a "balloon" payment: which is the final payment of the loan and pays off the entire balance of your loan.

Veterans Administration Loans:

VA loans are designed for qualified veterans and offer more relaxed standards for qualification than either FHA loans or traditional loans; you will need to be a veteran. As of 2002, loans can be for amounts up to $240,000 and require no down payment.
FHA loans and VA Loans are not made by the Veterans Administration, but are simply guaranteed by the Veterans Administration.

Fixed-rate Mortgages:

A fixed-rate mortgage offers an interest rate that will never change over the entire life of the loan; your payments will not go up because of the interest rates going higher.
The length (known as the term, number of years) for a fixed rate mortgage can be 15, 20 or 30 years.

Federal Housing Loans:

The Federal Government housing loans help lowers the cost of mortgages so that people can afford to buy and own a home in the United States.

Reverse Mortgages

Reverse mortgages are designed for people age 62 and older that own their homes and need cash; this pays you money as long as you live in your home.

Conventional vs. Jumbo Loans

A conventional loan is one that falls under the loan limit set by Fannie Mae or Freddie Mac. As of 2002, a conventional loan can be up to $300,700.
Loans that are above that limit are called jumbo loans. The jumbo loans don't offer the same Fannie Mae- and Freddie Mac-backed safety to investors as the conventional loans, the interest rates are usually higher.

100% Percent Financing Mortgages?

There was a time in the not-so-distant past that potential home buyers could not get a mortgage for their home unless they had at least a 20% down payment and a perfect credit history. Fortunately for most Americans, the times are changing and home buyers have more options than ever-no matter their past
 
The mortgage lending industry is a multi-billion dollar a year industry and competition for business is increasing all of the time. This has allowed for differing types of mortgages to enter the marketplace. One type of mortgage is perfect for that potential homebuyer who cannot save for the down payment on a home: the 100% financing home mortgage.

A 100% financing home mortgage doesn’t require anything as a down payment. However, in turn, the internet rates on the loans are higher than that of mortgages with a down payment. If you have good credit, the rate increases are low, however, the lower your credit rating, the more your loan will cost you in interest.

Lenders have differing criteria on what it takes to obtain a 100% financing mortgage. The key to obtaining one of these loans is to shop around to compare rates. Also, it’s a good idea to do the following to increase your chances of being accepted for a 100% financing home mortgage:

• Obtain a copy of your credit report from all three credit-report bureaus and make sure you dispute any inaccuracies.
• Don’t apply for new credit cards or loans before applying. New credit applications down you credit score and show a potential for default.
• Eliminate as much debt as possible. Pay off as much as possible on loans and credit cards. A low credit score can affect your loan.
• Have cash in reserve. Lenders of no-down payment mortgages like to see liquid assets. At least six months worth is necessary, 12 months is ideal.