|A mortgage is the pledging of property by
a borrower to a lender as security for the payment of a debt.
This is the most general definition of a mortgage that I
was able to find. It does not explain practically anything. And it still leaves you in the
dark when financial questions come. I will try help you to acquire (or at least extend)
knowledge about mortgage and its secrets.
Here are some facts that you need to be aware when looking
for a mortgage:
- Down payment
Most loan programs require down payments of
between 10 and 20 percent of the purchase price. However, many lenders now offer programs,
government or non-government related, with requirements as little as five percent or even
- Gross income
As a general rule, lenders want the monthly
housing expenses (mortgage payments and real estate taxes) not to exceed 28 percent (in
some cases stretchable to 33 percent) of a family's gross income. If you have car
payments, long-term debts or any other outstanding obligations, these debts plus your
housing costs should not exceed 36 percent (can be sometimes stretched to 38-40 percent)
of your gross income. The standard 28/36 percent debt/income qualifying ratios are used to
determine if you qualify for a home loan.
- Right lender
You have to be aware that not every lender
with a low rate offers a good, or reliable, deal. If you pick a mortgage lender strictly
by the lowest interest rate you will most likely lose. Ask your lawyer or real estate
agent for a reputable brokers. Friend and relatives with good mortgage experiences also
can be helpful. Make sure to ask your lender about fees, processing charges and guarantees
of interest rates.
- Cost of a loan
Compare all the costs attached to the loan.
Lower interest rates may hide huge processing and service fees that don't get calculated
into the annual percentage rate.
- Loan Application Fees range from $250 to
$450, should include credit, application and appraisal fees.
- Mortgage Points - typically zero to three
percent of the loan amount.
- Loan Origination Fees - should be included
with mortgage points advertised by the lender (but always ask to make sure).
- 'Junk Fees' are hidden costs with many
names and descriptions, that can be confused with legitimate processing fees.
Along with those fees you will also have other costs
associated with the loan paid at closing or calculated into your monthly payments:
- Private mortgage insurance. If your down
payment is less than 20 percent of the home's purchase price, your lender will probably
require you to buy PMI (it protects the lender, not the buyer).
- Prepaid homeowner's insurance. Generally,
the lender requires the buyer to pay the first year's insurance premium at or before
- Lawyer's fees can range from $300 to
$1,500, but are rarely more than $500. His presence is necessary to protect your rights in
this financial transaction with many legal documents to be signed. Please make sure that
you use a real estate lawyer.
- Recording fee. Be prepared to pay more than
$250 for tax stamps. You also may have to pay a transaction tax (in Chicago it's $7.50 per
$1,000 of purchase price).
These are just major facts that you need to be aware when
you start looking for a mortgage. Most lenders will pre-qualify
you for a mortgage, what gives you time to shop around for best rates and features without
the pressure of a closing date. Also, most lenders will guarantee the agreed upon rate up
to 60 days even if rates increase. As for current rates you can check Weekly Mortgage Rates. For
information on different types of loans please visit Mortgage Types section. It would be also good if you'd
take a look at Mortgage Terminology.
You can even pre-calculate your payments using a Calculator. And if there are any questions left please do
not hesitate to ask them - e-mail me or contact in any other way listed on Contact Me page.