No Place Like Home Real Estate - All About Mortgages

             MORTGAGES
      ~Information and FAQ's~

SO MANY TO CHOOSE FROM!
Though the varieties of mortgages are practically endless, they generally fall into a few basic
categories. A comparison of the two main types will make it clearer which one will best be
suited to your situation.

FIXED RATE                                                                ADJUSTABLE RATE (ARM)
(the interest rate remains the same                                (the initial interest rate is lower than fixed
through the life of the mortgage)                                  rates but will usually adjust upward after an
                                                                                          initial'fixed' period of usually one to five years)

+ Fixed monthly payment for the life of the              + Lower initial interest rate=Lower initial
    loan= Easier budgeting                                                 monthly payment

+ Your interest rate can not increase making           + Easier to qualify for due to lower initial
    your payment unaffordable                                           interest rate and payment amount

+ No anxiety over changes in interest rates             + Monthly payment may decrease if
                                                                                              interest rate declines

- More income needed to qualify because                 - If interest rate increases, your
    of higher initial mortgage rate.                                   payment will also increase.

- If interest rates decrease appreciably, it                 - A large increase in interest rates
   will be necessary to refinance to get a                        (and payment!) could make your
   lower payment.                                                               house unaffordable.

                                                                                           Common Loan Types
   • Conventional loans are "traditional' loans not directly insured by the Federal Government.
   • FHA loans are insured by (but not funded by) the Federal Housing Administration (FHA) a division of the U.S.
       Department of Housing and Urban Development (HUD), and designed for, in general, low- and middle-income
       borrowers and many first-time buyers.   FHA loans have somewhat more relaxed qualifying standards and ratios
       than conventional loans and have the availability of both 15 and 30 year fixed as well as 1 year adjustable mortgages.
• VA: For those qualified by military service, the Veterans Administration (VA) insures (but does not fund) 15 and 30 year
       fixed as well as 1 year adjustable mortgages with lower down payment requirements (as low as 0 down) and somewhat
       more lenient qualifying ratios.
• No-Document ('No Doc') loans are generally a wise choice for self-employed people, those who prefer not to verify
       their income, and those with a brief, blemished, or absent credit history. The benefits of this type of mortgage include
       a shorter application process since documentation of income, employment, and assets is not required; and a streamlined
       approval process as there is therefore little subsequent verification. However, fewer lenders offer this type of mortgage
       and those available will generally be offered at slightly higher interest rates.
• Agricultural Loan Programs offer a variety of mortgage types to assist people with low to moderate income purchase
       farms or housing in rural areas. Borrowers and properties must meet eligibility requirements but interest rates are
       generally lower and mortgages may be subsidized.

                                                                       Mortgage Terms - typically 15 , 20, or 30 years
The better your financial picture (the less risk you present to a lender) the shorter term you may qualify for. Although
the monthly payment will be somewhat higher with a shorter term, the interest savings over the life of the loan will be tremendous. Even if you do not qualify for less than a 30 year loan term, you can still realize significant interest savings
and effectively reduce the life of the loan by making additional payments.
     Example:   By making the equivalent of 13 payments in the course of a year (instead of 12) you can take almost 10
                       years off the life of a 30-year loan. An easy way to do this is to divide the regular monthly payment by 12.
(Regular payment = $1368. Divided by 12 = $114. For each monthly payment, remit $1368 + $114 for a total payment of $1482.)

                                                                       What Price House Can I Afford to Buy?
There are two 'ratio' computation methods many lenders use to determine how much money you qualify to borrow based
on your income. They are commonly known as the 'front ratio' and 'back ratio.'
$ Front Ratio:    The total mortgage payment including principal, interest, taxes and insurance (PITI) as well as any condominium
                                   or homeowner association fees divided by your total GROSS income. Traditionally this ratio must be below 28%.
               Example:    With a gross income of $3500 per month, a total mortgage payment (PITI) of $842, the front ratio would be 24%.
$ Back Ratio:     The total mortgage payment PLUS any car payments, credit card and any other loan payments divided by your
                                   total GROSS income. Traditionally this ratio must be below 36%.
                Example:   With a gross income of $3500 per month, a total mortgage payment of $842, a car loan payment of $207, a credit
                                   card payment of $69 and another credit card payment of $38 for a total of $1156 with a back ratio of 33%.
                    Click here to use the Affordability Calculator to estimate the amount of mortgage you would qualify for.

'Percent Down'
Another factor affecting the type and amount of your mortgage is the size (percentage of the price of the house) of your
'down payment.' The more of your own money you are able to use to purchase the home, the lower the interest rate you
may qualify for. A loan at a lower interest rate allows a larger amount of money to be borrowed.   However, keep in mind
your own personal budget, income, and future plans. Although a lender may 'qualify' you for up to a particular loan amount, your unique situation may well dictate a lesser amount.

What is PMI?
Private Mortgage Insurance is an insurance that most lenders require of all borrowers who put less than 20% down. It's
purpose is to protect the lender against losses should the borrower default. Nearly all conventional mortgages with less than
a 20% down payment will dictate the inclusion of PMI. The cost of PMI will depend on a number of factors, including the insurance carrier and the size of the loan. Although this may seem an unfair requirement, it does allow lenders the protection needed to make loans to people with small down payments, who would otherwise not be able to purchase a home.

Unlike the mortgage insurance on FHA loans, which remains through the life of the loan, PMI is cancelable under certain circumstances. The Homeowners Protection Act of 1998, significantly simplified the cancellation process, making it much
more "owner-friendly". With all qualifying loans that originated after July 29, 1999, a homeowner has the right to request cancellation when the mortgage balance is less than 80% of the original purchase price or appraised value, whichever is less.
In order to request cancellation, the loan must be current with no delinquencies in the last 1-2 years. In addition, an appraisal
of current value (at the homeowner's cost) may be required.

The Homeowners Protection Act also stipulates (in the case of most loans) that when the balance reaches 78%, cancellation is automatic. Again, the loan must be current for the cancellation process to begin.

Whether or not to pay POINTS
A 'point' is equal to one percent of the loan amount. Lenders may offer a lower interest rate in exchange for 'points' paid at
the initiation of the loan. There may be several options, but basically, the more points you pay up front, the more you can
'buy down' the interest rate on the mortgage. Although the calculations are complex, it is usually beneficial to pay points.
The exception is those who will only be in a property for less than three years. Ask your mortgage lender to provide you
with the figures necessary for you to make an informed decision based on your situation.

                                                          ---            --< The Final Words on Mortgages >
Carefully evaluate your own situation and determine your priorities regarding home, budget, and lifestyle will help you determine how much house to buy and what kind of mortgage to seek.
Begin to collect necessary documentation such as income tax returns, W-2's, bank statements, pay stubs, and your credit
report. You may obtain a free copy of your credit report from www.annualcreditreport.com
Cash for closing- remember, in addition to your down payment, you will need to reserve funds for closing costs. Depending
on the type of loan, these costs can range from 2-5% of the mortgage amount.
Compare- There are lots of sources for mortgage funds--be sure to make comparisons. Ask friends, relatives, or coworkers
for referrals to lenders. Consult your local bank or credit union, mortgage brokers and internet sources. Be certain to compare equal terms, down payments and loan types.

                                                   Your No Place Like Home Real Estate agent
                                      can assist you in becoming an educated mortgage shopper.