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Mortgage Basics What You Should Know
Dated: July 13 2018
In the mortgage world there are a few different elements of that are important to understand before moving forward in financing process. You already know stuff like interest rates and what your payment and interest payments are, but there are other things that might not be quite so well settled in your mind. Most homeowners have questions about the following mortgage related definitions:
Loan features. When you get a mortgage, it often has other stuff that comes with it. After all, this isn’t the same as borrowing money from your mom, banks have fancy lawyers who make sure they earn their keep. You may notice features like “assumability” and “prepayment penalty” listed on your initial loan form.
Assumable loans are loans that you can literally transfer to another person when they buy your house. This is useful when interest rates are climbing, sometimes people will pay more for a lower interest rate mortgage they can take over.Prepayment penalties are very bad and you don’t want this. Basically, you’re punished for paying your loan off early. Typically, they’re part of subprime lending, but you never know when one might pop up elsewhere. Since “prepayment” includes the payoff from selling your home, there’s no winning with this one.
Mortgage insurance. There’s been a lot of talk about mortgage insurance, both for better and worse. To put it simply, mortgage insurance makes it possible for you to bring a downpayment as little as about three percent to closing with FHA or conventional type mortgages. It’s a type of insurance that you pay for in case you were to default on the loan. If you do, the insurance company pays out your coverage to your bank, reducing the amount you may be responsible for if the house can’t bring enough at the foreclosure sale to cover your remaining note.
Down payment. Down payments are your initial investment in your home. Many times, home buyers are surprised to see that they have to bring both closing costs and a down payment, having assumed the two were the same. The down payment goes to the bank as proof of your commitment. We’ll get to closing costs.
Closing costs. Closing costs are the bane of buyers everywhere. They can seriously mount as things like appraisals, title insurance, fees to the bank (separate from your down payment) and prepaid items like taxes and homeowner’s insurance add up. Some programs will allow you to ask the seller to pay these on your behalf, but the amount you can ask for is limited to a percentage of the sales price and based on the program you’re using. For many homeowners, closing costs will be similar in price to their down payment, which is where the confusion typically starts.
As a Realtor, my first priority is to make my clients happy. I listen to my clients wants and needs to achieve the best outcome in every transaction and I strive to ensure that the home buying or sell....