Take a Look at What's Inside

What Is A Mortgage?

What Is A Qualified Mortgage?

What Is Loan To Value (LTV) And How Does It Affect The Size Of My Loan?

How Large A Down Payment Do I Need?

What Does Ability To Repay Mean?

Are There Special Mortgages For First-Time Homebuyers?

What Types Of Mortgage Loans Are Available?

When Do Adjustable Rate Mortgages Make Sense?

How Does The Interest Rate Factor In Securing A Mortgage Loan?

What Happens If Interest Rates Decrease And I Have A Fixed Rate Loan?

What Are The Advantages Of 15- And 30-Year Fixed-Rate Mortgages?

What Factors Affect Mortgage Payments?

What Is Included In A Monthly Mortgage Payment?

What Are Discount Points?

What Is Mortgage Insurance?

What Is PMI?

What Is Prime?

What Is Equity?

Can I Pay Off My Loan Ahead Of Schedule?
What Should I Do If I Fall Behind On A Conventional Loan?

 

What Is A Mortgage?

The original phrase “mortgage” translates as ?death pledge?! But as this video explains, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien - a legal claim on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest. The principal is the amount you are borrowing which is ?secured? by the lender?s claim on the property. The interest, usually stated as the percentage rate is the additional amount paid for borrowing. Mortgage interest is ?compounded? - interest on interest, over time.

 

What Is A Qualified Mortgage?

As this video explains, Federal laws put into effect in 2014 and supervised by the Consumer Financial Protection Bureau define lending practices and loan terms for a new category called Qualified Mortgages. They provide stable loan features for consumers and improve legal protection for lenders who follow the guidelines. These guidelines require lenders to assess each borrower탐s ability to repay their mortgage loan. As of 2014, guidelines require that a borrower's monthly DEBT - including mortgage - be no higher than 43% of their monthly gross INCOME The laws also define unacceptable loan terms: interest-only loans terms over 30 years negative-amortization loans that increase principal over time most balloon loans do not meet the Qualified Mortgage guidelines. The laws aim to provide consumers with objective guidance about reasonable debt from the CFPB and in return, to grant lenders who follow that guidance with higher levels of protection from lawsuits. Ask your lender about Qualified Mortgage options for your home purchase.
 

What Is Loan To Value (LTV) And How Does It Affect The Size Of My Loan?

While this video simplifies things to help you remember, the loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 75% LTV loan on a home priced at $100,000 you could borrow up to $75,000 (75% of $100,000) and would have to pay $25000 as a down payment. The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policies.

 

How Large A Down Payment Do I Need?

There are mortgage options now available that only require a down payment of 5% or less of the purchase price. You?ll see some pictures in this video to help you remember later - the larger the down payment, the less you have to borrow and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment consider that you'll also need money for closing costs moving expenses, and - possibly - repairs and decorating.

 

What Does Ability To Repay Mean?

In a nutshell, as this video shows, new laws require lenders to make a good-faith assessment of a borrower's capacity to pay back their loan over time. Its a longer-term view that goes beyond immediate income, debt and credit rating. These new Federal laws- supervised by the CFPB - require lenders to ask more questions - about income, assets, employment, credit history, and monthly expenses - as they relate to the proposed loan. For example, a lender offering a mortgage with a low initial rate must try to assess how a borrower will handle the later, higher rate as well. If you탐re applying to borrow ask whether the program youre considering is a Qualified Mortgage Ability-to-repay rules are built in to loans that meet Qualified Mortgage guidelines.

 

Are There Special Mortgages For First-Time Homebuyers?

Yes. Like the video shows, lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or who have experienced income irregularities.

 

What Types Of Mortgage Loans Are Available?

This video tells you about the most common types. First, Fixed Rate Mortgages: Payments remain the same for the life of the loan generally 15 years or 30 years. Interest rates remain the same, so payments are predictable. A second common type is an Adjustable Rate Mortgage, or ARM. ARM Payments increase or decrease on a regular schedule with changes in interest rates increases are typically subject to limits. Third, Balloon Mortgage: These offers very low rates for an Initial period of time usually 5, 7, or 10 years when time has elapsed, the balance is due or refinanced though not automatically. Finally, a Two-Step Mortgage- Interest rates adjusts only once and remains the same for the life of the loan Many other types are available, including government-insured mortgages and VA loans for veterans. Talk to lenders and real estate professionals to assess your situation.

 

When Do Adjustable Rate Mortgages Make Sense?

What you'll see in this video is, an ARM may make sense if: you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates. They generally offer lower initial interest rates. Monthly payments can be lower. And they may allow you to qualify for a larger loan amount. Make sure you understand the terms, risks and potential costs and compare all options before deciding.

 

How Does The Interest Rate Factor In Securing A Mortgage Loan?

As you'll see in the video, a lower interest rate allows you to borrow more money than a high rate with the some monthly payment. Interest rates can fluctuate as you shop for a loan so ask lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the mortgage interest rate because it also includes the cost of points, mortgage insurance and other fees included in the loan.

 

What Happens If Interest Rates Decrease And I Have A Fixed Rate Loan?

Like the video shows, if interest rates drop significantly you may want to investigate refinancing. According to the US Dept of Housing & Urban Development most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing plus loan origination and application fees.

 

What Are The Advantages Of 15- And 30-Year Fixed-Rate Mortgages?

For both, as we show you in this video, compared with other options, housing costs won?t be affected by interest rate changes and inflation With A 30-Year Term: In the first 23 years of the loan more interest is paid off than principal meaning larger tax deductions. As inflation and costs of living increase mortgage payments become a smaller part of overall expenses. With A 15-year Term: Loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal. And the loan is paid off earlier. Compare payments, principal and interest totals to make a decision.

 

What Factors Affect Mortgage Payments?

Well, as this story shows, the amount of the down payment the size of the mortgage loan, the interest rate the length of the repayment term and payment schedule will all affect the size of your mortgage payment. Once more: down payment loan size interest rate - fixed or adjustable repayment term - how long payment schedule - how often all affect the size of your payment.

 

What Is Included In A Monthly Mortgage Payment?

The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes homeowner's insurance, and mortgage insurance, if applicable. If you are refinancing compare what is and isn't included in your financing options. Watch this video and it?ll make sense.

 

What Are Discount Points? Discount points allow you to lower your interest rate. While this video simplifies things to help you remember. Points are essentially prepaid interest with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

 

What Is Mortgage Insurance?

Like the video shows, mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses. You generally need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs.

 

What Is PMI?

This video tells you about it all. PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI's usually have stricter qualifying ratios and larger down payment requirements than the FHA but their premiums are often lower and they insure loans that exceed the FHA limit.

 

What Is Prime?

The Prime Lending Rate - sometimes just called Prime- is the interest rate that banks charge each other for overnight loans. Some consumer rates - like ARMs - are set in relation to Prime. In the US, Prime is affected by the Federal Reserve lending rate to banks; historically, Prime is about 3 percent above the Fed rate. The video shows an example. The Federal Reserve loans to Bank A at 1% Bank A loans to Bank B at 4% Both banks - A & B - will recalculate variable-rate loans like ARMs on that 4% Prime figure. ARM rates are frequently defined as % above Prime- that gap is usually called the margin or spread. Just remember those 3 layers in Prime: Federal Reserve Bank A Bank B And finally, YOUR rate.

 

What Is Equity?

Equity is the value YOU own in property such as a house. Its the difference between what￐s OWED and what the property is WORTH in the current market. The example this video shows - you have a house worth $300,000 today and you owe the bank $200,000. Your equity would be $100,000. If the house is valued at $500,000 in five years, and you still owe $150,000 your equity will be $350,000. Equity grows if the property value goes up or if the amount owed goes down. The key thing to remember, simple as it sounds, is that you "own" increases in value. The bank's loan doesn't go up if the home's value goes up. Equity in a home can be used as collateral for loans but a house is not a piggy bank. Home equity can become a key financial asset over time; treat it wisely.

 

Can I Pay Off My Loan Ahead Of Schedule? Usually, Yes. Like the guy in the video says, by sending in extra money each month or making an extra payment at the end of the year you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal and keep records. Remember that payment applied to loan principal is not tax-deductible. Most lenders allow loan prepayment, but some loans may have prepayment penalties. Ask your lender for details.

 

What Should I Do If I Fall Behind On A Conventional Loan?

The video puts this in more visual terms, but most importantly, talk to your lender about specific loss mitigation options. Work directly with him or her to request a "workout packet." A secondary lender, like Fannie Mae or Freddie Mac, may have purchased your loan. Your lender can follow the appropriate guidelines set by Fannie or Freddie to determine the best option for your situation. Fannie Mae does not deal directly with the borrower. They work with the lender to determine the loss mitigation program that best fits your needs. Freddie Mac, like Fannie Mae, will usually only work with the loan servicer. However, if you encounter problems with your lender during the loss mitigation process you can call customer service for help. In any loss mitigation situation, it is important to remember a few helpful hints: Explore every reasonable alternative to avoid losing your home, but beware of scams. For example, watch out for: Equity skimming: a buyer offers to repay the mortgage or sell the property if you sign over the deed and move out. Phony counseling agencies: offer counseling for a fee when it is often given at no charge. Remember - don't sign anything you don't understand.

 

These videos are for informational purposes only when thinking about buying or selling a house. These are not intended to supersede any information or transaction that you may be involved in with a Broker, Lender or other Real Estate Professional.